OIL BLOWS UP: Commodity Rout Deepens

I’d be on guard for news of commodity focused hedge funds being liquidated into this maelstrom. The carnage is significant and pervasive.

WTI is off by nearly 5% today.

The current fear is a ‘global glut’ in oil, which isn’t anything new. However, I think people are starting to realize that none of Trump’s pro-growth strategies have passed and GDP is in the pits; ergo, there isn’t a reason for commodities to fashion higher. The culprit, naturally, US shale.

“The market continues to hunt for a bottom,” said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut. “We’ve dropped to a five month low.”

“At some point, the market should recognize OPEC isn’t the most important player in the market any more,” said Commerzbank’s Eugen Weinberg, “That is non-OPEC, and, above all, U.S. shale.”

Other commodities being routed included: copper -1.2%, nickel -2.6%, gold -1.5% and natty -1.7%.

On the other hand, bitcoins continue higher by another 5.2%.

The dollar is significantly weaker v the euro — off by 0.7%, probably because Macron is being praised as the winner of last night’s debate. On the surface of the market is nothing but smoke and mirrors. The commodity sector is being shredded on the equity side too, with losses ranging from 3-8%.

Conversely, defensive stocks, like consumer staples and military, are holding up nicely.

On the algo side of things, oil stocks are at their low point — definitely a prime candidate for a mean reversion move higher.

Truth be told, however, we are exploring new boundaries here and I would be reticent about jumping in with both feet.

What does that mean?

Well, the scores that make oil oversold are based off recent history. The market has been very accommodating to all stocks for a year, rarely trading down for more than a few days. The algos failed XLE recently and have been correcting themselves at these lower levels. The way the program works is price discovery and memory. The old levels of XLE weren’t enough to place in a bottom. The ETF kept trading lower with the sector, leading to even lower technical scores. Eventually, it will find a level that will be helpful.

For example, our 3 mo threshold is now 1.21, the 6 mo is 1.24 and the 12 mo is 1.31. Over time, that 1.21 scores will become the principle OS threshold and, hopefully, provide members with an edge when trading it. It’s important to note that nothing is full proof. As long as we’re learning from the past, we can make better decisions in the future.

If you enjoy the content at iBankCoin, please follow us on Twitter