Dollar Index vs Crude Oil

Clear correlation between DXY (Inverse) and CL

cl_dxy_inverted

Commodity and hedge funds are notorious momentum traders, a reputation borne out by the COT data.

The natural consequence of this strategy, and the weakness in the funds’ approach is that they typically are caught holding their largest position—in the wrong direction—at market turns. For example when funds buy on a scale up, they naturally have a sizable long position to distribute. Although they would like to do so without moving prices against their positions, they cannot all liquidate at the top without depressing prices. Funds often run up big open profits because their algorithmic trading models catch major trends. But in the vast majority of cases, they end up giving back a large portion while waiting to confirm the end of the trend. Once they begin liquidating, they frequently do so en masse, trampling prices in the process. And this is just to take profits. More selling is then required for the funds’ algorithms to catch up to the new downtrend. (In futures trading it is as easy to go short as to go long.) The Commitments data is extremely helpful in gauging the state of fund buying and selling programs, often enabling the nimble to stay ahead of this rumbling herd.

Here you can see the Extreme Leveraged Long Crude position. Without a higher high in price they were offside, as the above paragraph describes.

I put the Dollar Index chart there too as it also has an Extreme Leveraged Long position – I am trying to add data pre 2000 but it comes from separate exchanges and it will take some time.

cl_dxy_clean

Some good examples on using the Excel Data Analysis Addin:

http://www.excel-easy.com/examples/correlation.html

No trades for me this week due to DST/Rollover. I am also working full time at the moment so not at my trading desk except for the close. I am going to try to work on longer term positions.

Updated to add new DAX:SPX chart:

disconnect is due to euro devaluation / american interest rate rise will accrue benefit (carry) on dollar deposits

sc

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One thought on “Dollar Index vs Crude Oil

  1. Pingback: Charts 23rd May 2015 EURUSD/DXY/ – ES/DAX – GOLD | atoast2trading

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