What has worked for much of the last two years, and judging by today's epic squeeze in stocks, is still working... is to bet against the most extreme positioning. So, on that basis, the following rather contrarian pairs trade should be ripe for major convergence...
Today saw yet another major short squeeze of stocks (tripling the broad market's performance and flushing yet another set of weak hands into covering higher into new record highs for stocks)...
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This comes a week after the biggest negative swing in S&P 500 futures net total positioning in over 10 years...
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But it is in commodity-land that we find our illustrious pair tonight...
The short leg will be... WTI Crude oil...
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As BofA notes, Large speculators increased WTI crude oil longs to $38.8bn from $38.3bn notional.
Looking for a top. The gains of last week and closing break of the 21d avg (100.08) was unexpected. However, absent a break of the 104.48 Mar-03 high the larger trend remains bearish towards the Jan-09 lows at 91.35
And the long leg will be... Copper
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Large speculators increase net short to -$2.5n notional from -$2.1bn last week.
So if you are truly a contrarian, being short oil (into potential minefields of energy-related sanctioning and retaliation) and long copper (into potential mass inventory dumping and liquification from a ultra-hypothecated deleveraging Chinese shadow banking system) is your trade du jour...
(or perhaps it was a premonition of tonight's earthquake in Chile's mining region)?