As I am hoping you all know, in futures there is a buy-side of all up-trending markets and there is also a sell-side as prices climbs. So as prices rise, who is selling? You may be surprised by the answer.
Last week February 2013 Crude Oil opened at $86.67 a barrel and closed the week at $87.25. On the daily chart you can clearly see this market is in a weak or no trend with ADX at 14. MACD is riding the signal line with no divergence, and with today’s price action we see Stochastics correcting from oversold territory. Range $86-$90. Today we see the price action continuing the correction up from $86.
On the weekly chart we also see a week trend with ADX at 19 and Stochastics are in oversold territory.
Proceed to Page 2 for the latest COT Data...
Now take a real good look at the Disaggregated COT. The green line represents the Swap Dealers, now the sell-side of crude oil, defined as the sellers in an up-trending market. This past week we did see a drop by Swap Dealers of net shorts now at -154,604 contracts. Producers, the usual sell-side are now net short -21,645 contracts. Managed Money is currently net long 83,512 contracts, and a special note here as Other Reportables are net long 82,827 contracts. Total contracts held short by Swap Dealers are 328,020, long 173,416 contracts. If you look closely, Swap Dealers became net short on the week of Nov. 8, 2010, and except for a brief period in the Summer and early Fall of 2011 (low of $76), they have been net short.
So why are Swap Dealers hedging crude oil? One answer could be the ETFs currently in Crude Oil. The biggest, USO, has assets of $1.24 billion. Those assets are long-only futures contracts that role every month, exposing USO to contango. Since the inception of USO on April 10, 2006 numerous new crude oil ETFS have emerged, some designed to avoid contango. Combined, the assets of these ETFs total $3.2 Billion. (See chart below.)
If you need help understanding how to understand how to use the NEW COT report to your benefit get instant access to my new e-book "What Lies Beneath ALL Trends". It is filled with eye opening information.Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.
Proceed to Page 3 for this week's detailed fundementals...
If you are not watching “big money” today you are definitely not connected to the markets. Have a prosperous trading week.
Happy Holidays to all.
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