WHAT'S GOOD FOR THE GOOSE IS GOOD FOR THE GANDER
When I thought about how I have harped on Gold as being a big bubble, our crazy uncle Natural Gas is the opposite. This weekly chart above almost looks like Gold turned upside down. This market has just been pummeled for years now. Similar to Gold yet in inverse fashion, some very good traders have been trying to invest money into this beaten down area hoping to catch the bottom. Needless to say those trades and or investments have not worked out very well so far. If you look at the POIV indicator here in purple, look at the huge amount of distribution we have had. I cannot remember ever seeing anything this extreme with POIV.
We also have some interesting things going on with the COT report here that are worth mentioning. The normal patterns have a few different looks and I have labeled one of them here. In that instance you can see a big down trend that had a bounce. During that bounce the commercials sold pretty aggressively, giving us a nice sell signal and entry. This is the best possible signal you can get with COT data. Often they are just hedging, so they will be buying heavily during big down trends like this. You can certainly see several instances of this on this chart. I have marked off another situation which is unusual, and it occurred 3 times in this market.
This situation features what is called capitulation. In these instances, you can see at the end of moves down that got extreme, you actually saw commercials give in and get heavily short. When this happens it is basically them crying uncle. They have lost enough money on their hedging that they are not willing to lose any more. When we see this often a tradeable bounce or much more than that is not far away. You can see this is happening now, with the commercials doing quite a bit of selling in recent weeks. With the price dropping as sharply as it is, this makes me think we might be close to an important low here.
If you study charts and look for this type of thing you will also notice it was in place at the last major top in Oil prices, before they had their precipitous decline down into the 30's after going over $100. This type of situation is no where near a trade today type of thing. However, it bears watching to see if we happen to get a trend change while this type of thing is going on. If we do, this could wind up being very interesting on the long side. One thing that seems to get lost about commodities is that although they are known for trending better than stocks, they are also much more mean reverting than stocks are. Long term charts tend to look more like EKG's than slopes like this or Gold that gone on for this long.
Timing the turns from a trend this severe is impossible. You could have argued that this has been extremely oversold for years and been right. Oversold can get more oversold, overbought can get more overbought. This is essentially an inverse bubble, and there will be some big money made when this sucker does an about face. Maybe we are seeing the underpinnings of a fundamental condition that could lead to this trend changing.