Wednesday, February 4, 2015

Short Crude Oil

Maybe it was the wait that caused me to jump the gun.  I have been waiting for over a month to short a short covering rally in crude oil.  The opportunity just never really came, until yesterday.  And I was anxious to get in before oil went back down, and got in a few hours too early.  I should have seen it coming, with the lack of follow through weakness in US hours after making highs during European trading hours.  Shorting at $51 seemed like a good risk reward swing trade, but it was a horrible day trade.  In any case, the fundamentals of this crude oil downtrend is something that won't be clear until much later.  But from a big picture perspective, the high oil prices from 2007 to 2014 set the stage for an increase in production, which comes on with a lag, because it takes time for production to come online after all the plans, infrastructure, wells, and drilling takes place.   It just happened to come online as the global economy was slowing, especially with China slowing down noticeably.  It is not just US shale oil, but also OPEC production which is higher.

As for the S&P, that was something that I envisioned but didn't hang on because of trying to microtrade and avoid a possible weak close on Monday, instead it was a monster short squeeze that kicked off another rally day yesterday.  Now we are at levels where it will take real motivated buying to take the market higher.  I also noticed that the volume was higher than normal yesterday, which is unusual for an up day in this bull market.  Usually the rallies have come on very little volume, because there just wasn't a lot of overhead supply coming into to sell them.  Now, we are getting volume coming out to sell when we get these rallies.  That's not a good long term sign for this market.

I am neutral on the SPX, and bearish on crude oil.  It is a choppy market, and I don't expect that to change anytime soon.  My gut tells me that nonfarm payrolls on Friday will be a miss, so Treasuries will probably rally some more after yesterday's pullback.


Market Owl said...

Just a note that today is also trading above average volume. This is quite unusual for a flat day with very little volatility. There seems to be massive supply overhang here in S&P.

Anonymous said...

Covered the CSIQ short for a loss @ 26.25.

Short UAL @ 71.94

Anonymous said...

ECB says it will no longer accept Greek bonds as collateral. Is this something to be actually worried about? I see the market took a sharp dive right here towards the close.

Market Owl said...

It is something to be worried only if the market is overbought. And guess what? We are on day 3 of the rally, or we were before the news came out. We are short term overbought, so I can definitely see a selloff tomorrow on the continuation of this Greek story.