Summary:

• CFTC measure of speculative positioning could be helpful with tactical trades
• USD could look oversold vs some G10 peers
• Sugar could look oversold and oil overbought in the commodity sphere

Buy low and sell high – this is one of the most common proverbs on the markets. But how low is low enough? We never know it for sure but tracking what others are doing could be helpful. In fact the CFTC come up with a report on positioning each week. Extreme positioning could herald a reversal because where everyone’s long (short) there might not be money left to keep buying (selling). However, bear in mind that it’s just one of many indicators and any reversal may not be imminent. Having said that, we point at 3 markets that could be worth watching:

US dollar

US dollar has had a tough year so far but just when it looked as if everything was against it (think Trump, hurricanes) the Fed offered a helping hand. The data on positioning represent a close on last Tuesday, just a day ahead of the FOMC and it showed the lowest positioning this year and – at the same time – since mid-2014. While there was some kind of positive reaction to the FOMC it seems like there could be a scope for markets to price in a hike in December. If that’s the case we can see some unwind of those net shorts on the greenback.

The US dollar has not been this oversold since mid-14. Source: Bloomberg 

It’s becoming interesting on the USDIDX where the dollar is finally making its way past an upper limit of a downward channel – something it has not able to accomplish for months. This technical development could take the index back to 94. Alternatively traders can take a look at AUDUSD – AUD positioning was the highest this year last week and curbs on the housing market in China could drive commodity prices (that Australia exports) down.  

USDIDX managed to break out of a downward channel and could be on its way towards 94 pts. Source: xStation5 

Sugar

Sugar prices were under pressure as an exceptional EU harvest causes market oversupply. However, looking at the chart it may seem like the worst could be behind us. We can see a double bottom formation with lows below $13 and a neck-line at $15.20. 

A speculative interest in sugar is well into the short territory which could be a chance for the commodity. Source: Bloomberg 

Although bulls have been unable to break 15.20 so far a new higher low could be a confirmation that the bear market is over. A speculative positioning on the sugar market is extremely negative but it has no longer deteriorated recently. 

A $15.20 halted a sugar rally but a correction may be just temporary. Source: xStation5 

Oil

Oil had a great summer as prices rallied on improved demand prospects, some inventory normalization and especially good execution of the OPEC agreement. We presented a long analysis on the oil market (here) arguing that outlook looks fairly well in a longer run. However, many seem to be aware of this and speculative positioning has ballooned as a result. 

Positioning in oil is biased to a long side – a clear risk for the bulls. Source: Bloomberg 

While not yet at the very extreme, net long positioning is not far from the highs just as the WTI price (OIL.WTI on xStation platform) approaches $55 with a major momentum. Should we see signs of weakness there, it could be interesting for bears given so much euphoria among speculative investors. 

There is a huge upward momentum on OIL.WTI as the price nears the key resistance. Source: xStation5