Interpreting OI

Discussion in 'Technical Analysis' started by hcour, Feb 13, 2006.

  1. hcour

    hcour Guest

    I'm re-reading "Charting Commodity Market Price Behavior" by L. Dee Belveal. Belveal offers in-depth interpretations of price, vol, and OI. I'd appreciate it if some experienced futures traders who use OI would comment on my analysis here.

    This is the Mar Euro w/total vol and OI, OI the yellow line in the Euro price pane (top pane is CHF). One of the things that Belveal teaches is to use OI to determine what the shorts and longs are doing, which is the "winner" and which the "loser" relative to price action and which is more important at the time.

    Starting at 1, price breaks previous support following an upthrust of the previous high, and OI plummets, as both shorts and longs get out of the market. But which is the real loser? The shorts are taking profits at the bottom of the range, the longs are taking losses. Possibly the weak longs are being shaken-out of the market?

    On the reaction to 2 OI climbs sharply. We know shorts will be taking profits and we know longs will be getting out but since OI is rising while price drops new longs must be coming into the market to feed new shorts, which provides fuel for the down move.

    On the brief rally to 3 there is a wide spread closing on the high on relatively strong vol, but OI drops so this suggest shorts covering rather than longs coming in.

    On the messy reaction to 4 OI rises again as the shorts continue to dominate. From 5 to 6 there is break of support on wide spreads, strong relative vol and increasing OI, the bears are still in control. From 6 to 7 price does not follow-thru to the downside but rather consolidates and OI goes sideways. 12/2 there is a shallow test of the previous low followed by a wide spread up bar 12/12 closing on the high on strong vol back to the bottom of the range and OI increases as longs come into the market and price follows them up. OI increases sharply at 8 and vol is good as price breaks back into the range but note the poor close and lack of follow-thru. From here OI has an even more extreme plummet than at 1 as price breaks support on a wide spread closing on the low.

    Ok, so what happens at 8-9? Following the potential shakeout, longs come into the market on the rally to 8 but then quickly get out in droves as price does not follow-thru and subsequently breaks support at 9, where OI plummmets. Does this further the view that weak longs are being shaken-out of the market? Of course, shorts are also getting out but unlike previously at the break of support at 1, they do not get right back in: From 9 to 10 OI continues to drop, vol contracts considerably while price goes sideways on relatively narrow spreads (dojis, dojis, dojis) and this becomes a shallow test of the previous shakeout lows w/o new shorts entering the market, indeed they seem to be getting out.

    Following 10, on 1/03 a wide spread closing on the high back to the bottom of the range on very low vol (suggesting the Wyckoff "automatic rally" where sellers are simply exhausted, a bullish sign) and OI starts to rally.

    After the rally to 1/04 price consolidates to 11 while OI continues to climb. This suggests a building tension as new positions are being taken on both sides and one must eventually dominate. 1/23 a breakout of this little range on a wide spread closing on the high back to significant previous converging resistance on still-rising OI but unimpressive vol.

    Then from 11 -12, unlike previous significant reactions before the Nov/Dec shakeout, OI goes flat. The relatively high-vol bar 2/03 closes off the low at support and does not immediatedly follow-thru sharply to the downside. 2/10 is an outside bar closing on the low on very strong vol but the extent of price loss does not seem commensurate w/that high vol, and the flat OI says new shorts are not entering the market at that break of support.

    All suggesting further consolidation in the range but w/a bullish bias, as of this writing. A sharp move in OI tomorrow would require re-evaluation, as well, of course, as pv behavior.

    Any comments much appreciated. Am I getting OI, am I starting to get it? Belveal's technique, a mixture of Wyckoff pv analysis and OI interpretation, forces one to focus on who is winning and who is losing and how they're reacting to price behavior.

  2. hcour

    hcour Guest

    Ah, it has just been pointed out to me on the Yahoo Wyckoff board that the extremes at 1 & 8 are due to contract rollovers from Sept to Dec and Dec to Mar. Kinda blows that analysis out of the water. Back to the drawing board...

    Moderator, can I delete this? How embarrassing...