Volume and open interest analysis for April 16, 2013.
May soybeans advanced 16.50 cents on volume of 226,590 contracts. Open interest increased by a minuscule 254 contracts. The May contract accounted for a loss of 12,579. It was positive to see a total open interest increase, but the market had been struggling (until today) when it reached the 14.19 level. Despite this, the market is firm, and near term tightness continues as May soybeans approach first notice day. Soybeans remain on a short and intermediate term sell signal. Stand aside.
May corn gained 16.50 cents on volume of 257,012 contracts. Open interest declined by 14,054 contracts, which relative to volume is approximately 120% above average, meaning that liquidation was extraordinarily heavy as corn prices moved higher. This is bearish open interest action relative to the price advance. The May contract accounted for loss of 19,303 of open interest. Corn remains on a short and intermediate term sell signal. Stand aside.
May wheat gained 9.75 cents on volume of 94,475 contracts. Volume was the lightest since March 27, 2013 when 83,238 contracts were traded when wheat advanced 5.25 cents and open interest declined 5,363 contracts. On April 16, open interest declined 3,185 contracts, which relative to volume is approximately 35% above average, meaning that longs and shorts were liquidating as the market moved higher. Wheat remains on a short and intermediate term sell signal. Stand aside.
May WTI closed unchanged on heavy volume of 733,796 contracts. Open interest declined 15,078 contracts, which relative to volume is approximately 20% less than average. The open interest decline was the largest since March 19, 2013 when crude oil declined $1.59 and open interest declined 30,003 contracts on volume of 680,198 contracts. Crude oil made a new low for the move at $86.06 which is the lowest price since November 7, 2012 when crude made a low of $86.89. In previous reports, we discussed that the high long to short ratio of managed money would be the catalyst for further liquidation. The open interest decline on April 16 may be the first indication that longs are beginning to bail out.
From the April 14 Weekend Wrap:
“Interestingly, the current long to short ratio is nearly the same as it was 2 weeks ago. Two weeks ago, on March 26 (COT tabulation date) June crude oil closed at $96.45, which is $2.00 above the close on April 9. In order to provide some historical perspective, the long to short ratio was 3.50:1 when crude oil made its low of $90.23 in early March 2013 and 3.44:1 on March 12. Taking a look farther back to late November-to mid December 2012, the long to short ratio got as low as 1.86:1 on December 11 2012. In this time frame, crude oil traded in a range between $88.00 and 91.00. Based upon the current set up in WTI, it certainly appears that much more liquidation is ahead, especially by managed money.”
June heating oil lost 1.97 cents on light volume of 134,011 contracts. Volume increased approximately 3,000 contracts from April 15 when heating oil declined 4.41 cents and open interest increased 2,837 contracts. On April 16, open interest declined 5,049 contracts, which relative to volume is approximately 50% above average, meaning that liquidation was heavy. During the past 5 days beginning on April 10, heating oil has fallen 15.83 cents while open interest has declined by 16,647 contracts. While this is bullish open interest action relative to the price decline, heating oil remains on a short and intermediate term sell signal. On the continuation chart, the 50 day moving average is about to cross below the 200 day moving average, which is confirmation of the perennial weakness of heating oil. Stand aside.
June gasoline gained 1.34 cents on volume of 176,478 contracts. Volume increased approximately 39,000 contracts from April 15 when gasoline lost 4.94 cents and open interest declined 1,365 contracts. On April 16, open interest declined by 1,212, which is approximately 65% below average.
As we said in the April 15 report: “Declining volume for 2 days after seeing a 7.95 cent slide in prices may signify a major bottom.” “Additionally, we saw open interest decline on both of days,which shows that participants were liquidating.” On April 16, gasoline made a new low for the move at $2.7069 and as this report is being compiled on April 16, gasoline has made a new low at $2.7038. It is difficult to know at this juncture whether the bottom is temporary or a major low. However, gasoline remains massively oversold, and a rally to the $2.88-2.92 level should be expected. Gasoline has declined over 40 cents during the past 12 trading sessions, and the summer driving season begins after Memorial Day. As we pointed out in the April 14 Weekend Wrap, the long to short ratio in gasoline is at major lows when comparing it to previous periods when gasoline prices were at current levels. Gasoline remains on a short and intermediate term sell signal. Stand aside.
