Short covering rally
Price up while open interest drains away. Shorts buying themselves out.
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, because a squeeze is forced buying, and they end when the covering does. Read the setup as a caution on chasing strength.
More derivatives:Long buildupShort buildupLong unwindingOpen interest at a 3-month highFutures at a premium
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