Monday, November 23, 2015

Crude Implications

Crude oil has been a laggard compared to the S&P as many of you have noticed over the past month or two.  I have looked at the crude oil ETF flows and there are still massive amounts of retail/institutional inflows into the long and leveraged long ETFs.

As you can see above, there isn't that big of a difference considering that one was over 9 months and the other was over 50 days.  You have much greater inflows on a per day basis over the past 50 days compared to the first 9 months of the year in both the UWTI and USO, the 2 most popular oil ETFs.

It seems like traders are still too enamored with trying to pick the bottom in oil, even though it hasn't paid off for over a year now.  Eventually you will find a bottom, but I don't expect a V bottom.  It should be a messy, sloppy bottom that wears you out rather than scares you out.

On equities, I am negative this week due to how close we are to SPX 2100 strong resistance, and the weakness in oil and the strength of the dollar.  It reminds me of the earlier part of the year when you have 5 day rallies to the top of the range, and then weaken suddenly for the next 3 to 5 days.  Examples are in January and March.

On bonds, I am positive because of the above view on equities, the relentless bid in Bunds due to upcoming Draghi fireworks, and the resilience that bonds showed last week despite a strong equity market.


MM111 said...

2070 so far. Can we go lower do you think?

Market Owl said...

The put call ratios are higher than I would like to see if I was betting on a pullback. I do think this market has very limited upside. But I don't see enough bullishness yet despite the strong and resilient tape, to have a high probability trade on the short side.

Anonymous said...

Not really about the tape right now more about turkey/russia/middle east. Although you can say the tape reflects that. Seasonally have been strong every year in December every year since 2008 except last year and even then we had a strong bounce in the last couple of weeks. Will geopolitical risk cause a move like last year? Was it oil that contributed to a weak first half of december last year?

Should have bought some GMCR along with the SWN and GPRO. It's like a layup trade almost.

Anonymous said...

IWM up .78% today while SPX slightly negative. Small cap flyers everywhere. Maybe dash for trash?

Market Owl said...

Usually December is the time where investors dump losers to take their tax losses. Tax loss selling should provide some bargains next month. Small caps usually outperform large caps starting now till January