Volume and open interest analysis for April 22, 2013.

Soybeans:

July soybeans lost 18.25 cents on light volume of 180,821 contracts. Total open interest increased by 6,011 contracts, which relative to volume is approximately 35% above average. The May contract lost 6,193 of open interest, which makes the total open interest increase that much more impressive. The increase of open interest when May lost 6,193 contracts, indicates that new shorts were piling into the market at the low-end of the trading range and driving prices lower. As this report is being compiled on April 23, July soybeans are trading 1.75 cents higher and has made a low of $13.53. Soybeans remain on a short and intermediate term sell signal. Stand aside.

Corn:

July corn lost 9.50 cents on volume of 220,124 contracts. Total open interest declined by 5,323 contracts, which relative to volume is  average. The May contract accounted for loss of 12,635 of open interest. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

July lost 9.00 cents on volume of 111,867 contracts. Total open interest declined 3,197 contracts, which relative to volume is approximately 5% above average. The May contract lost 9,722 of open interest. Wheat remains on a short and intermediate term sell signal. Stand aside.

Crude oil:

June crude oil gained 92 cents on light volume of 447,940 contracts. Volume was the lightest since March 28 when 385,611 contracts were traded and June crude oil closed at $97.49. On April 22, open interest declined by 18,127 contracts, which relative to volume is approximately 55% above average, meaning that liquidation was extremely heavy on the 92 cent advance. The May contract accounted for loss of 20,454 of open interest. The massive decline of open interest on the advance is confirmation of the weak structure of the market. Brent crude gained 74 cents on volume of 558,268 contracts. Open interest declined by 5,822 contracts, which relative to volume is approximately 50% less than average. The difference between WTI and Brent open interest declines is due to the May WTI contract expiring at a much later date than Brent. Both remain on short and intermediate term sell signals. Stand aside.

From the April 21 Weekend Wrap:

Although, the long to short ratio of managed money has declined to a new low for the move, it remains above some recent historical ratios. In early March, the long to short ratio was 3.50:1 when crude oil made its low of $90.23, and 3.44:1 on March 12, 2013. Taking a look back to late November-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. In short, the long to short ratio should decline to recent historical levels, before crude oil is likely to put in a bottom, or temporary bottom.

Heating oil:

June heating oil advanced 1.97 cents on very light volume of 98,319 contracts. Volume was the lightest since January to when 95,882 contracts were traded and June heating oil closed at $3.0267. On April 22, open interest declined 279 contracts, which is minuscule and dramatically below average. The May contract accounted for loss of 3,588. On April 22, the 50 day moving average crossed below the 200 day moving average on the heating oil continuation chart. This is more confirmation of the underlying bearish trend in heating oil. Heating oil remains on a short and intermediate term sell signal. Stand aside.

Gasoline:

June gasoline closed unchanged on volume of 106,799 contracts. Volume was the lightest since March 18 when 94,641 contracts were traded and June gasoline closed at $3.0782. On April 22, open interest declined by 1,711 contracts, which relative to volume is approximately 35% less than average. As this report is being compiled on April 23, June gasoline is trading 3.90 cents lower and has made a low of $2.7092. From April 17, which is the beginning of the COT reporting period through April 22, open interest has declined 17,773 contracts while June gasoline has declined 1.27 cents. The open interest decline is large in relation to the very minor decline of 1 1/4 cents. However, as we pointed out in the excerpt from the April 21 Weekend Wrap (below), the fact that gasoline prices have declined precipitously and that open interest has not increased in this period, remains potentially bullish. In essence, longs are being squeezed out of the market, which we believe will set the stage for a rally in gasoline.

From the April 21 Weekend Wrap:

“For the table below we are using the June contract. The important point to be made regarding gasoline is that cumulative open interest action did not show an increase. This would have been bearish. On April 18, June gasoline made its low for the move at $2.6979.”           

