Calling a top in oil.. quite possibly

Discussion in 'Energy Futures' started by Lucias, Jun 8, 2011.

  1. Lucias

    Lucias

    I haven't made any predictions here because I always have to bet on them (risk some money) and it is not a good time for that.

    What say everyone?

    Here is my logic..

    A. If oil goes up the economy loses steam. Demand dries up.
    B. If the market goes down then oil goes down.
    C. If the market goes up then oil goes down.

    Oil goes down. The world economy decides the US vision was unsustainable. US enters into a multi-decade bear market. US ceases to be the center of investment which is okay because its a dead industry.

    What say you?

    This is not an official prediction yet. But, if I even write something down then it has to payed attention too.

    OKay, I've placed a small wager oil closes below 100.50 tomorrow. I'm interested though to hear all opinion on the black rubbish.

    This makes it an official prediction. I'm predicting crude to fall like a rock.
     
  2. bone

    bone ET Sponsor

    It will come off if the economy slips and the stock market continues to sell off. Look at the last half of 2008.

    The big problem with an extended stock market sell-off is the hunt for yield. We could linger with unemployment around 9 % and the S&P might range trade between 1000 and 1300 for all we know. I just can't see the S&P selling off below 1000 because the yield hunters are scared of cash, need higher interest rates, and think that commodities are overbought.

    So, given my S&P thesis, I would venture a guess that Crude Oil will range trade between $100 and $70 as a floor. Middle East Geopolitics will tend to keep Crude Oil a bit chippy to the upside - look what the Arab Spring did for it in 2011.

    The relative value spread play is to favor Crude Oil as the star and piss on the S&P as the dog. The volatility weighted and currency adjusted spread as a blended ratio:

    [​IMG]
     
  3. Lucias

    Lucias

    Looks like I was wrong at least on the time frame. I pulled out well before the break with a small loss. I'll continue to watch it. But, I think this is a longer term trade then I can actually put on.
     
  4. bone

    bone ET Sponsor

    It is a de facto stock market trade with a healthy element of geopolitical 'flight-to-quality' risk added. The OTR two year, daily close-on-close correlation between the S&P 500 and Nymex WTI contract is + 92.5 %.
     
  5. Lucias

    Lucias

    Can you update those charts? I told you when I call a top: watch out below.


    Unfortunately, my profits are down though. My trading is off because I've a lot of things going on in my life besides the market. But, this is how to get there.. just keeping hitting in on my predictions and my trading will follow (eventually).
     
  6. bone

    bone ET Sponsor

    [​IMG]

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    Hedge Ratio on the CL versus ES changed slightly.
     
  7. Lucias

    Lucias

    Chart update.
     
  8. bone

    bone ET Sponsor

    Lucias, CL flat price, or CL vs. ES ? If you want the CL vs. ES, I will have to run some statistical tests in terms of the volatility adjusted hedge ratio. So, pick your poison please.
     
  9. Lucias

    Lucias

    I was actually curious about both. I think the move down is CL is done though. When I call a top, I really am looking for a thrust down. Sometimes these develop into trends. This is my curiosity now, is whether we will see a trend of outperformance in SP vs crude over sustained time.

    Notice the dollar has gained strength while S&P has. This has sent oil lower. It signals that investors are pricing in relative strength of US over Europe.

    It may signal a regime change in the dollar/equities relationship, as well.
     
  10. bone

    bone ET Sponsor

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    #10     Jul 1, 2011