Monday, May 3, 2010

Long Term: Long SPX, Short Crude, Long Dollar - May 03, 2010

Long Term = into Q3
Short term = 2 weeks

Commodity Futures Charts

Here is more confirmation which would be inline with my thesis on the SPX and Crude (currently I would short the SPX within a two week time frame and be long into Q3 and also short crude into Q3). I point out the tight correlation from February to the end of March between ICE BRENT and the SPX. The correlation starts to break down at the end of march. If my thesis is correction one should expect a return to the correlation where the SPX should continue up and oil prices to fall.

Commodity Futures Charts

As we see above; from the end of January 2010 the dollar continued to strengthen while oil prices diverged drastically. This is counter intuitive if currency markets are a significant factor in determining oil prices (unless supply factors outweighed weaker demand forces - e.g. opec decreased production to keep prices high since a stronger dollar would have curbed demand -> but I don't follow these number so I am not sure).

However this inverse correlation we see in the EUR/USD and ICE Brent can break down are start reverting back to positive correlation as seen back in early January and early December. Though, I can site no evidence to explain such an event, other than technical bearishness for oil (which has yet to happen) AND/OR the resolution to the Greek debt crises and a restoration in the confidence in the Eurozone with clear fiscal matters resolved for the next decade (which I highly doubt as the other PIGS, PIIGS and PIIGGS are still lining up to get lower sovereign debt ratings)

It would seem that the SPX/CB chart is more meaningful as there is greater evidence for a bullish SPX; fundamental and technical evidence (long term trend in tact with strong corporate earings etc...) and possible technical evidence for a bearish oil.

Commodity Futures Charts

This last chart shows for the end of 09 into 2010 the story has been strong dollar and strong SPX. Currently there is strong fundamental evidence for a continued strong dollar and strong SPX which would confirm short oil as long as this relationship stays in tact.

Currently the big risk I feel is misjudging the timing of all these events to play out.


Alexander Lê
Managing Partner
Analyze Capital LLC

1 comment:

  1. I'll run some S&D numbers to see if we can uncover the key to the divergence.


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