Volume and open interest analysis for April 23, 2013.

Soybeans:

July soybeans lost 5.75 cents on volume of 242,237 contracts. Volume increased approximately 61,000 contracts from April 22 when July soybeans lost 18.25 cents and open interest increased 6,011 contracts. On April 23, open interest increased by 2,74 contracts, which relative to volume is approximately 50% less than average. The May contract accounted for loss of 13,558 of open interest, which makes the total open interest increase that much more impressive. For the past 3 days beginning on April 19, open interest increased each day as prices declined for 3 consecutive days. During the past 3 days, July soybeans have declined 31.50 cents while open interest has increased 17,800 contracts. The May contract lost, open interest in each of the 3 days, which reinforces the massive number of new shorts entering the market and driving prices lower. Soybeans are on their way to testing major lows that go back to November 2012. November 16, 2012 low $13.31 3/4, January 11, 2013 low 13.39, April 5, 2013 low 13.36 1/2. Soybeans remain on a short and intermediate term sell signal. Stand aside

Corn:

July corn lost 9.50 cents on volume of 307,731 contracts. Volume increased by 87,000 contracts from April 22 when July corn lost 9.50 cents and open interest declined 5,323 contracts. On April 23, open interest declined 7,573 contracts, which relative to volume is  average. The May contract lost 16,712 of open interest. As this report is being compiled on April 24, corn has made a new low for the move at $6.10, which is the lowest price for the July contract since June 2012. Corn remains on a short and intermediate term sell signal. Stand aside.

Wheat:

July wheat lost 7 cents on volume of 93,927 contracts. Open interest declined 627 contracts, which relative to volume is approximately 65% below average. The May contract accounted for loss of 5,164 of open interest. Wheat remains on a short and intermediate term sell signal. Stand aside.

Crude oil:

June WTI crude lost 1 cent on heavy volume of 623,368 contracts. Volume increased approximately 176,000 contracts from April 22 when crude oil advanced 92 cents and open interest declined 18,127 contracts. On April 23, open interest declined 9,960 contracts, which relative to volume is approximately 35% less than average. The May contract lost only 1,181 of open interest, which means that liquidation was occurring in the June 2013 forward contracts. For the past 3 trading sessions beginning on April 19, June crude oil has advanced $1.18 while open interest has declined 45,534 contracts. The decline of open interest on the advance for the past 3 days is bearish open interest action. Brent crude lost 8 cents on volume of 629,155 contracts. Open interest increased by a hefty 17,829 contracts, which relative to volume is average. Both WTI and Brent are on short and intermediate term sell signals. Stand aside.

From the April 19 report:

“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.”

Heating oil:

June heating oil gained .0026 cents on volume of 110,736 contracts. Open interest increased by 273 contracts, which is minuscule and dramatically below average. The May contract lost 5,058 contracts of open interest. Heating oil remains on a short and intermediate term sell signal. Stand aside.

Gasoline:

June gasoline lost 4.48 cents on volume of 157,387 contracts. Open interest declined by a massive 7,093 contracts, which relative to volume is approximately 75% above average, meaning that both longs and shorts were liquidating at an aggressive pace. The May contract lost 5,082 of open interest. From April 17, which is the beginning of the COT reporting period through April 23, open interest has declined 24,866 contracts while June gasoline has declined 5.75 cents. As we have pointed out in previous reports, open interest is not increasing on declines. Perhaps when we begin to see open interest increasing on price declines, we will have confirmation that a bottom is finally in place. Once the COT report is released this Friday, we will know where the liquidation originated. If the long to short ratio declines further in the upcoming report, we would view this as positive for gasoline. Gasoline remains on a short and intermediate term sell signal. Stand aside.

Natural gas:

June natural gas lost 2 cents on light volume of 343,786 contracts. Open interest declined by a massive 14,259 contracts, which relative to volume is approximately 55% above average. The May contract lost 24,918 of open interest. The market is in a corrective mode, and our downside target remains at $4.08, and possibly lower at $4.04. With the massive build in open interest since natural gas generated a short-term buy signal on March 1, there are longs who will decide to take profits, or be forced to liquidate as prices decline. Natural gas remains on a short and intermediate term buy signal. Stand aside.

Copper:

May copper lost 3.80 cents on heavy volume of 148,526 contracts. Copper made a fractional new low at $3.0570, which took out the low of 3.0600 made on April 18. We have cautioned clients not to chase the decline by entering new short positions. Instead, we have recommended waiting for a rally to the $3.26-3.31 level before contemplating bearish positions. As this report is being compiled on April 24, May copper is trading 6.60 cents higher and has made a high for the move at $3.1890, which is the highest price since April 19, when copper made a high of 3.2050. Copper remains on a short and intermediate term sell signal. Stand aside.

Gold:

June gold lost $12.40 on heavy volume of 239,497 contracts. Volume was the highest since April 18 when 262,329 contracts were traded and June gold advanced $9.80 while open interest increased 1,464 contracts. On April 23, open interest declined 1,507 contracts, which relative to volume is approximately 60% less than average. A further rally could take June gold to the $1444-1455 area. At that point, we would likely recommend writing out of the money calls.. Gold remains on a short and intermediate term sell signal. Stand aside.

Silver:

May silver lost 50.7 cents on heavy volume of 115,200 contracts. Open interest increased 1,706 contracts, which relative to volume is approximately 40% less than average. Silver remains on a short and intermediate term sell signal. Stand aside.

Australian dollar:

The Australian dollar lost 12 points on volume of 107,212 contracts. Open interest increased 1,059 contracts, which relative to volume is approximately 50% below average. On April 23, the June Australian dollar generated a short and intermediate term sell signal. We recommend that clients wait for a rally to the 1.0300-1.0315 level to implement bearish positions. Exit bearish positions if the June Australian dollar rallies beyond the 1.0350 area.

Euro:

The June euro lost 69 points on volume of 274,727 contracts. Open interest increased by 4,126 contracts, which relative to volume is approximately 40% less than average. We recommend that bearish positions be implemented, preferably in options around the 1.30 area. The April 23 high of 1.3090 can be used as an exit point for all bearish positions.

S&P 500 E mini:

The S&P 500 E mini gained 17.50 points on volume of 2,122,634 contracts. Volume was the highest since April 18 when 2,324,781 contracts were traded and the S&P 500 E mini lost 12.00 points while open interest increased 3,799 contracts. On April 23, open interest declined by 49 contracts. We view this as extremely bearish, especially when taking into account that the E mini rallied during the previous 2 days beginning on April 19 (+13.50), April 22 (+8.50). The open interest increase on April 19 was 5,562, and on April 22 +6,939 contracts.

In short, the E mini has rallied a total of 39.50 points while open interest has increased by a mere 12,550 contracts over a period of 3 days. To put the 3 day open interest increase in perspective, consider that a one-day increase of 12,550 contracts would be approximately 70% below average using average daily volume year to date of 1,841,398 contracts. In short, bulls and bears are unwilling to make new commitments as the market rallied close to its old high. Despite the move higher over the past 3 days, the number of stocks trading above their 50 day moving average is only 1358, which is below the 50 day moving average of 1538 and the 200 day moving average of 1537. Although the market can certainly move higher, the abysmal open interest increase of the past 3 days tells us that speculators are not comfortable being short or long at current levels. We continue to recommend put protection, especially if clients have profitable positions in stocks that they would prefer not to liquidate. The strategy of writing out of the money calls continues to make sense, and a more conservative approach is to write out of the money calls, coupled by buying calls that are further out of the money.