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Open Interest Analyst

Open Interest Analyst

Garry SternGarry is the founder of openinterestanalyst.com (OIA), a website dedicated to analysing the interaction between price, volume, and open interest (P-V-OI). After consistently applying…

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Commodity Update: Open Interest Analysis for June 3rd, 2013

Crude oil:

July WTI crude oil gained $1.48 on volume of 642,594 contracts. Open interest declined by 8,348 contracts, which relative to volume is approximately 45% less than average. For the past 3 trading sessions beginning on May 30, we are seeing bearish price and open interest action. In short, when crude oil advances open interest goes down and when it declines, open interest goes up. We are bearish crude oil and speculators should look to position themselves accordingly. Additionally, it is becoming apparent that the equity markets are rolling over, and we expect this to negatively affect the entire petroleum complex. For the July contract, the 50 day moving average is about to move below the 200 day moving average.

Brent crude oil:

Brent crude oil gained $1.67 on volume of 651,093 contracts. Volume on June 3 was the highest since May 16 when 671,351 contracts were traded. On June 3, open interest increased by 10,503 contracts, which relative to volume is approximately 35% less than average. June 3 was the first time since May 16 that Brent prices advanced and open interest increased. As this report is being compiled on June 4, July Brent is trading is trading $1.13 higher and WTI is trading 8 cents higher. Brent remains on a short and intermediate term sell signal.

Heating oil:

July heating oil advanced 5.20 cents on volume of 139,400 contracts. Open interest declined by 1757 contracts, which relative to volume is approximately 45% less than average. Heating oil remains on a short and intermediate term sell signal.

Gasoline:

July gasoline gained 3.02 cents on light volume of 115,986 contracts. Interestingly, volume was almost the same on May 31 when 115,135 contracts were traded and gasoline declined 5.24 cents while open interest declined by 4,561 contracts. In short, there doesn't seem to be much participation regardless of the direction of the market. Gasoline remains on a short-term buy signal but an intermediate term sell signal.

Natural gas:

July natural gas closed almost unchanged (+7 ticks) on very light volume of 215,970 contracts. Open interest declined by a hefty 8,154 contracts, which relative to volume is approximately 50% above average, meaning that liquidation by longs and shorts was fairly heavy. It is very positive that we have not seen a build of open interest on declines. This indicates that market participants are reluctant to get bearish at current levels. We continue to advocate writing puts in the May 2014 contract that are significantly out of the money. The benefit is that if natural gas prices trade in a sideways pattern for an extended period of time, the put option writer benefits from the time decay. However, if the market rallies, the put writer will make money at a faster rate. Natural gas has solid support at the $3.80-3.82 level, which is the 200 week moving average.

Soybeans:

July soybeans gained 22.50 cents on volume of 197,801 contracts. Volume declined from May 31 when 211,738 contracts were traded while open interest increased 12,157 contracts and July soybeans advanced 14.25 cents. Total open interest increased by 3,357 contracts, which relative to volume is approximately 35% less than average. The July contract accounted for loss of 3,469 of open interest, which makes the total open interest increase that much more impressive. Although July soybeans did not break above the high of 15.46 3/4 made on May 23, it closed at $15.32 1/2, which is the highest close November 1, 2012 on the continuation chart. As this report is being compiled on June 4, soybeans are trading 4.75 cents lower. For the past 4 days beginning on May 29, soybean prices and open interest have been trading in a positive congruent pattern. We continue to think the market will take out the May 23 high and believe soybeans will firm up considerably as first notice day approaches for the July contract at the end of June.

Soybean meal:

July soybean meal advanced $7.20 on volume of 66,803 contracts. Open interest increased by 1,202 contracts, which relative to volume is approximately 25% less than average. The July contract accounted for loss of 3,630 of open interest, which makes the total open interest increase that much more impressive. The July contract made a new high for the move at $458.20, which took out the May 23 high of $451.40. Additionally, July meal closed at $454.40, which is the highest close May 13 on the meal continuation chart.beans, we think meal will continue to advance.

Corn:

July corn lost 6.25 cents on volume of 294,255 contracts. Volume increased by approximately 22,000 contracts from May 31 when corn advanced 7.75 cents and open interest increased by a massive 14,901 contracts. On June 3, open interest declined by 12,873 contracts, which relative to volume is approximately 60% above average. The July contract accounted for loss of 11,406 of open interest. The open interest gained on May 31 was lost on June 3. However, this is positive congruent open interest and price action. On June 3, July corn made a high of $6.69, and this area has been formidable resistance. As this report is being compiled on June 4, corn is trading unchanged on the day. We continue to think that corn will trade above $6.69 and advise speculators to refrain from shorting the market.

Wheat:

July wheat gained 3.25 cents on heavy volume of 131,893 contracts. Volume increased approximately 22,000 contracts from May 31 when wheat advanced 6.75 cents and open interest increased 4,108 contracts. On June 3, open interest increased by a massive 7,044 contracts, which relative to volume is approximately 100% above average, meaning that new longs and shorts were heavily entering the market, but the longs had the edge and were able to move prices higher. Making the total open interest increase more impressive was the fact that July lost 923 of open interest. There has been much in the news regarding genetic modified wheat, but this has had little impact on the Chicago wheat market. We suspect the buying of the past 2 days has been by commercial interests rather than speculators. On June 2 in the Weekend Wrap, we advised that short call positions in the July option be liquidated.

Cotton:

 July cotton moved up the 3 cent limit on surprisingly light volume of 36,220 contracts. To put the volume in perspective consider that on May 31, 31,299 contracts were traded and July cotton lost three-quarters of a cent (77 points). The range for the day was 1.26 the cents compared to the 3.04 cent range on June 3. On June 3, open interest declined by a heavy 1,394 contracts, which relative to volume is approximately 50% above average, meaning there was heavy liquidation on the advance. As this report is being compiled on June 4, cotton has rallied sharply and is trading 2.50 cents higher and has made a new high for the move at 86.38. First notice day for the July contract is June 24, and the kind of fireworks being seen on June 4 is not unusual as expiration of the contract approaches. The December contract is up only 88 points and has made a high of 86.41. We continue to think the market is headed lower and bearish positions should be held.

Australian dollar:

The Australian dollar advanced 1.83 cents on heavy volume of 166,437 contracts. Surprisingly, open interest increased by 2,016 contracts, which relative to volume is approximately 45% less than average. Although the increase was a minor, it indicates that participants who were short the Australian dollar did not get shaken out by the huge move on June 3. We are bearish the Australian dollar, but the fact that shorts did not get shaken out is a bit of a concern, especially since the advance was one of the largest of the past several months. As this report is being compiled, the Australian dollar has reversed and is trading 1.33 lower.

Euro:

The June euro gained 90 points on volume of 303,157 contracts. Open interest declined by 881 contracts, which is minuscule and dramatically below average. Despite the move higher, the euro has not yet generated a short-term buy signal, and remains on an intermediate term sell signal. The dollar index remains on a short and intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini gained 7.25 points on volume of 2,575,918 contracts. Open interest declined by 18,438 contracts, which relative to volume is approximately 65% below average. Long put protection is advised, especially for those who hold long equity positions.

By. Garry Stern




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