Volume and open interest analysis for February 20, 2013

Soybeans:

March soybeans gained 12.50 cents on volume of 257,783 contracts. Volume declined approximately 56,000 contracts from February 19 when soybeans advanced 45.75 cents and open interest increased by 5,297 contracts. On February 20, total open interest declined by 9,101 contracts, which in relation to volume is approximately 40% above average. The March contract lost 11,526 of open interest, and there was not sufficient buying in the back months to offset this. Soybeans made a new high for the move at 14.92. For soybeans to have a sustained move higher, it must decisively close above its 200 day moving average of $15.06 on the continuation chart. The last time this occurred was in early November 2012. Soybeans remain on a short term buy signal, but an intermediate term sell signal.

Soybean meal:

March soybean meal lost $8.30 on volume of 99,658 contracts. Total open interest declined by 1,271 contracts, which in relation to volume is approximately 50% less than average. The March contract accounted for a loss of 7,331 of open interest. For the past 3 days, soybean meal has advanced $26.40 and open interest has declined 438 contracts. This is bearish open interest action relative to the price advance.

Soybean oil:

March soybean oil lost 46 points on volume of 158,451 contracts. Volume declined by 26,000 contracts from February 19 when soybean oil advanced 91 points and open interest declined 6,827 contracts. On February 20, open interest declined by 5,282 contracts, which in relation to volume is approximately approximately 35% above average. The March contract accounted for a loss of 12,642 of open interest. During the past 3 days, open interest has declined 12,245 contracts while March soybean oil has advanced 37 points. This is bearish open interest action relative to the price advance. Soybean oil continues to be on a short and intermediate term buy signal, however, we suggest for those holding long positions, stops be placed at the February 14 low of 51.13.

Corn:

March corn gained 5.25 cents on volume of 296,642 contracts. Volume advanced approximately 22,000 contracts from February 19 when March corn lost 3.50 cents and open interest increased by 5,969 contracts. On February 20, total open interest declined by a massive 19,631 contracts, which in relation to volume is approximately 160% above average. The March contract accounted for loss of 42,422 of open interest. From February 4, through February 20, open interest increased by 24,956 contracts while March corn declined 35.50 cents. This is bearish open interest action relative to the price decline.

Although open interest has been acting in a bearish fashion relative to the price decline, we caution clients against implementing short positions even though corn is on a short and intermediate term sell signal. As we have said before, the March 2013-May 2013 spread continues to widen and on February 20 closed at 4.25 cents premium to March, which is an advance of one cent from the previous day. This is the highest price for the spread since November 20, 2012. On that day, March corn closed at $7.47 1/4. Corn is on a short and intermediate term sell signal, and we suggest that clients stand aside.

Wheat:

March wheat gained 6.25 cents on volume of 106,173 contracts. Volume declined approximately 18,500 contracts from February 19 when March wheat lost 10 cents and open interest declined by 1,612 contracts. On February 20, total open interest declined by 3,530 contracts, which in relation to volume is approximately 35% above average. The March contract accounted for loss of 8,887 of open interest. As this report is being compiled on February 21, wheat is trading 16.75 cents lower and has made a new low for the move at $7.19 1/4. This took out the low of 7.22 1/2, made on February 13.

Crude oil:

April crude oil lost $1.88 on volume of 708,940 contracts. Total open interest declined by 6,084 contracts, which in relation to volume is approximately 50% below average. For the past 3 days, open interest has declined 20,668 contracts while April crude declined $2.64. This is bullish open interest action relative to the price decline. As the report of February 15 shows (see below), there was an open interest build of 95,494 contracts from January 30 when crude made its high of $98.24 through February 15 when it closed at $96.41. However, since February 15, open interest has declined only 19,428 contracts. This means there are huge numbers of longs in crude that have yet to liquidate. This is important because on February 21, April crude is down another $2.15, and has made a new low for the move at $92.63. This is below the close of January 2 and 3 when crude oil generated a short and intermediate term buy signal. In short, there is a significantly greater amount of liquidation ahead. Crude oil remains on a short and intermediate term buy signal, but clients avoid the long side at this juncture.

From the report of February 15

From January 30 when crude oil made a high of $98.24 and closed at $97.94 through February 15 when it closed at $96.41, open interest increased by 95,494 contracts, a loss of $1.53. In short, since crude made its high, open interest action relative to price has been bearish. We envision crude oil dipping to its 50 day moving average of $93.08. This may be somewhat conservative because we believe the major equity indices are about to undergo a correction. With the high long to short ratio, there are a large number of speculative longs  who will run for the exit once it becomes apparent that crude oil is headed lower.

