Volume and open interest analysis for April 19, 2013.

Soybeans:

July soybeans lost 7.50 cents on very light volume of 142,910 contracts. Open interest increased by 8,915 contracts, which relative to volume is approximately 140% above average meaning that new shorts were entering the market and driving prices lower. The May  contract accounted for loss of 2,040 of open interest. For the past 2 days, open interest has been acting in a bearish fashion relative to the price advance on April 18 and the price decline on April 19. As this report is being compiled on April 22, July soybeans are trading 23.00 cents lower. In the Weekend Wrap of April 21, we pointed out that the July-August contracts for soybeans, soybean meal and soybean oil had inverted. We interpret this as a bullish sign, however this does not preclude the market from trading lower. On the other hand, soybeans remain on a short and intermediate term sell signal, which means that clients should stand aside.

Corn:

July corn gained 3.50 cents on volume of 208,570 contracts. Open interest increased by 1,204 contracts, which relative to volume is approximately 60% below average. The May contract accounted for loss of 11,552 of open interest. As this report is being compiled on April 22, corn is trading 9 cents lower and has made a low of $6.18 1/4. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

July wheat gained 6.25 cents on volume of 93,224 contracts. Open interest declined by 1,519 contracts, which relative to volume is approximately 35% less than average. Wheat remains on a short and intermediate term sell signal. Stand aside.

Crude oil:

June WTI  gained 27 cents on light volume of 527,509 contracts. Volume was the lightest since April 11 when 498,076 contracts were traded and crude oil declined $1.13 while open interest increased by 6,133 contracts. On April 19, open interest declined by a massive 17,447 contracts, which relative to volume is approximately 35% above average, which indicates that liquidation was occurring at a massive rate  due to the expiration of the May contract, which lost 28,584 of open interest. As we pointed out in the April 21 Weekend Wrap, we see more liquidation ahead in crude.  However, the market is massively oversold and a rally to 90.51, and possibly as high as 91.98 is probable. Brent crude gained 52 cents on light volume of 501,292 contracts. Volume was the lightest since April 1 when 293,047 contracts were traded. Open interest fell 4,087 contracts, which relative to volume is 55% below average. Both WTI and Brent are on short and intermediate term sell signals. Stand aside.

Heating oil:

June heating oil gained .0075 on very light volume of 109,943 contracts. Volume was the lightest since March 28 when 104,491 contracts were traded. On April 19, open interest increased by 2,879 contracts, which relative to volume is average. The May contract accounted for a loss of 7,142 of open interest, which makes the total open interest increase that much more impressive. From April 18, through April 19, open interest has increased while prices have advanced. Additionally, heating oil has been outperforming gasoline, although gasoline is outperforming heating oil on a year to date basis. As this report is being compiled on April 22, June heating oil is trading 1.64 cents higher and June gasoline is about unchanged. Despite the positive performance for the past 2 days, heating oil remains on a short and intermediate term sell signal. Stand aside.

Gasoline:

June gasoline gained 1.31 cents on very light volume of 117,405 contracts. Volume was the lightest since April 1 when 112,861 contracts were traded. On April 19, open interest declined by a massive 6,275 contracts, which relative to volume is approximately 115% above average, meaning that liquidation was extraordinarily heavy on the price advance. This is bearish open interest action relative to the price increase. As we stated in the April 21 Weekend Wrap, participation by managed money is at historically low levels, and we believe this sets the stage for a move higher. We think crude oil is due for more liquidation, and this could likely take gasoline down with it. However, much of the selling pressure in gasoline has dissipated due to the significant amount of liquidation by managed money. Preferably, we would like to see a test of the low made on April 18 of $2.6979. If this supports, and gasoline begins to show independent strength, we likely could see the resumption of the bull trend. Based on our calculations, a rally to the $2.91-2.97 level would be realistic. The 50 day moving average for the June contract stands at $3.03, and a rally to this level cannot be ruled out.

Natural gas:

June natural gas closed unchanged on very light volume of 313,903 contracts. Volume was the lowest since April 17 when 311,438 contracts were traded and natural gas advanced 5.4 cents while open interest increased by 4,786 contracts. On April 19, open interest declined by 2,767 contracts, which relative to volume is approximately 50% below average. The May contract accounted for loss of 18,902 of open interest due to its expiration. Open interest increased from the June 2013 through January 2015 contracts and the only exception to this was the March 2014 contracts which lost 359 of open interest. Despite the open interest increases in the forward months, these were unable to overcome the loss of the May contracts.

From the April 21 Weekend Wrap: This paragraph referred to the current COT report.

“The very minor increase of open interest by managed money longs accompanied by the massive open interest increase by managed money shorts indicate skepticism of the market’s ability to move higher. Despite the outstanding performance during the current COT reporting period, managed money was unwilling to make new commitments to the bullish side of natural gas. This tells us that natural gas is likely to move higher than anyone believes. However, a pullback is overdue.”

The excerpt from April 21 and the open interest action of April 19, confirm that natural gas has reached a temporary top. However, as we said in the April 21 excerpt, we do not think the bull move is over, and a pullback accompanied by declines in open interest would be healthy for the market. As this report is being compiled on April 22, natural gas is trading 14.2 cents lower. Our downside target for June natural gas is $4.08, and possibly as low as 4.04.

Copper:

May copper lost 5.60 cents on very heavy volume of 133,569 contracts. Open interest declined by 2,648 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on April 22, May copper is trading 1.70 cents lower and has made a low of $3.0820. Copper is exhibiting all the traits of a market that wants to go lower, however, it is risky to enter new bearish positions at current levels. We recommend that clients wait for a rally to the $3.26-3.31 level before contemplating bearish positions. Copper remains on a short and intermediate term sell signal. Stand aside.

Gold:

June gold gained $3.10 on volume of 208,475 contracts. Open interest increased by 3,019 contracts, which relative to volume is approximately 45% below average. On April 19, gold made a new high for the move at $1424.70, which has been taken out on April 22 with June gold making another new high at $1438.80. Before contemplating bearish positions, we want to see further strength in gold accompanied by open interest declines. Gold remains on a short and intermediate term sell signal. Stand aside.

Silver:

May silver lost 28.5 cents on volume of 59,761 contracts. Open interest increased by 2,622 contracts, which relative to volume is approximately 70% above average, meaning that new shorts were entering the market and driving silver prices lower. On April 22, silver has rallied to $23.65, but this has not taken out the high made on April 19 of 23.82. Silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar:

The June Australian dollar lost 2 points on volume of 105,345 contracts. Open interest declined 1,364 contracts, which relative to volume is 50% below average, meaning that liquidation was light. Beginning late last week, we warned clients away from the long side of the Australian dollar. As it stands on April 22, it is likely that the Australian dollar will generate a short and intermediate term sell signal, which would reverse the short-term buy signal generated on March 15 and the intermediate term buy signal generated on March 21. Stand aside.

Euro:

The June euro gained 13 points on light volume of 218,947 contracts. Open interest increased by 626 contracts, which relative to volume is minuscule and dramatically below average. The market has become much less oversold from a price and open interest standpoint. We think the euro is going to run into trouble at the 1.3200 level, and we will advise clients when and if to implement bearish positions.

S&P 500 E mini:

The S&P 500 E mini gained 13.50 points on volume of 1,892,014 contracts. Open interest increased by 5,562 contracts, which is minuscule and dramatically below average. As this report is being compiled on April 22, the E mini is trading 7.25 points higher on low volume. Clients should buy put protection on the S&P 500 E mini. We continue to think the E mini is going lower, and a large decline from current levels could be a major surprise to longs, many of whom entered the market during the past few months.