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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 4th, 2013

Crude oil:

July WTI crude oil lost 14 cents on volume of 708,400 contracts. Open interest declined by 6,261 contracts, which relative to volume is approximately 55% less than average. The Energy Information Administration said that stocks of crude oil declined by 7.792 million barrels, and the net effect of this is that July crude oil is trading 75 cents higher and has made a high of $94.48. This is 7 cents above the June  4 high of 94.41. For the past 4 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:

July Brent crude oil gained $1.18 on very heavy volume of 847,598 contracts. Volume was the highest since May 8 when 853,256 contracts were traded. On June 4, open interest increased by 12,336 contracts, which relative to volume is approximately 40% less than average. For the past 2 days beginning on June 3, price and open interest have increased, which is atypical for Brent during the past couple of months. Additionally, it is on the cusp of generating a short-term buy signal, but Brent has been close to doing this on a number of occasions. Even if Brent generates a short-term buy signal, we would not recommend bullish positions due to the precarious nature of the equity market.

Heating oil:

July heating oil gained 3.15 cents on volume of 137,971 contracts. Open interest declined by 1,962 contracts, which relative to volume is approximately 40% less than average. For the past 2 days, heating oil has advanced and open interest has declined. This is bearish open interest action relative to the price advance. The Energy Information Administration announced that distillate stocks have increased 241,000 barrels. On May 31, July heating oil generated a short-term sell signal and it remains on an intermediate term sell signal. Since that time, heating oil has rallied for 3 days, which is a standard countertrend rally after a sell signal is generated. Do not buy into this rally.

Gasoline:

July gasoline advanced 3.31  cents on light volume of 115,030 contracts. This is the 3rd day in a row that volume has been between 115,030-115,986. On June 4, open interest increased by 3,609 contracts, which relative to volume is approximately 20% above average. The Energy Information Administration announced that gasoline stocks declined by 1.334 million barrels. For the past 2 days, gasoline has rallied 6.33 cents while open interest has advanced only 1,427 contracts, which relative to 2 day's volume is approximately 70% below average. Even though gasoline is in its strong seasonal period, there is little enthusiasm for it on the long side. Additionally, July gasoline's 50 day moving average of $2.83 has crossed below its 200 day moving average of 2.86. Though gasoline remains on a short-term buy signal and an intermediate term sell signal, we cannot recommend long positions.

Natural gas:

July natural gas closed essentially unchanged (+7 ticks) on very light volume of 184,724 contracts. It appears that volume on June 4 was one of the lowest, if not the lowest volume day of 2013. Since generating a short-term sell signal on May 31, when July natural gas closed at $3.984, it has been trading sideways. Natural gas is vulnerable to more downside action, especially if the equity market correction turns into something ugly. We are friendly to the market, but it appears that natural gas has more work to do at the lower end of its trading range, before it can mount a sustainable rally.

Soybeans:

July soybeans lost 3.75 cents on light volume of 133,329 contracts. Volume declined approximately 64,000 contracts from June 3 when soybeans advanced 22.50 cents and open interest increased 3,357 contracts. On June 4, open interest increased 2,266 contracts, which relative to volume is approximately 30% less than average. The July contract accounted for loss of 3,745 of open interest. As this report is being compiled, July soybeans are trading 11.75 cents higher and have made a new high for the move at $15.49, which has taken out the high of 15.46 3/4 made on May 23. The advance in soybeans has been a stealth move and managed money remains on the sidelines. The average daily volume for May 2013 was 160,132 contracts and year to date average daily volume is 186,815 contracts. During the rallies of May 31 and June 3 of 14.25 and 22.50 cents respectively the volume average for those 2 days was only 204,769 contracts. Or somewhat more than 10% above average daily volume year to date. We think it is highly likely that managed money will move into the long side of soybeans, but this will most likely signal that a top has been made. Do not short this market.

From the June 2 Weekend Wrap:

"We think soybeans are headed significantly higher and will shortly take out the high of $15.46 3/4 made on May 23. For a time, we thought the high made on May 23 was a likely top due to the parabolic nature of the move. However, we have changed our mind. There is money on the sidelines which can easily move into soybeans once they take out the May 23 high. Soybeans have a strong tendency to make their seasonal high in June. On May 9, OIA announced that soybeans generated a short-term buy signal and on May 21 generated an intermediate term buy signal. Do not short this market."

