Short covering rally
Price up while open interest drains — shorts buying back, not buyers arriving.
A rally on falling open interest is positions closing: shorts buying back their contracts push price up without any new money committing to the upside. These moves can be fast — a squeeze is forced buying — but they end when the covering does, which is why the setup is read as a caution on chasing strength rather than an endorsement of it.
More derivatives:Long buildupShort buildupLong unwindingOpen interest at a 3-month highFutures at a premium
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