So in my quest to fill my cranium with knowledge on every single aspect of every commodity I came across something interesting that might be huge in my trading future. So not only am I keeping a close eye on multiple contracts but I want to see what happens to the open interest as time goes on and right now I’m noticing a big difference in an occurrence in crude that might be huge. Notice the front month contract of crude.
Is crude interesting?
I’ve been noticing that when looking at commodity charts that the open interest has been going up a lot on big moves down, which has confused me, and as the time fades on this crude front month JULY contract we see the open interest flush out of it. But what drew me to noticing this was looking at the contracts that are further out.
Now on this AUG contract we can see a considerable difference in open interest as if maybe they are rolling out of that JULY and right into the AUG. Maybe I’m wrong but let’s look a out a bit further.
and surprise surprise! We see a little lift on both the open interest and positive price action. I’m thinking the funds may be slowly rolling contracts.. But are they long contracts..? Well, it kinda seems like they may be pushing up the price a little bit but not to much. So how about we just take a look at the open interest big picture.
So there ya go.. Now we have the bigger picture of whats going on. But lets even take it one further cause you can never cut your trades short when it comes to being informed. The COT will take our trading to the next level.
Ok, so now I can see something kinda of interesting. When looking at the crude COT you always have to keep an eye on the swap dealers. They aren’t all that important in most commodities but in crude they are HUGE! Swap dealers and Producers are the sell side of the market and looking at this chart we can see them add to their short position which would usually mean that there could be some future bullish price action coming up. Now some of the CME floor traders are talking about the low 40’s for crude. Ok! well that’s all and good but when swap dealers are adding to shorts I would be very cautious shorting here.
So now we have the big picture and in conclusion,, I have no clue. But I can say keep an eye on the spread and I guarantee you will find an amazing trade. If they roll into a hefty long position, which they are currently in and adding to, it will be a huge move and the spread will show you what is actually happening. Now I think they may slam the front month down as they pile into the further out contracts, continuing to hold long positions, so I’ll be looking for a couple opportunities to trade the spread back in from -1$ as the front month will be moving faster than the back months. But shiot, I donno…
Good luck! ~J