Short piece here so that you don't have to digest much and can keep it at the front of your brains.
Let me drop a chart in so I can show you what I'm on about...
Just for you guys...
This is one of my favourite sentiment strategies.
What do we know about your average retail punter?
They LOVE basic patterns.
They reckon it confirms something to them about what the market is going to do.
They are also told to follow the trend though.
So there are a few things to ask yourself currently...
What don't these guys know?
Well, they likely don't look so heavily at the macro or at least have very short timeframes to base their trades off.
Where are they likely to be stopped out?
Lovely neckline there, and perhaps lower too.
How 'committed' are they to being long?
If we tick lower towards, say, $64, do they want to buy again and get the total book positioning even longer?
The chart above is showing that 72% of IG clients are long oil.
The book is certainly stretched!
I tend to look at patterns and success rates based on where the max pain is.
With head and shoulders patterns, you tend to find they work based on when 'uninformed' traders are going to experience max pain.
Conversely, you tend to find that head and shoulders patterns DON'T work when a big majority reckon it's actually going to play out.
This can work with most markets, especially when you have the macro on your side.
With Omicron in policymakers' crosshairs, what could the outcome of more restrictions in the US signal for oil price via the demand mechanism?
A closing of borders?
Airlines are a large consumer of oil, after all.
One thing to note here is oil price seasonality.
Note in the video, the guy says that October and November are months where price declines.
We have seen that, but I feel it's not done yet.
We are not in 'normal' times, with the risk of the virus able to spin a commodity market via the demand mechanism quicker than you can say 'HOLY SHIT.'
The play on this oil idea is simple (from a relatively low risk perspective).
You could either...
1) Sell now, half at the neckline and wait to see whether the book positioning stretches longer (how committed are you, oil bulls?!).
2) Wait for price to move to the neckline and see what positioning looks like then.
Lastly, bear in mind market symmetries too...
By no means is this necessarily academic, but we have a huge level there which has not been tested as support yet, with prior moves hitting key highs with pretty high precision.
Is $50 out of the question?
What does that mean for demand?