Skip to main content

Just the beginning ?

As mentioned in my previous post "Natural Gas Momentum Marches on!" in this blog that even though the "speculators" have remained net long futures and option positions in NYMEX (see chart below) based on the data from CFTC as last Tuesday (July 1st), the outstanding contracts for long positions, however, have been closed out continuously in the last 5 weeks. The total contracts of long position declined from over 260,000 to

just above 210,000. At the same time period, the short positions remained at relatively consistent level of about 190,000.

The nearly $10 slide of Western Texas sweet crude in last two trading sessions (7/7 and 7/8) hardly can be explained by the popular media/talking head's hypotheses, namely dollar related trade, China/India growing demand/limited oil production capacities, mid-East geopolitical tensions etc. True, the greenback has been strengthening since ECB indicated the 25 bp increase on 7/2 might be enough to fend off inflation pressure, but the strengthening of dollar from about $1.58 to $1.56 against the Euro would be a real stretch to account for the crude movement. The notion that crude market SUDDENLY woke up on Monday and realized that global economy is slowing down or worse the global economy may be in the recession is just a laughable news media headline stories. It may sound logical and reasonable, but it may far from the true picture.

Is this just the beginning of "hot money" leaving the crude market for the summer vacation or capital rotating into alternative assets with better risk-reward outlook? We may have some indications on Wed, after EIA release its Weekly Petroleum Status Report.

7/9/08
Well, EIA weekly report came out with quite bullish bias, a huge decline of 5.8 millions barrels of crude stocks. Oil responded with initially up almost $2, it seems that raging crude bulls were going to show its muscles again like in so many previous occasions, i.e., any bullish news, rumor or stats, would propel oil to a new higher ground, to recover the $5 loss yesterday. But not today, even weakening dollar was not able to provide much to sustain the early gain. The crude oil gave back early gain and ended at flat line. Another ominous sign for oil bulls this time was that the fireworks show of long range missiles from Iran did nothing to help oil upward trajectory today. That certainly was not good news if you are oil bulls. Or this may be just the beginning that we have been long waiting for the correction of crude "irrational" run.
Labels:

Popular posts from this blog

What history tell us about “Sell in May and Go Away”?

US stock market has experienced one of the best first four-month performance over the last four decades, produced 17.5% price return comparing to 19.1% in 1987. It is the third best price return for S&P 500 index since 1950; the top four-month performance belongs to 27.3% in 1975 as the stock market recovered from a severe bear market in 1973-1974 when the index nosedived more than 42% in two years. With calendar flipped into May and onto summer season of sun, beaches, most likely we would hear a lot of about old Wall Street saying “Say in May and go away” in the media. Moreover, primarily because of the unprecedented nature of speed and magnitude of the current market rally against the backdrop of weakening macroeconomic and corporate earnings backdrops during the period.  Sell in May and Go Way has delivered 6 times more return Historically, the six months between Nov-April frequently experienced extraordinary stock market performance than the six months between May to Oct...
Read more

MBS spread widen at historical levels

The turmoils at FNM and FRE created great anxieties and opportunities for both equities and debt TRADERS. The newly passed housing rescued packages by the Congress and signed the President essentially changed the "implied" to "explicit" US government backings on both quasi agency's outstanding debts. Their spreads to US treasuries have tightened in last few weeks. However, the most liquid 15 yr and 30 yr fixed MBS from Freddie and Fannie were under great pressures in last few days. Using 10 yr swap rate as benchmark, FNCI (15 yr Fannie MBS TBA) was priced to 5.50% with spread of 78 bps, that was 4 times of historical 10 year average (see the first chart). FNCI was traded at the cheapest level since 1998. The 78 bp spread to the swap was about four sigmas of the mean. FNCL (30 yr Fannie MBS TBA) was also trade at the lowest level that we have not seen in the last decade (second chart). Comparing to other investment alternatives, current fixed MBS prov...
Read more

VXN converging to VIX

Nasdaq markets have been dominated by some of well know large cap tech companies and many smaller less know names too. Not surprisingly, Nasdaq markets measured by NASAQ-100 have been much volatile than SP500. However, since tech bubble busted in 2000, the Nasdaq volatiles measured by VXN declined dramatically and has gradually converged to broad market volatility represented by SP500, VIX (see Bloomberg chart below). Actually, as credit and mortgage market began to melt 18+ months ago, VIX and VXN have been almost in parities. SP500 was much volatile than NASDAQ100 in two of these period, first when Bear Sterns hedge funds fiasco and second time happened in last Nov when financial system was in the breaking point. Financial sector was the one of largest sectors until last year because of market value evaporation from some celebrated financial names, like Bear Sterns, FNMA and Freddie, Lehman and Citi. Almost all these financial firms were traded at the big board and are members of SP5...
Read more