More on Oil

This is the biggest trade I have had on for awhile, so I'm following it more closely than usual. Since (as my name says) I'm a strategist rather than a tactician, I normally spend my time doing analysis rather than watching the markets. I did all that market watching when I was trading other people's' money, and I am done with that. No more monthly numbers for me!
Several people have asked me how to trade this. I am long WTI calls starting in Dec 2020 and further out. The rationale is that the market is underpricing the long term value of crude. I don't really have a clue where the market is going to go short term, so I stay away from the nearbys. You could also trade this with an equity of an oil producer. In this case though I prefer the futures market. I don't know where the stock market is going to go. More important, if I'm wrong about crude, the downside of the distant months is maybe $10. If you are in a stock with a dicey balance sheet (as most of them are) the downside is zero. So there's that.

Here's a chart of Dec 2020 WTI vs. Feb 19:

I apologise for the poor quality. I normally use my stat language, R, to draw graphs, but this is just from Interactive Brokers website. BTW, IB is a great broker, even though their charts are only so-so. You can see that the Z20 contract (red and green bars) has held up pretty well, even if the nearby is in the pits. If we take out last Wednesday's highs, I think we are in the clear. If I were a technician, I would be adding there. But of course I'm not. I only add on declines.

The Bottom in Oil

Several months ago I mentioned that I thought a major bottom in commodities was about six months away. Well, I think it's partly here now, and I am trading it. This morning I bought crude oil.
First off, I think it's cheap. I have a ten-year price model that says its undervalued. Not only is the spot price cheap, but it's cheap all the way out the curve. Additionally, options are cheap as well. So I bought a bunch of long dated slightly out of the money calls. This is a big trade.
Soybeans are also getting into my buying zone, although not as clear at this point.
One more trade: I covered my short long dated SPY calls. I really don't know where the stock market is going short-term, but I sense there is the possibility of a fierce rally here. So I don't want the gamma to blow up on me. I still think we will not get back to the old highs for a long time, but discretion is the better part of valor.

My macro trade

I know I have written about this several times, but I think it's a big deal. So I'm writing about it again.
The US / rest of world trade has finally broken down. Here's the chart of the last 100 days...

I think this has more to go. Here's the long term chart...

We actually haven't even hit the long term uptrend. I expect this to be broken.

US vs. the Rest, Part Two

Back on Oct 22 I wrote a piece on US stocks vs. the rest of the world. I said that the outperformance of US stocks was ending. I personally sold US and bought rest of world. Since them the ratio has been in a trading range. Here's an update of the chart from that piece for the last 100 trading days:

So it's in a trading range, not really much change. That is to be expected. When there are big macro movements like the kind we are having now, people only think about the trend, not the differences. I still think it will break to the downside. Time will tell...