Heating Oil and Gasoline are at their lowest hedge fund positions for the past 52-weeks. Brent Crude is very near its lowest level

SpreadEdge Capital specializes in seasonal spread trading across a wide variety of commodity markets. A spread trade is the simultaneous purchase and sale of the same commodity with different delivery dates.  SpreadEdge publishes a weekly Newsletter that provides several seasonal spread trade opportunities every week.

Several indicators point to a rebound in Energy prices over the near term.  These indicators include hedge fund position estimates, the daily and weekly charts, and relative price and positioning.  Each of these indicators are reviewed in the following sections.

Hedge Fund Position Estimates Overview

The Commitment of Traders (COT) report, issued by the Commodity Futures Trading Commission (CFTC), offers a weekly snapshot of the positions taken by different market participants in the U.S. futures markets. This information aids traders and analysts in comprehending market sentiment and developments.  Published every Friday at 3:30 PM Eastern Time, the COT report reflects positions held as of the previous Tuesday's closing business hours.  Peak Trading Research assesses the latest COT report, examining alterations in price and open interest to provide an appraisal of net fund positioning daily.

Heating Oil

Hedge funds continue to sell Heating Oil which has now been at 52-week low levels in each of the past 3 weeks.  HO has been net short for the past 9 weeks.

Gasoline

Hedge funds have sold nearly 23,000 net contracts over the past 3 weeks bringing the market to its lowest level over the past 52 weeks.  This surpasses the previous low of 25,355 back in October of last year.

Brent Crude

Hedge funds have sold over 112,000 contracts over the past 3 weeks and over 250,000 since April to bring Brent Crude very near its lowest level.

Technical Analysis

Relative Price and Positioning

Relative price and positioning combines holding and price action on a 4-quadrant chart.  Below is an explanation:

Relative Positioning – Oversold versus Overbought on the horizontal axis.  COT current net position compared to the COT data over the past 24 months.

Relative Price - Cheap versus Expensive on the vertical axis.  A comparison of the front month current price compared to the front month price over the past 24 months. 

Heating Oil, Gasoline, and Brent Crude all fall into the “Cheap and Oversold” quadrant.

How to Trade

I have been long the Heating Oil November, December calendar spread for the past several weeks and patiently waiting for the turn.  Clearly, I have been early on the trade but the scheduled holding time is until late October so there is plenty of time for this trade to work.  I am also planning to buy a Brent Crude calendar spread later next week.  Below are the spread charts:

More Information

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More Information

The SpreadEdge Weekly Newsletter is published every weekend and provides a broad overview of the important seasonal, technical, and fundamental indicators within the Energy, Grains, Meats, Softs, Metals and Currency markets.  In addition, spread trade recommendations and follow-up on open trades is also provided.  For a free copy of the Weekly Newsletter, please send an email to info@SpreadEdgeCapital.com

Darren Carlat

SpreadEdge Capital, LLC

(214) 636-3133

Darren@SpreadEdgeCapital.com

www.SpreadEdgeCapital.com

Disclaimer

SpreadEdge Capital, LLC is registered as a Commodity Trading Advisor with the Commodity Futures Trading Commission and is an NFA member. Past performance is not indicative of future results. Futures trading is not suitable for all investors, The risk associated with futures trading is substantial. Only risk capital should be used for these investments because you can lose more than your original investment. This is not a solicitation.

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