A Monster Short Squeeze Hit the Oil Market Today

[MichelGJulien 10]

After 6 days of below average volatility, crude oil came back with a vengeance today squeezing shorts mercilessly until most of their juice had been extracted. At one point after lunchtime we were up more than $2.70 from the low of the session. Considering the average of the last 13 days was a mere $1.29, you can imagine the devastation that such a move brought onto a growing (lately) number of bears. Will bears get the upper hand back soon? Hmm... not sure, at least not until $105 is tested in my opinion. Of course the fundamentals are all on the bears' side but like I was mentioning yesterday evening in a chat with one of my fellow crude oil traders: "When everybody's leaning on the same side of the boat, it is time to be a contrarian". Today's huge move proved that saying right (again).

 

In a strong trend, market almost never retraces more than to the 15-20% Fib

 

Today was inventories (EIA) data day. The number that came out at +5, 5 million bbl. was negative for the price of oil, at least if one still believe that fundamentals do matter. Half an hour before the release of the data, crude's price started to really take off. That prompted me to tweet: "Did someone leak the report"? Do you think that when 10:30am came and that the worse than expected data finally hit the tape that the market reversed to the downside to reflect the fundamentals? Tough luck guys, because it just kept going higher with even more velocity. If that doesn't prove that in this "new normal" environment fundamentals do not matter anymore, I don't know what will.

 

I took 3 trades today:

 

1. Short 101.75 at 9:31am, exit 101.65 at 9:33am for a +10 ticks profit.

2. Long 102.33 at 10:06am, exit 102.45 at 10:12am for a +12 ticks profit.

3. Long 102.46 at 10:32am, exit 102.80 at 10:33am for a +34 ticks profit. Result: +56 ticks today

 

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