How the action in the oil market is weighing on the broader stock market
Energy market is a nightmare nowadays.
Natural Gas markethad no mercy for traders shorting natural gas; last week, on Wednesday, natural gas shot up 18 percent to the highest since 2014, on the back of forecasts about cold weather that drove traders into a frenzy as they bought more gas to cover their short positions, probably opened on reports of ample supply in the United States. A high volatility in the market was seen. Prices hit 4.88 and retraced towards 3.90 in one day.
The other nightmare is Crude Oil markets.Crude oil prices hit a new one-year low today on fears of a supply glut and a slowing economy. Uncertanity goes on.
And we see a sell of on the stock markets.
Extreme volatility in the energy market could be one of the less obvious causes of the stock market’s broad-based sell-off as the Dow Jones Industrial Average erased its gains for the year.
You can’t understand this breakdown in the stock market unless you recognize that we’re seeing some spillover from the carnage in the oil futures
An interesting approach from Jim Crammer comes out. This is a well known but not seldom told story.
“You have tons of money managers with staggering losses in, say, the oil futures,” Cramer said on “Mad Money.” “If their investors want out or they just need to raise capital to meet the broker’s margin calls, they need to sell something, and that often is stocks.”
Oil prices fell sharply Tuesday on fears of a supply glut and a slowing economy, with U.S. West Texas Intermediate crude hitting a one-year low. Crude futures have dropped dramatically in the last month as U.S. crude prices plunged as much as 30 percent from a four-year high.
Garner, the co-founder of DeCarley Trading and author of Higher Probability Commodity Trading, “believes much of the recent weakness in equities can actually be blamed on shortsighted managers liquidating stocks to pay for these commodity market margin calls,” Cramer said. “By the way, that’s why you should never, ever buy anything on margin.”
According to the Commodity Futures Trading Commission’s “Commitments of Traders” report, money managers, small speculators and commercial hedgers still have substantial long positions in West Texas crude futures.
“This has been a very crowded trade for a long time. That’s why Garner’s been warning us nearly all year that lower oil prices could be in the cards,” Cramer said. “Large speculators were net long roughly 230,000 contracts as of this latest reading. […] That’s down dramatically from 730,000 at the peak — the largest net long position, by the way, in history (how wrong were those people?) — it’s not down enough to make Garner believe we’re ready to bottom.”
Personally, I do not believe that we have seen the bottom yet. OPEC meeting will determine the fresh direction of the prices.
I will keep you updated…
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