Thursday, March 31, 2016

The Efficient Bonus Hypothesis

I noticed that stocks have been peaking at the end of each month and then tanking. Along with oil. Sans short-covering, the spot oil market will be located again this month and stocks will be along for the ride...

Oil inventories at record high levels. Massive increase in speculative net long positions. Oil producers hedging two years of production. Contango curve flattening. Stocks record correlation to oil...

"The net effect of the rise in oil price is that it's now very economical for marginal producers that have thousands of drilled uncompleted wells, to now bring those online immediately..." 

"I hate to interrupt, but isn't that all bullish?"

"Uh, No"

It's this guy again, free money man. Click on picture to watch video, you can't make this shit up...




Speculative net longs (red) with WTI
Data from: https://www.quandl.com/data/CFTC/Crude_Oil



The efficient bonus hypothesis
Except for the past two months due to short-covering, stocks and oil have peaked at the end of every month, since October...
Oil is red:



Another weekly increase in oil inventories
The contango curve flattening means that oil producers hedged in the oil futures market which allows them to continue producing and flooding the spot market...




The Spot market is well below the current futures price...
The May - June futures spread keeps widening, meaning the USO ETF now has to absorb a -3.5% rollover loss starting April 6th - 11th, the rollover "window".



USO ETF
This brings up the "find the spot market" scenario I posited several weeks ago...

February rollover window is in the red box:




The spot market will be located again, by April 11th without short-covering as support and "stocks" will be along for the ride...

WTI: