Hey Traders!
As promised, here comes the study of the relationship between Open Interest and Price.
There’s some interesting stuff going on with Silver! As you guys already know, market bottoms usually comes hand-in-hand with low OI readings. Well, that’s what Larry Williams claims. I don’t simply take his word for it. Also, ForExchange pointed out earlier, that despite the fact that we are fishing for a bottom in Silver, OI keeps on climbing higher and higher. How is that?
In order to understand the phenomenon, we have to take a look at the historical chart of Silver spanning over 10 years.
Okay, what do we see here?
Red Circles represents the most obvious lowest OI readings.
Oranges Circles represents the less obvious low OI readings.
The single Green Circle represents the only time Silver bottomed out on a high OI reading.
I don’t know about you guys, but I think it is safe to say that low OI readings usually the symptom of a market bottom.
I wonder though whether the reverse of our statement is accurate or not. So let’s examine the relationship of high OI readings and Price.
Interesting stuff, isn’t it? Seems like when an instrument is really hot, it becomes vulnerable to topping out. I wonder why is that. Tomorrow, I’m going to attach the Positions of the Commercials to find out whether they have to do anything with the phenomenon.
Anyway, that’s all for now. Have a great day!
Edit: I circled the same circle with green & red. That reading is kind subjective though, since the highest reading came right after the top. Well, interpret anyway you like. Also, I noticed that in the second picture, the second red line also represents a bottom in high OI reading.