Volume and open interest analysis for February 7, 2013

OIA will provide an analysis of the February 8 USDA crop report in the upcoming Weekend Wrap.

Soybeans:

March soybeans lost 0.75 cents on volume of 267,908 contracts. Volume was the highest since December 20 when 299,585 contracts were traded and March soybeans closed at 1404 3/4. On February 7, open interest increased by 8,997 contracts, which in relation to volume is approximately 40% above average. The March contract lost 3,278 of open interest. It appears that participants were positioning themselves ahead of the USDA report on February 8. As this is being compiled after the release of the report, soybeans are trading 28.75 lower and have made a low of $14.53 1/2. From February 4 through February 6, soybeans had support at the 14.75-14.78 level, which has been violated on February 8. We will provide an analysis of the report in the upcoming Weekend Wrap. From January 18 through February 7, open interest has increased by 83,121 contracts while March soybeans have advanced 58.00 cents.Soybeans remain on a short-term buy signal.

Soybean meal:

March soybeans closed 50 cents higher on very heavy volume of 103,018 contracts. Volume was the highest since January 11 when 103,686 contracts were traded and March soybean meal closed at $404.30. On February 7, open interest increased by 1,525 contracts, which in relation to volume is approximately 40% below average. The March contract lost 7,963 of open interest. This is the first time since February 1 that open interest increased more in soybeans than soybean meal relative to volume. From January 14 through February 7, open interest interest has increased by 59,122 contracts while March soybean meal has advanced $33.30. From February 1 through February 7, soybean meal traded in a series of higher highs and higher lows. This pattern has been broken on February 8. Soybean meal remains on a short-term buy signal as of February 8.

Soybean oil:

March soybean oil lost 60 points on heavy volume of 144,398 contracts. Volume was the highest since December 20 when 151,955 contracts were traded and March soybean oil closed at 48.31. On February 7, open interest declined by 610 contracts, which in relation to volume is approximately 75% below average. The March contract lost 9,786 of open interest.  During the past 3 days, March soybean oil has declined 1.26 cents while open interest has declined by 2,338 contracts, which in relation to  total 3 day volume of 329,474 contracts is 70% below average, meaning the increase is minor. As this report is being compiled on February 8, soybean oil is trading 42 points lower and has broken below support at 51.50 made on January 24. As of February 8, soybean oil remains on a short and intermediate term buy signal.

Corn:

March corn lost 11.75 cents on volume of 384,879 contracts. Volume was the highest since January 11 when 569,660 contracts were traded and March corn closed at 7.08 3/4. On February 7, open interest increased by 6,211 contracts, which in relation to volume is approximately 35% less than average. The March contract lost 21,050 contracts of open interest. During the past 4 days, open interest has increased every day, which brings the total to 23,005 contracts while March corn has declined by 25.25 cents. This is bearish open interest action relative to the price decline. March corn remains on a short-term buy signal as of February 8.

Wheat:

March wheat lost 5.50 cents on volume of 153,821 contracts. Volume was the highest since January 11 when 190,768 contracts were traded and March wheat closed at $7.54 3/4. On February 7, open interest increased by 4,457 contracts, which in relation to volume is average. As this report is being compiled on February 8, wheat is the strongest of the grain complex and is trading 0.50 cents higher. Wheat remains on a short and intermediate term sell signal.

Crude oil:

March crude oil lost 79 cents on heavy volume of 770,907 contracts. Open interest increased by 12,764 contracts, which in relation to volume is approximately 35% less than average. Since generating a short and intermediate term buy signal on January 2 and 3 respectively, through February 7, crude oil has advanced only $2.16. This is not much of a move considering it occurred over a period of 25 sessions. Additionally, from January 2 through February 5 open interest has increased by 139,190 contracts, yet crude oil has advanced a bit more than $2.00. This tells us commercial selling has been taking place on the rally. Crude oil remains on a short and intermediate term buy signal.

Copper:

March copper lost 1.35 cents on volume of 74,138 contracts. Volume was the highest since January 31 when 89,122 contracts were traded and March copper closed at 3.7320. On February 7, open interest declined by 4,243 contracts, which in relation to volume is approximately 120% above average. Copper remains in a trading range and is on a short and intermediate term buy signal.

Gold:

April gold lost $7.50 on heavy volume of 190,568 contracts. Volume increased approximately 84,000 contracts from February 6 when gold advanced $5.30 and open interest declined by 588 contracts. On February 7, open interest declined by 2,628 contracts, which in relation to volume is approximately 45% less than average. From January 28, when gold made its low at $1653.20 (1655.00 close) through February 7 when gold closed at 1671.30, open interest has declined by 37,172 contracts. This is extremely bearish open interest action relative to price. As we have continually recommended, clients should avoid gold on the long side.

Platinum:

April platinum lost $14.20 on volume of 12,868 contracts. Open interest increased by 859 contracts, which in relation to volume is approximately 160% above average, meaning that new shorts were entering the market and driving prices lower. We suspect that speculators were taking the opposite side of the trade. 

From the report on February 6: 

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.

February 7 is the 17th day that open interest has increased since platinum generated a short and intermediate term buy signal on January 11. Stand aside.

Silver:

March silver lost 47.4 cents on heavy volume of 67,332 contracts. Volume was the highest since January 4 when 73,418 contracts were traded and silver closed at $29.946. On February 7, open interest declined by 1,451 contracts, which in relation to volume is approximately 20% below average. Since making its recent low at $30.745 (30.780 close) on January 28 through February 7, open interest has declined by 2,089 contracts while silver has advanced 62.3 cents. This is bearish open interest action relative to the price advance, but nowhere near as bearish as gold. Silver remains on a short-term buy signal but an intermediate term sell signal.

Euro:

The March euro lost 1.22 cents on extremely heavy volume of 452,064 contracts. Volume was the highest since September 13 when 531,258 contracts were traded and the March euro closed at 1.3007. On February 7, open interest declined by 4,615 contracts, which in relation to volume is approximately 50% less than average. During the past 2 days, open interest has declined by 8,472 contracts while the March euro has climbed by 1.81 cents cents. Considering the magnitude of the decline, the decline of open interest is low. As this report is being compiled on February 8, the euro has made a new low for the move at 1.3356. The euro remains on a short and intermediate term buy signal.

S&P 500 E mini:

The S&P 500 E mini lost 1.50 points on volume of 1,971,484 contracts. Volume was the highest since December 21, 2012 when 2,113,619 contracts were traded and the March S&P 500 E mini closed at 1426.00. On February 7, open interest increased by 14,670 contracts, which in relation to volume is approximately 65% less than average. From February 1 through February 7, open interest has increased by 31,241 contracts while the E mini has gained 12.00 points. In short, the advance through February 7 has been unimpressive and the increase of open interest has been as well. In the report of February 6, we said that the market looked like it was near a top or temporary top. As this report is being compiled on February 8, the E mini has taken out 1511.00, and is trading 8.50 higher on extremely low volume with approximately 60 minutes left in the session. We recommend against long positions at current levels, and suggest that investors take a defensive stance. The only way the major indices continue to move higher is that new buyers must be willing to enter new positions at ever higher prices.