May

12

Since last December, the aggregate open interest (OI) in WTI futures has gradually risen, and notably, it has continued to rise even after the violent reversal on 5/5/11. (The OI in RBOB, HO and Brent have very different complexions.)

Anatoly, I believe that you are student of OI. How would you interpret the continuing rise in Crude OI?

Anatoly Veltman responds: 

 My answer will shock you: you will not hear a solitary thing of what I've learned over 25 years of O.I. analysis applied to real-time markets! You might as well listen to a person who never heard the term O.I.

Firstly, you may get a hint of modern environment from this article.

I will go much further, but this is what I'm in agreement with: the make-up of participation has changed. From individual speculation to institutional. It used to be that shadow governments speculated via discrete funds, dealers and accounts amounting to billions. Well, as we all know: it is trillions of dollars of taxpayers' money that have recently found their way into investment domain, mostly via certain privileged bank and fund channels. The never-spoken-of process that used to be confined to Russia and its neighbors, the Middle East, Africa, Central America, etc - was finally enabled right here, within world's biggest economy…

So what you have right now: all this pool of money that never went to stimulate a retail consumer and onwards via multiplier effect. It went into investment funds instead: some invested in equities and some increasingly in commodities. Oil being the premier commodity, the jewel contract that you see rising to peak participation. Peak "oil contracts", not necessarily peak "oil"!

Futures O.I. make-up has lost its properties. Even in yesteryear, its analysis had to be multi-dimensional. I remember Larry saying that even the S&P's breakdowns may be meaningless, unless all indexes are aggregated into data. Well today even all futures thoroughly examined for their price action, overlaid onto O.I./C.O.T. data will yield distorted results - due to explosion in ETF arena. Those institutional players became so prolific today, that daily SLV volume dwarfed SPY!

And thus 2011 commodity speculation has become instantly dependent on slightest change in perception re: volume of new investment liquidity. All analysis of particular raw material supply and demand is so 2005! 

Paolo Pezzutti writes: 

Something began to change mid 2007 when certain relationships between some commodities (for instance gold) and SP futures started to develop. They are still working well now. But now that a small fish like me has found them it means that the party is almost over… What is the next theme?


Comments

Name

Email

Website

Speak your mind

2 Comments so far

  1. Jason Humbert on May 12, 2011 3:09 pm

    As usual Veltman your comments are wrong. I work for someone who trades futures exclusively on OI/COT data….still no down years after 11 years, up over 8% this year.

  2. Anatoly Veltman on May 12, 2011 5:22 pm

    I know someone up 50% in just today’s trading - but this doesn’t make your guy wrong… What would be good to hear is HOW the data is utilized; and then maybe I’ll tell you if your guy’s method may be relevant to today’s environment… Regrettably, I don’t expect such report from you Jason Humbert

Archives

Resources & Links

Search