TechnoMeter

Crude oil: In recent weeks large speculators have been buying oil contracts at an extremely aggressive pace, bringing the net-long position to a new record last week of 596k contracts from 417k in the middle of last month. A modest reduction was seen in the most recent report, with the net-long declining by over 19k to 577k contracts.



The sheer size of the position is reason for concern for oil bulls, and the sharp run-up in a relatively short period of time makes price vulnerable to a pullback. It would be a healthy development, if crude is to continue higher, that we see a reduction in the position without too much technical damage done in the process. But for now, risk of a reversal and/or period of volatile trade at this time is elevated as positioning has reached an unstable level. This should favor the short-term trader looking for two-way price action to take advantage of.

A big-picture chart we’ve been looking at for the past couple of months. Oil may be on its way to running out of a long-term bottoming ‘head-and-shoulders’, but has the 1998 trend-line to contend with (just as it did when positioning was at a previous record high in February). Market positioning brings pause to the macro bullish implications of the ‘neckline’ breakout last month.

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