COT Offers Potential Reversals, But Few Signals

01/14/2020 9:34 pm EST

Focus: ENERGY

Andy Waldock

Founder, Commodity & Derivative Advisors

Despite many potential reversals, only natural gas appears ready to be indicating a trade, reports Andy Waldock.

Despite a number of reversal signals in multiple commodity sectors, I really don't have much in the way of trade recommendations because markets appear to be responding to fundamental news and event driven volatility rather than technicals. While the technicals often are more revelatory, one should not fight news events when they decide to push market activity.

Picking one trade from the list below, I think the natural gas buy signal is the one that seems the most solid. Natural gas is carrying a record speculative short position on top of the market's currently depressed prices. This is a woeful scenario for the speculators. Look for a short covering rally and volatility expansion to the upside. The weekend’s extreme weather conditions in parts of the northeastern United States could be a catalyst. Traders should watch for cold temperatures as perhaps a sing to initiate natural gas longs.

Overbought/Oversold/Reversals

In addition to the natural gas market, the entire energy complex is showing signs of reversals. Despite this, only natural gas is close to providing an actionable trade signal.

cot

Crude oil, despite the commercials extreme short position, is too tied into geopolitical events to consider taking a position. Same thing with gasoline, but traders should monitor these COT reports as well as the fundamentals.

The Canadian dollar is also showing a reversal signal, but it is tied into the price of crude oil. Traders should monitor these levels as well as other trade indicators.

Right now, the volatility in these markets are greater than the edge these levels are showing, so we have no trade.

Here is what Andy had to say about seasonality and the COT Report at the TradersEXPO New York. Visit Andy Waldock Trading to learn moreRegister and see our daily and weekly signals archive for entries and stop loss levels sent to our subscribers.

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