One year later, a real head and shoulders?


Solid deflation trade on today: bonds, yen, dollar up and everything else down. This is hard selling, so it looks like we’re completing the top of the great dead cat bounce of ’09-’10. Once stocks and commodities break May’s lows, they could fall very quickly towards the levels of winter ’09.

Here’s crude oil, continuous contract futures. This is a beautiful short right now. How quickly the phrase “demand destruction” disappeared from discourse, along with all the other reasons why $35 was a perfectly reasonable price for oil.

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6 thoughts on “One year later, a real head and shoulders?

  1. There’s got to be a better way to short crude than the futures. What about finding a leveraged, high cost producer to short?

  2. If leverage is what you’re after, futures offer all anyone could want — 10:1 isn’t enough for you? There are also options on futures, btw.

    Jim Chanos said recently that he’s shorting a bunch of the majors, since they’re depleting their reserves much faster than they’re replacing them.

  3. Crude oil has the most liquid futures options market of all the commodities, actually. Then there’s options on USO.

    In addition to the majors I imagine there are a lot of small-to-mid-sized drillers and oil service stocks with lots of debt that could go close to 0 if oil plunges, but I don’t know any specific examples. Far OTM puts on them would give you plenty of leverage to an oil price plunge though.

  4. I’d also imagine the oil sands producers would be juicy shorts … lots of them can’t even break even on their production costs without oil over $50 per barrel.

  5. Now we’re talking – let’s look for an energy company that isn’t making it given today’s CL and NG prices. It’ll be sunk for sure when CL hits $35.

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