Date                           Closing Price    Total Open Interest
February 25, 2013     $3.1638             333,484
March 11, 2013          $3.1010             317,630
April 1, 2013              $3.0821             315,414
April 18, 2013            $2.7483            305,003  

Natural Gas:

May natural gas declined 13.9 cents on low volume of 328,664 contracts. Open interest declined by just 3,623 contracts, which relative to volume is approximately 50% less than average. It is somewhat surprising to see light volume and a minor decline in open interest on the biggest pullback since late February. This indicates a great deal of complacency, coupled with reluctance by new longs to make significant commitments at the higher end of the range. The pullback of the long to short ratio in the most recent COT report, indicates a reluctance on the part of managed money to make commitments at the very high-end of the trading range. For more on this, please review the April 21 Weekend Wrap. We think there is more downside and look for a target of $4.08, or possibly as low as 4.04.

Copper:

May copper lost 1.75 cents on heavy volume of 130,896 contracts. Open interest declined 2,712 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on April 23, May copper is trading 4.80 cents lower and has made a new low for the move at $3.0570, which took out the previous low of 3.0600 made on April 18. Copper is embroiled in a vicious downtrend, and when-where this stops, if only temporarily, is difficult to ascertain. During the past 2 days when equities, gold and petroleum were rallying, copper continued its weakness. We discourage chasing the market lower on the short side, and suggest that clients wait for a rally to the $3.26-3.31 level before contemplating bearish positions.

Gold:

June gold advanced $25.60 on healthy volume of 200,077 contracts. Open interest declined by 252 contracts, which is minuscule and dramatically below average. On April 22, gold made a new high for the move at $1438.80, and as this report is being compiled on April 23, it has been unable to surpass the April 22 high, and is trading $11.80 lower. Gold remains on a short and intermediate term sell signal. Stand aside.

Silver:

May silver gained 36.4 cents on volume of 71,909 contracts. Open interest increased by 1,449 contracts, which relative to volume is approximately 20% below average. As this report is being compiled on April 23, May silver is trading 40.9 cents lower and has made a low of $22.555, which is the lowest price since April 18 when silver reached $22.435. Silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar: The Australian dollar generated a short and intermediate term sell signal.

The Australian dollar lost 10 points on volume of 100,519 contracts. Open interest declined by 2,595 contracts, which relative to volume is average. The generation of a short and intermediate term sell signal on April 22, reverses the short-term buy signal generated on March 15, and the intermediate term buy signal generated on March 21. Before implementing bearish positions, wait for a rally to the 1.0300-1.0315 level, and for futures traders use a buy stop at 1.0350 to exit positions.

Euro:

The June euro lost 20 points on volume of 185,874 contracts. Open interest increased by 2,702 contracts, which relative to volume is approximately 40% less than average. It appears that the euro is beginning to weaken, and the rally that began on March 28 is coming to an end. Additionally, the June dollar index looks like it will generate a short-term buy signal very soon. This would reverse the short-term sell signal generated on April 15. We recommend that clients begin to implement bearish positions and use the high of April 22 of 1.3089 and 1.3090 high of April 23 as an exit point for short futures positions. The excerpt from the April 21 report below shows that the number of speculative shorts have declined, which makes the short side of the euro less vulnerable to short covering.

From the April 21 Weekend Wrap:

“The current ratio is the lowest since the COT tabulation date of March 12, 2013 when the short to long ratio was 1.55:1. During the time frame that reflected this ratio, the June euro traded in a range from 1.2964-1.3143. The trading range that is reflective of the current ratio is from 1.3027-1.3208. From March 27, when the euro made its low of 1.2758 through April 18 when the June euro closed at 1.3053, open interest has declined by 7,356 contracts. In short, the market has become much less oversold from a price and open interest standpoint. We think the market is going to run into trouble at the 1.3200 level, and we will be monitoring it carefully in order to advise clients when and if to implement bearish positions.”

S&P 500 E mini:

The S&P 500 E mini gained 8.50 points on volume of 1,603,742 contracts. Volume declined approximately 289,000 contracts from April 19, when the E mini gained 13.50 points and open interest increased 5,562 contracts. On April 22, open interest increased by 6,939 contracts, which is minuscule and dramatically below average. Stocks trading above their 50 day moving average on the New York Stock Exchange increased to 1,160 on April 22 from 985 on April 18 when the market made its low of 1530.75. In short, the number of stocks moving above their 50 day moving average has been minimal even though the E mini has rallied 22 points in the past 2 days. Additionally, the 50 day moving average of stocks trading above their 50 day moving average is about to cross below the 200 day moving average. As this report is being compiled on April 23, the E mini is trading 17.00 points higher. We continue to advise long put protection.