Soybean meal:
    
July soybean meal lost $1.90 on volume of 63,395 contracts. Open interest increased by 2,571 contracts, which relative to volume is approximately 55% above average. The July contract lost 3,275 of open interest, which makes the total open interest increase that much more impressive. As this report is being compiled on June 5, soybean meal is trading $6.10 higher and has made a new high for the move at $462.00, which is the highest price for soybean meal on the continuation chart since December 17, 2012 when the high was $462.00. Do not short this market.

From the June 2 Weekend Wrap:

"We think meal has much farther to go on the upside and the tightness in beans coupled with significant demand in soybean meal is setting up a potential blow off move. As it stands, July soybean meal is trading at its highest level since September 2012 and the high occurred on September 14 when July meal reached $465.70. On the continuation chart, soybean meal must break above the May 14 high of $460.10, for the move to continue. We expect this to occur shortly."

Corn:

July corn advanced 4.75 cents on volume of 214,200 contracts. The December 2013 contract lost 7.00 cents. Volume shrank dramatically from June 3 when 294,255 contracts were traded and July soybeans lost 6.25 cents while open interest declined 12,873 contracts. On June 4, open interest declined by 356 contracts, which is minuscule and dramatically below average. The July contract accounted for loss of 8,803 of open interest. We continue to think that corn will work its way higher and break above $6.70. Do not short this market.

Wheat:

July wheat gained 0.25 cents on heavier than normal volume of 119,606 contracts. Open interest increased by 1,624 contracts, which relative to volume is approximately 40% less than average. The July contract lost 6,798 of open interest, which makes the total open interest increase that much more impressive. During the past 3 sessions beginning on May 31, wheat prices have advanced each day and the average daily volume for the three-day period is 120,425 contracts. This compares to the average daily volume in May 2013 of 85,123 contracts and average daily volume year to date of 109,815 contracts. In other words, wheat prices are advancing on heavier than normal volume. Although wheat remains on a short and intermediate term sell signal, it is on the cusp of generating a short-term buy signal. Another positive factor is that managed money is heavily net short, which will only add fuel to the rally. Like others in the grain complex, we recommend against shorting wheat.

Cotton:

July cotton gained 2.20 cents on heavy volume of 57,364 contracts. Volume was the heaviest since April 12 when 57,443 contracts were traded. On June 4, open interest increased by 1,847 contracts, which relative to volume is approximately 20% above average. The July contract, which holds approximately 50% of the outstanding open interest lost 1,596 contracts. The new crop December contract saw an open interest increase of 3,157. Considering the magnitude of the move (for a brief time, cotton was trading 4 cents higher), total open interest increase was unimpressive. During the past 2 days, cotton has advanced 5.20 cents while open interest has increased only 453 contracts. Again, this is a sign there has been a fair amount of liquidation on the advance. With a good chunk of speculative short interest likely to have liquidated, there will be diminished buying pressure on the upside. Another important factor is that the equity market is rolling over and this undoubtedly will negatively impact cotton prices.

Platinum:

It appears likely that July platinum will generate a short-term buy signal on June 5.
If platinum generates a short-term sell signal on June 5 as we expect, a pullback of 1-2 and possibly 3 days is likely. We will begin coverage on platinum.

Australian dollar:

The Australian dollar lost 1.18 cents on heavy volume of 170,934 contracts. Open interest declined by 2,369 contracts, which relative to volume is approximately 40% less than average. The open interest gained on June 3 of 2,016 contracts was lost on June 4. As this report is being compiled on June 5, the Australian dollar is trading 1.05 cents lower and has broken through the previous low of 95.15 made on May 29. Maintain the short call position recommended on April 29 and 30.

Euro:

The June euro closed essentially unchanged (+9 ticks) on volume of 230,430 contracts. Open interest declined by 9,549 contracts, which relative to volume is approximately 55% above average.We should begin to see declines of open interest on a daily basis because the June contract is about to expire.The euro remains on a short and intermediate term sell signal.

S&P 500 E mini:

The S&P 500 E mini lost 5.00 points on volume of 2,217,454 contracts. Open interest declined by 37,188 contracts, which relative to volume is approximately 35% less than average. We have been recommending long put protection and as this report is being compiled on June 5, the S&P 500 E mini is trading 24.75 points lower.

From the May 28 report:

"After making its high of 1685.75 on May 22, the E mini has been trading in a distinctly different pattern. Yesterday's high of 1672.75 appears to be the secondary high in a market that is correcting. We continue to advise long put protection because we think the long side of equities is being played out for now."

By Garry Stern




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