In scrolling through the intra-day charts, I came across a rather bearish looking pattern being painted by the algos.
This caught my attention and warranted further investigation - What I found was a confluence of bearish indicators that argue for making a short bet here. Lets take a look at the evidence.
1 - The COT report as of 10/3 shows that Commercials current net position, based on our proprietary scoring scale, ranks a extremely bearish 5% on a 18m basis and even worse 4% on a 5yr basis. But what does this score tell us?
In reviewing our Actuarial tables on price we see that since 2004, over a 20 day trading interval, the 80th percentile moves in HO from a random close is .0436 up by (.0336) down. The 70th percentile move is .0673 by (.0532). So price distribution favors bulls by odds of about 1.3 to 1.
However, when we see commercial net position 18m scores of < 7%, price distribution in the 80th percentile changes drastically to now only .0265 up by (.0518) down. And the 70th percentile moves are now .036 up by (.057)down.
So when commercials are positioned this bearishly, price distribution odds move from 1.3 to 1 bulls, to favoring bears by 2-1 in the 80th percentile and 1.6 to 1 in the 70th percentile.
This is a significant shift, and Bears have a clear edge.
2 - Next we check the seasonal tables and see that since 1990 Heating Oil's worst performing month is October with a lousy 32% winning %. followed by a 44% win rate in November. The average loss in Oct periods is almost 11 cents.
3 - The technical picture on the price chart is very negative currently.
A - We have a massive rally from 1.35 to 1.86 or 38% over 3 months. We are now seeing signs of price stalling, and a quite normal 50% retrace of this move would take you to $1.60 or 17 cents lower.
B - Our proprietary oscillator is showing a failed buy signal. So price bounced off the oversold levels, however instead of moving towards overbought, we are seeing stalling in the 50 range - Now the indicator is hooking lower, signaling a new price decline ahead.
So technicals are pointing to a sell-off, and we have confirmed the odds favor a bet lower.
However - Tomorrow there is a potential catalyst in the oil market as Trump will likely announce exit from the Iran deal and/or other potential sanctions - You could see Oil bid, in which case HO would follow suit.
Lets wait until after the noon announcement before entering a trade. Ideally we will see Oil & HO pop higher & we'll get a chance to short it near the right shoulder high in the 1.80 area.
- Will update trade economics tomorrow.
Please visit our blog for Alchymist Data tables and graphs as well as more in depth analysis.
Good Trading,
3ptCapital
This caught my attention and warranted further investigation - What I found was a confluence of bearish indicators that argue for making a short bet here. Lets take a look at the evidence.
1 - The COT report as of 10/3 shows that Commercials current net position, based on our proprietary scoring scale, ranks a extremely bearish 5% on a 18m basis and even worse 4% on a 5yr basis. But what does this score tell us?
In reviewing our Actuarial tables on price we see that since 2004, over a 20 day trading interval, the 80th percentile moves in HO from a random close is .0436 up by (.0336) down. The 70th percentile move is .0673 by (.0532). So price distribution favors bulls by odds of about 1.3 to 1.
However, when we see commercial net position 18m scores of < 7%, price distribution in the 80th percentile changes drastically to now only .0265 up by (.0518) down. And the 70th percentile moves are now .036 up by (.057)down.
So when commercials are positioned this bearishly, price distribution odds move from 1.3 to 1 bulls, to favoring bears by 2-1 in the 80th percentile and 1.6 to 1 in the 70th percentile.
This is a significant shift, and Bears have a clear edge.
2 - Next we check the seasonal tables and see that since 1990 Heating Oil's worst performing month is October with a lousy 32% winning %. followed by a 44% win rate in November. The average loss in Oct periods is almost 11 cents.
3 - The technical picture on the price chart is very negative currently.
A - We have a massive rally from 1.35 to 1.86 or 38% over 3 months. We are now seeing signs of price stalling, and a quite normal 50% retrace of this move would take you to $1.60 or 17 cents lower.
B - Our proprietary oscillator is showing a failed buy signal. So price bounced off the oversold levels, however instead of moving towards overbought, we are seeing stalling in the 50 range - Now the indicator is hooking lower, signaling a new price decline ahead.
So technicals are pointing to a sell-off, and we have confirmed the odds favor a bet lower.
However - Tomorrow there is a potential catalyst in the oil market as Trump will likely announce exit from the Iran deal and/or other potential sanctions - You could see Oil bid, in which case HO would follow suit.
Lets wait until after the noon announcement before entering a trade. Ideally we will see Oil & HO pop higher & we'll get a chance to short it near the right shoulder high in the 1.80 area.
- Will update trade economics tomorrow.
Please visit our blog for Alchymist Data tables and graphs as well as more in depth analysis.
Good Trading,
3ptCapital