The spot dealer puts the qualified goods into the designated delivery warehouse, and the exchange issues a certificate for it. This process is to register warehouse receipts. When the spot dealer does not want the goods stored in the delivery warehouse to be delivered in the futures market, it will cancel the warehouse receipt, which is the process of canceling the warehouse receipt.
It should be noted that the warehouse receipt registered by a spot dealer does not mean that it holds a short futures position, but that a short futures position must have a registered warehouse receipt at the time of delivery.
The increase in warehouse receipts indicates that spot dealers are ready to sell goods in the futures market. First, the current price is on the high side, and the market price is expected to go down, so spot traders hedge and lock in the selling price-spot traders are more familiar with the profit and price trend of the whole industry, so the increase of warehouse receipts will suppress the futures price. If this happens after the futures price rises for a period of time, the warehouse receipt will increase, so the probability of the later price weakening is even greater. The second reason may be that it is more "cost-effective" to sell goods in the futures market because of the current spot premium of futures prices. This situation does not have much guiding significance for the trend of futures prices, but spot traders believe that the basis will strengthen in the later period.
The decrease in warehouse receipts indicates that spot dealers are ready to sell their goods in the spot market. The first reason is that the expected basis of spot traders is weakened, that is, the expected futures price increases more than the spot market, or the futures price declines less than the spot market. In a bullish situation, the warehouse receipt will be cancelled first, and then re-registered after the futures price rises sharply. In the case of bears, warehouse receipts are immediately sold in the spot market. Therefore, if the warehouse receipt decreases after a period of price decline, the probability of price strengthening in the later period is greater.
The second reason may be that it is more profitable to sell goods directly in the spot market, because the current futures price is a discount on the spot price. This situation is generally a large spot demand, which can also explain from the side that the price may strengthen in the later period.
The third reason may be that the spot merchants are short of funds and eager to cash in.