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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 May 13th, 2013

Soybeans:

July soybeans gained 20.25 cents on volume of 123,933 contracts. Open interest increased by 1,084 contracts, which relative to volume is approximately 50% below average. The May contract accounted for loss of 1,435 of open interest. On May 9, July soybeans generated a short-term buy signal, but remains on an intermediate term sell signal. We have seen positive open interest action on 3 occasions when soybean prices rose (May 8, May 9 May 13). In our view, soybeans should be traded from the long side and as we said in the May 10 report, soybeans have a seasonal tendency to top out in May, June, or July with June being the month when most highs have been made. Although we are not terribly enthusiastic about the potential upside move, we advise against shorting the market at this juncture.

 Soybean meal:

July soybean meal gained $8.30 on volume of 55,882 contracts. Open interest increased by a massive 2,803 contracts, which relative to volume is approximately 100% above average, meaning that new longs were piling into the market aggressively and pushing prices higher. The total open interest increase is much more impressive considering that the May contract lost 649 of open interest. Since generating a short-term buy signal on May 9, open interest and price has been acting in a bullish congruent fashion. Like soybeans, we feel the upside in soybean meal may be limited, but do not short the market.

Corn:

July corn gained 19.25 cents on heavy volume of 307,826 contracts. Open interest increased by 5,433 contracts, which relative to volume is approximately is 30% less than average. The May contract accounted for loss of 1,196 of open interest, thereby making the total open interest increase more impressive. Despite the fact that total open interest was below average, it was the first time since May 7 that open interest increased on a price advance. On May 7, July corn advanced 3.50 cents but open interest increased only 190 contracts on volume of 197,791 contracts. Prior to May 7, the previous time that open interest increased on a price advance occurred on April 19 when July corn advanced 3.25 cents and open interest increased 1,204 contracts on volume of 208,570 contracts. The point being made here is that increases of open interest on price advances have been fairly rare, at least during the past month. June. On May 3, July corn generated a short-term buy signal, but remains on an intermediate term sell signal. Like soybeans and soybean meal, we feel the upside in corn is relatively limited and therefore are not terribly enthusiastic about initiating long positions at current levels. All of this is subject to revision based upon a major change in weather.

Wheat:

July wheat gained 5.50 cents on volume of 89,952 contracts. Open interest declined by 4,402 contracts, which relative to volume is approximately 100% above average meaning that liquidation was extremely heavy on the price advance. The May contract accounted for loss of 34 of open interest. During the two recent sessions that wheat advanced (May 9, May 13), open interest has declined significantly above average. According to the latest COT report, managed money remains short wheat,, and this may in part explain the liquidation on price advances. On May 2, July wheat generated a short-term buy signal, but remains on an intermediate term sell signal. Like the rest of the grain complex, we feel that wheat can advance, but will be limited at this juncture. If it turns out that the upcoming harvest is much less than anyone anticipated, we can expect wheat prices to advance strongly.

Coffee:

July coffee gained 1.30 cents on volume of 21,663 contracts. Open interest declined by a massive 1,801 contracts, which relative to volume is approximately 230% above average, meaning that liquidation was extremely heavy on the price advance. The recent COT report shows that managed money remains net short, which is positive for those looking to enter long positions. On May 8, July coffee generated a short-term buy signal, but remains on an intermediate term sell signal. However, coffee is not far from generating an intermediate term buy signal. The market has been trading in a very firm manner ever since the short-term buy signal was generated. We want to see the market pull back approximately 2 cents before recommending the initiation of bullish positions. We recommend the use of options on futures, which allows speculators to weather the occasional sharp move lower. Also, using options allows speculators to better control risk by calibrating this based upon the strike price.

Crude oil:

June WTI crude oil lost 87 cents on volume of 627,860 contracts. Open interest declined by 6,948 contracts, which relative to volume is approximately 50% below average. On May 6, June crude oil generated a short and intermediate term buy signal. It appears that crude oil is in a trading range bound by $97.00 and 92.71. We recommend that clients stand aside.

Brent crude:

June Brent crude lost $1.09 on volume of 620,921 contracts. Open interest increased by 6,003 contracts, which relative to volume is approximately 50% less than average. Note that WTI prices declined and open interest declined, whereas Brent crude declined but open interest increased. This confirms the essential bullish slant of WTI versus Brent. Brent crude remains on a short and intermediate term sell signal, which is a cautionary sign for WTI bulls. Stand aside.

Heating oil:

June heating oil lost 1.52 cents on volume of 127,364 contracts. Open interest declined 1,984, which relative to volume is approximately 35% less than average. On May 7, June heating oil generated a short-term buy signal, but remains on an intermediate term sell signal. The 50 day moving average for the June chart is $2.93, and the market is going to have to trade above 2.95 for the rally to have legs. We recommend a stand aside position in heating oil. The market must hold support at 2.8535, which is the low for May 10.

Gasoline:

June gasoline lost 3.93 cents on volume of 123,692 contracts. Open interest declined by 3,865 contracts, which relative to volume is approximately 20% above average, which is healthy for a market that declined nearly 4 cents. On May 10, gasoline declined 2.48 cents and open interest declined by 2,255 contracts, which is also positive. On May 9, gasoline advanced 3.13 cents and open interest increased by 5,726 contracts, which relative to volume was 55% above average. In short, gasoline has been acting in a bullish congruent fashion for the past 3 trading sessions. As this report is being compiled on May 14, gasoline is trading 1.64 cents higher. Despite the positive price and open interest action, gasoline remains on a short and intermediate term sell signal. Gasoline should find resistance at the 200 day moving average of $2.88 and the 50 day moving average of 2.92. Stand aside.

Natural gas:

June natural gas gained 1.5 cents on light volume of 274,655 contracts. Open interest declined by 9,647 contracts, which relative to volume is approximately 40% above average, which means that liquidation was fairly heavy. We've seen an orderly price decline in natural gas which has been accompanied by a decline in open interest. This is bullish congruent price and open interest action. On May 3, June natural gas generated a short-term sell signal, but remains on an intermediate term buy signal. We are friendly to natural gas, but feel the market needs to do some more work on the downside, and our target is $3.80-3.83. If temperatures begin to rise, we could see increased drawdowns in stocks, which is bullish for natural gas. We think that natural gas in a long-term bull market.

Australian dollar:

The June Australian dollar lost 54 points on volume of 113,414 contracts. Open interest increased by 2,411 contracts, which relative to volume is approximately 20% below average. For the past 6 sessions beginning on May 6, the price of the June Australian dollar has declined and open interest has declined each day. On April 23, OIA announced that the June Australian dollar generated a short and intermediate term sell signal. Furthermore, we recommended that clients short out of the money calls on April 29 and 30. This trade has been working well and the position should continue to be held.

Euro:

The June euro declined 13 points on volume of 213,789 contracts. Open interest declined by 2,600 contracts, which relative to volume is approximately 50% less than average. The euro is within a day or two of generating a short-term sell signal. It is already on an intermediate sell signal.

S&P 500 E mini:

The S&P 500 E mini gained 1.25 points on light volume of 1,340,691 contracts. Open interest declined by 5,951, which relative to volume is 75% less than average. As this report is being compiled on May 14, the S&P 500 E mini is trading 16.75 points higher and has made a new high for the move at 1648.75. Despite the continued move higher, we suggest that out of the money puts be purchased, especially for those who hold long equity positions.

By. Gary Stern




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