Ok, now that NFP is out of the way, it’s time for some humor (interspersed, of course, with some analysis).
So you’re all aware by now that crude collapsed mid-week. You’re probably also aware of how stretched positioning was headed into said collapse. In short, there was massive net spec long as tipped here and as illustrated quite poignantly here:
As I noted, some folks were caught wrong-footed. Here’s what I said on Wednesday:
“The catalysts that we expected from changes in inventory levels have not played out as we expected,” one energy sales specialist said. “The market needs several catalysts to move the space higher.”
I see. Kind of seems like maybe all those longs are liquidating…
Well, you might also recall that this very same spec money is massively short Treasurys. Especially in the belly of the curve. In fact, the net short is so large for hedge funds, that it’s a three-sigma event…
And while recent hawkish rhetoric and the incoming data do seem to support that short UST thesis, keep in mind that everyone was pretty goddamn sure that high reported compliance with the OPEC cuts was supportive of the long crude idea.
So consider and internalize all of that.
Next, take a look at what I’ll call an “epic fail” moment for crude longs. Finally, consider a “wait for it….” setup in Treasurys. I’ve included the relevant gif as well for clarification (warning: for the uninitiated, you may have to put in some mental effort to get the joke)…
“Wait for it…..”