Meanwhile, our main piece for the week focused on, “Copper Traders Bailing Out of Record Position.” Specifically, what was going on with the record commercial net long position in the face of a market that appears to be rolling over.
We discussed the growing imbalance in the unleaded gasoline market last week here at Equities.com. Our primary focus was based on two points. First, the fundamentals in the petroleum sector are bearish. Secondly, the commercial traders as a group have now turned negative on their own product at these prices. These two factors have grown in strength over the last week and Monday’s weakness finally triggered an official COT Sell signal.
Most of the trading we do is based on some form of mean reversion. The idea is that a market that has moved too far away from its predicted value area is apt to return. This is the equivalent of buying low and selling high in a sideways market. The primary difference in our methodology is that we use the commercial traders within their respective markets to provide us with the two necessary keys required to make this work.
Moore Research is the virtual leader in seasonal commodity analysis. Their research shows that 14 out of the last 15 years that May unleaded gasoline futures have rallied between early February and early March. One of the primary reasons for this rally is the beginning of the shift away from winter gasoline blends and the production of summer blends heading into the Memorial Day party time. Their research is based on statistical analysis that describes what, “normal” seasonal market behavior is. However, there is a considerable case to be made that the current situation in the energy complex is anything but, “normal.”
This trading setup is a classic Commitment of Traders Sell signal and shows why we use the CFTC Commitment of Trader reports as the primary basis for screening our trading opportunities. Follow the links to see how we do it or better yet, call us and ask us how.