Forex & commodities on January 17, 2018: outlook


Here are my discretionary thoughts on forex and commodities. I only trade the S&P 500.
Go to the homepage for my latest thoughts on forex and commodities.

Thoughts

  1. Contago is bearish for crude oil.
  2. The smart money is EXTREMELY bearish on crude oil
  3. The U.S. dollar will slowly grind lower.

3 pm: Contango is bearish for crude oil.
“Contango” is when oil futures’ forward curve slopes upwards. This means that futures contracts for 12 months ahead are more expensive than contracts for current contracts.
Contango represents the market’s belief that demand for oil will be weaker now than in the future. In a way, you can think of this as “smart money”.
Oil’s futures curve is steepening right now. This is a medium-term bearish factor for oil.

7 am: the smart money is extremely bearish on crude oil
Commercial hedgers are extremely bearish on oil. (Commercial hedgers are considered “smart money” in the COT Report). They are record short against oil.

However, a “record short position” means nothing because over time, the number of long and short contracts will forever increase. That’s why it’s important to calculate short positions as a PERCENTAGE of open interest. This turns a nominal number into a range-bound percentage.
Here it is: crude hedger net as as percentage of total open interest (in red).

You can see that even as a percentage, the “smart money” is almost record bearish on oil. The smart money was only this bearish 2 times in history:

  1. May 2014. This was followed by an oil CRASH.
  2. February 2017. This was followed by a significant correction in oil.

Oil will probably make a bearish divergence, followed by a correction within the next few months.
7 am: the U.S. dollar will slowly grind lower
The USD’s price action is normal and bearish right now. Throughout 2017, the USD Index grinded down slowly and incessantly. This is the most bearish price action because it kills longs and does not give them a chance to take a breath.
*A mini-crash isn’t as bearish. When the market crashes, a big buyer can jump into the market, reverse the decline, and trigger a lot of shorts’ stop losses on the way up.

The USD Index is resuming its “grinding lower” price action right now. It’ll make tiny and feeble bounces on every minor support level (e.g. 90). But the bounces won’t go anywhere.
Read Forex & commodities on January 16, 2018

Bottom line

I only trade stocks. These are just my thoughts/outlook on other markets.

  1. Gold and silver will break above their tight range in the first half of 2018.
  2. The USD Index will crater below its final support (90-91) in the first half of 2018.
  3. The best traders I know are still bullish on Bitcoin in the short and long term. I don’t know when the crypto bubble will end.

Leave a Comment