IS IT REALLY SWEET?
Light Sweet Crude Oil is not too sweet when this type of thing happens. I think everyone is aware of the spike we have had in reaction to the Middle East turmoil. Now we have the T Boone Pickens crew out again giving the $200 Oil predictions. Does anyone remember how bullish he was on Crude at $150? How bullish he was on Natural Gas, which also tanked? Of course he is bullish, he has a vested interest in prices rising. He is just an awful prognosticator, but an all star cheerleader. I guess he can afford to be as wrong as he is with the money he has made from owning these things. The smaller fries like us need to be more accurate to make money trading.
The one day on the chart I have marked as ridiculous, featured a daily range from high to low of almost $8000 per contract. You do not want to be wading into any market when this type of volatility occurs as tempting as it might be. If you look at the purple line, the POIV indicator, you will see that it does not really confirm this move. It seems to be telling us the pros are not buying this, although when something this sharp happens out of the blue this can lag a few days. As a result, we have to wait and see if it catches up because it could.
If it were not to catch up, I would use that as a filter not to buy this market on a pullback. However, if you are bullish on this sector, the market to be a buyer in is Unleaded Gas, it is much stronger than Crude. Crude is the laggard of the 3 major energy markets. Natural Gas I don't count because it goes it's own way. If you were to count that, it would qualify as the weakest by far. It is the crazy uncle.
This is Unleaded Gasoline. This is where you should get long on a pullback. It is amazing how different this chart looks than Crude Oil.
The next chart is the COT picture on Crude.
You can see from this chart that the Commercials have been heavy sellers recently, which had led to the selloff we saw before the Middle East strife break out. Interestingly enough, the bottom pane which features something I am trying to develop, shows a different picture. It is a spin on the COT stuff I am experimenting with, it actually said we should have been buying into the recent decline. You can see from the other Red arrows, that most of the Buys with this have been pretty good. I am not going to divulge what this is so please no emails or posts asking me to do so. For now we seem to have a standard type of pattern going where Commercials are selling the rally. This all else being equal, should confirm what the PIOV is telling us on the daily chart, this could be a false breakout.
It is amazing in this world now how everyone jumps on the bandwagon after a move happens. I tend to do the exact opposite which is also not necessarily good. Even if this were to be a false breakout, the pure momentum the small investors have generated here could carry this forward a little. We have seen an unprecedented period of moves driven by small speculators that have carried on for very long times ( Gold and Silver ) to name a couple. Historically, fading the small speculators has generally been the best way to trade, and we will return to that time soon enough. I have suggested that the Government might be messing with the COT report in terms of who they are classifying where to hide what they are doing. This is one possible explanation for this extended period of apparent small spec home runs. However, that is pure speculation, there is no evidence to prove such an allegation other than circumstancial. There is certainly plenty of that on many fronts right now which is why this thought has occurred to me.
Be careful chasing this move.
My spellcheck is not working so I hope there are no typos or blunders in the post today.