May natural gas gained 2.3 cents on light volume of 426,321 contracts. Open interest increased by 4,833 contracts, which relative to volume is approximately 55% below average. The market has remained remarkably firm despite the sharply lower commodity complex and an equities market that continues to weaken. Tomorrow, is the natural gas storage report, and this will likely set the direction for natural gas prices for the rest of the week. Although the fundamentals are improving substantially, as we have said in previous reports, the natural gas play is becoming a crowded trade. A setback to $3.93-3.99 would be healthy for the market, especially if open interest had a hefty decline. Natural gas remains on a short and intermediate term buy signal. Previously, we have advised those holding long positions in futures and options to write out of the money calls, and this strategy continues to work. We would not enter new positions at current levels.
May copper gained 3.25 cents on heavy volume of 114,375 contracts. Open interest declined by 2,192 contracts, which relative to volume is approximately 25% below average. On April 15, May copper made a low of $3.1935, and on April 17 has violated that low at $3.1755. May copper dipped to its lowest level since October 2011 on April 16. In yesterday’s report, we thought it was possible that copper had found a temporary bottom, but the commodity complex is becoming increasingly bearish, as managed money liquidates en masse. The fact that copper was unable to mount more than a modest to one-day rally underscores its weakness. Copper remains on a short and intermediate term sell signal. Stand aside.
June gold advanced $26.30, and made a high of $1404.20. Open interest declined on the advance by 13,639 contracts, which relative to volume is approximately 20% above average. Interestingly, the open interest decline on April 16 was approximately 4 x greater than on April 15 when June gold lost $140.30. There is support at the 1309.00 level made on January 28, 2011 which holds through September 2010. However, much damage has been done to the chart and it is going to take time to repair it.
As we stated in the Weekend Wrap of April 14, the precious metals now have the label of a bear market. This mindset is going to overhang gold for quite a while, which will put it on the defensive. We see a retest of the low ($1321.50) and it will be important to see how gold behaves when it approaches this low. Gold remains on a short and intermediate term sell signal. Stand aside.
May silver gained 26.7 cents on huge volume of 138,104 contracts. Open interest declined by a massive 5,113 contracts, which relative to volume is approximately 50% above average. The open interest decline on April 16 was approximately 5.5 x the open interest decline on April 15 of 916 contracts.
May silver made a low of $22.00, which is its lowest price since October 2010. Looking at the chart for 2010, there is not much support until silver reaches the $19.00 level. Gold and silver speculators in futures and options on futures should not attempt to pick a bottom. We think it is inevitable that silver will retest the $22.00 low, and continue to advise clients to stand aside until the carnage has passed. This could take longer than most people think.
The Australian dollar gained 62 points on heavy volume of 152,924 contracts. Open interest declined by a massive 9,245 contracts, which relative to volume is approximately 135% above average, meaning that liquidation was extraordinarily heavy on the price advance. This is bearish. In yesterday’s report we stated: “We would use setbacks as an opportunity to get long and the April 15 low of 1.0240 should be used as an exit point for all long positions.”
However, on April 17, the Australian dollar is trading 82 points lower and has broken through the recommended exit point of 1.0240. All currencies are down sharply, which is giving a sizable bid to the dollar index. We think there may be a little bit more downside in the Australian dollar, but it remains on a short and intermediate term buy signal. One of our concerns is that the 50 day moving average has crossed below the 200 day moving average, which is a bearish indicator. We recommend that clients move to the sidelines until we get a clearer picture of the market.
The June euro gained 1.51 cents on volume of 317,949 contracts. Open interest declined by 3,302 contracts, which relative to volume is approximately 50% less than average. The June euro made a high of 1.3208 which is the highest price since February 25. The dollar index generated a short-term sell signal on April 15, and usually after the generation of a sell signal, the market tends to have a countertrend rally. In yesterday’s report, we thought the June euro would generate a short-term buy signal on April 17, but this has been negated by today’s action. We are bullish the dollar and bearish the euro, but until the dollar index reverses the short-term sell signal, or the euro generates a short-term buy signal, we recommend a stand aside position. Since the dollar index declined beginning on April 4 through April 16, open interest has declined 9,849 contracts, which is bullish open interest action relative to the price decline.
S&P 500 E mini:
The June S&P 500 E mini gained 25.25 points on volume of 2,266,568 contracts. Open interest increased by a minuscule 2,493 contracts. The number of stocks trading above their 50 day moving average advanced to 1,269 on April 16 from 1,063 on April 15. We continue to recommend writing calls that are significantly out of the money when the E mini rallies, coupled with a purchase long calls that are further out of the money. A more risky approach is to short out of the money calls. As this report is being compiled on April 17, the E mini is trading 24.25 points lower and has made a new low for the move at 1538.00.We anticipate further declines in the weeks ahead.
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