Copper:

March copper lost 4.15 cents on heavy volume of 111,323 contracts. Volume fell approximately 5,700 contracts from February 19 when copper declined 8.75 cents and open interest declined by 1,557 contracts. On February 20, open interest declined by 3,460 contracts, which in relation to volume is approximately 20% above average. Yesterday, copper closed below its 50 day moving average for the first time since late December, and as this report is being compiled, copper is closing in on its 200 day moving average of $3.51 having made a new low for the move at $3.5370. It is a virtual certainty that copper will generate a short and intermediate term sell signal on February 21.

Gold:

April gold lost $26.20 on heavy volume of 280,784 contracts. Volume was the highest since February 15 when 283,225 contracts were traded and April gold lost $26.00 while open interest increased 854 contracts. On February 20, open interest declined only 532 contracts, which is minuscule and dramatically below average.

During the past 8 sessions, open interest has increased by 25,992 contracts while April gold has declined by $93.30. This is bearish open interest action relative to the price decline. Considering the magnitude of the decline over the past 8 sessions, the open interest increase is modest. In our view, this indicates that more liquidation is ahead. As this report is being compiled, April gold is trading 40 cents lower and has made a new low for the move at $1554.30.

Platinum:

April platinum declined $50.40 on heavy volume of 24,464 contracts. Volume was the heaviest since December 21, 2012 when 38,006 contracts were traded and April platinum closed at $1540.90. On February 20, open interest declined by a massive 3,131 contracts, which in relation to volume is approximately 410% above average, meaning that liquidation was extraordinarily heavy. As our readers know, we have been warning about an impending price decline in platinum. Although platinum has not generated a short or intermediate term sell signal on February 21, it is a distinct probability this will occur on February 22.

From the report on February 6 and 7: 

February 6  is the 16th day that open interest has increased since platinum generated a short and intermediate term buy signal on January 11. In prior reports, we have cautioned that platinum is massively overbought relative to its 50 day moving average and the long to short ratio. The large price advance, combined with heavy volume and a heavy increase of open interest tells us that a top or temporary top is likely in place. Additionally, the high of $1744.50 was accompanied by a volume spike of 1,068 contracts (approximately 5% of total volume) on the 15 min. chart, which occurred at 2:30 a.m. February 6. Since then, platinum has never been close to retesting that high.

Silver:

March silver lost 80 cents on huge volume of 137,829 contracts. Volume was the highest since November 28 when 163,326 contracts were traded and March silver closed at $33.77. On February 20, open interest decreased only 466 contracts, which in relation to volume is minuscule and dramatically below average. In the report of February 15, we noted that open interest increases were moderate for gold and silver on fairly heavy declines. We said this may be indicative of market participants who are reluctant to enter new short and long positions at the very low end of the trading range. We saw this pattern repeat itself on February 19 and 20. On February 12, March silver generated a short-term sell signal and prior to this was on an intermediate term sell signal.

Euro:

The March euro lost 1.04 cents on relatively heavy volume of 314,468 contracts. Open interest declined only 340 contracts, which in relation to volume is minuscule and dramatically below average. During the past 10 days, open interest has declined 23,653 contracts while the March euro lost 3.22 cents. This is bullish open interest action relative to the price decline. Long positions should not be taken despite the massive correction. The euro remains on a short and intermediate term buy signal. The dollar index has broken through a number of resistance points, and looks to head higher. Stand aside.

S&P 500 E mini:

The S&P 500 E mini lost 21.00 points on heavy volume of 2,026,531 contracts. Volume was the highest since December 21 when 2,113,619 contracts were traded and the March S&P 500 E mini closed at 1426.00. It is of major concern that the highest volume during the past 2 months occurred when the S&P 500 E mini declined 21.00 points. Preferably, volume should expand on advances and contract when prices decline. On February 21, volume is approaching 2 million contracts and there is a considerable amount of time left before the E mini closes. Presently, the E mini is trading 9.75 points lower and has made a new low for the move at 1495.00. On February 20, open interest increased 11,088 contracts, which in relation to volume is approximately 75% less than average.

As of the close on February 20, the number of NYSE stocks above their 50 day moving average was 1704, which is a decline from 1854 on February 19. To put February 20’s number in perspective, on December 31, 1635 NYSE stocks were above their 50 day moving and the E mini closed at 1420.00. The close on February 20 was 1507.00 (87 points higher), but only 1704 NYSE stocks were above their 50 day moving average. The 50 day moving average of stocks above their 50 day moving average is 1840. Also, stocks making new 52-week highs on the NYSE on February 20 declined to 577 stocks, which is nearly half the number of stocks making new highs on January 2 when the E mini closed at 1457.00.By these standards of measurement, the number of stocks that are supporting the market continue to to decline.