Interesting futures data

Futures data often belies ... well, the future.

Let's take a look at the commitment of traders. Unlike most markets, futures markets are truly zero sum games, at least from a paper perspective. Thus, you can accurately guage who is long or short (big brokerages, producers, retail investors) and by how much by using this report.

The hyperlink is: http://www.futuresemail.com/cot/cotp1.htm

Notables:
retail investors and brokerages are long crude oil, and producers are short (Normal)
retail investors and PRODUCERS are long natural gas, brokerages are short (Abnormal)
retail investors are massively short the S&P, but brokerages are long
retail investors are short all duration goverment bonds

While this report isn't conclusive in and of itself, it does tell me a few things:
1) The street and the average investor believe oil is going higher
2) The average investor and nat gas producers believe nat gas is undervaled
3) The smart money is long the s&p, and the "dumb" money is short
4) The investing public wants nothing to do with treasuries

NYMEX Crude Reversing Contango

On the news of dwindling stockpiles of crude (hardly) but a real dwindling of gasoline futures (really), the NYMEX crude futures curve has flattened out dramatically. NYMEX July Crude for delivery is up $1.25, but NYMEX crude for delivery in July 2010 is only up 10 cents. The one year variance for crude is only marginally over $7, or about 10%.

I'm not saying we're going to backwardation overnight, but it will be interesting to see what happens. This could portend higher prices on the spot, but lower relative prices on the back months which means DXO (2X crude - 6 month) might not go anywhere but USO (1x crude - front month) may ramp.

Chart of the "week"

Speaking of "hanging mans", this chart of crude is full of them. Beware of this commodity! It looks ready to head back to 40, despite all my prior bullish calls on it earlier this year.

I will be getting out of the rest of my energy longs monday.

Oil Markets

The Oil markets are always perplexing. I've long been an oil bull, and remain so even after the bubble burst. Price action again, like last year, defies supply/demand logic. As RVASpeculator would point out, this is indicative more of currency devaluation than fundamental production or demand issues.

Today, more builds in oil and gas stocks. And DXO was down to 2.83, and now it is positive and at 2.99. A simple trade that has worked for the past few weeks is to buy pre-EIA stocks release at 10:20 on Wed and sell on Fri of that week. I'm sure it won't continue forever, but something I am taking note of.

How high can oil go?

As an owner in a large position of DXO, the double long crude ETN, I've been trying to figure out how high crude can go, and carry me to fat profits.

The basing pattern we've seen November - March has been impressive. I expect this to be the base of the next bull market in oil. Unlike the equity market, oil made its low in December, and has been climbing higher ever since.

40 is the absolute nominal floor for oil now. But again, how high can oil go, now how low.

We will bump up against nominal long term resistance at ~ $58. I think we get there tomorrow on a bullish inventory report, and I will take some profits on DXO (3.35-3.40 area), perhaps taking 50% off the table, just to buy it back on a pullback ($3).

Above $58, there's really good, solid resistance levels around each major round number -- $70, $80, $90, and $100. Interestingly, above $100, there's really nothing until the all time high from July. We won't be there again for a little while.

I guess my summer target for crude would be $70-75, which would put DXO around $7. It will be a choppy ride.

Near perfect retracement to the breakout point

Back to 806 on the $SPX. I thought we would retrace to the 805 support level, and 806 is close enough. I expect to rally tomorrow. Energy is the wildcard -- what will the oil inventories report bring? If we get a surprise bullish number, I think the whole market rallies again, strongly. If we get a bearish number, oil could pullback to $50 and the market could levitate in between today's close and Monday's highs.