Over the last three months, oil prices have moved up from $85 a barrel to $95 a barrel. The Commitment of Traders report shows that large speculators have grown more bullish during this same time period.
As of last Friday, the group is long 226,751 contracts, up from a net long position of approximately 170,000 in early December.
The big increase in bullish positions caught my attention, but when I looked at the chart for West Texas crude alongside the Commitment of Traders report, I noticed a distinct pattern.
Over the past year, the large speculators have only held a net long position in excess of 250,000 contracts on two occasions — late February and in mid-September.
On both of these occasions, the price of West Texas crude topped in price at approximately the same time. In February, the price reached $110, and in September, it was just over $100.
Right now, the trend on the Commitment of Traders is bullish, as large speculators continue to add to their bullish position. However, I would be leery if the net position reaches the 250,000 mark based on the two previous instances when this occurred.
It also doesn’t help that oil is becoming overbought based on the weekly slow stochastic readings and the 10-week Relative Strength Index.
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