Why You Should Short Crude Oil Today

Apr. 17, 2014 1:39 PM ETUSO, OIL-OLD, UCO, SCO, SZOXF7 Comments
Brett Owens profile picture
Brett Owens


  • Hedge funds are as bullish on crude oil as they've been for the past year.
  • However their recent timing has been an excellent contrary indicator.
  • We also have plentiful crude oil supply and stocks.
  • Bullish sentiment combined with bearish fundamentals make crude oil an excellent short-term short candidate.

While the investing herd is busy shorting overvalued tech stock - yes, the same tech stocks it was BUYING a month ago - I've got a better idea for us contrary-minded folks.

I say we short crude oil instead. The hedge fund boys sure LOVE that black goo these days!

These days, money managers tend to fall in love with crude oil just as it's forming a near-term top. (Barchart.com)

Last month, they held record long bets on crude oil, too. And on cue, crude declined to four-week lows! But, luckily for us, oil prices have bounced back, and so have those wild gunslinger bets! From Bloomberg:

A drop in OPEC production came just as refineries began looking for supply, helping boost bullish speculative bets on crude last week by the most since July.

Yes, the hot money boys are on the crude trade again. And with the goo up against some price resistance, their extreme level of bullishness caught my eye.

A breakout or "lower high"? Money manager enthusiasm makes the latter more likely.

As we've discussed before, hedge fund managers may only run a relatively small percentage of the assets under management, but they're by far the most active. As a result, their constant weekly, daily and even hourly trading sends asset prices soaring and crashing.

This is a relatively new dynamic to the markets over the last 10 to 15 years. It's also one that we can exploit quite profitably.

And we have a great opportunity to take the "other side" of one of the most popular commodity trades on the planet right now. After all…

U.S. Production is at Multi-Decade Highs

I don't know about you, but I usually prefer to place my long bets when supply is going down, rather than skyrocketing!

U.S. crude oil production

This article was written by

Brett Owens profile picture
Brett earned his first contrarian investing profits in 2004 when he purchased an obscure investment (at the time): sugar futures. His friends on Wall Street stopped laughing soon enough when sugar rocketed to multi decade highs, illustrating that it indeed pays to be contrary. Brett quickly learned that the key to maximizing profits while minimizing losses is to invest against the crowd. He has since scoured the universe of stocks, commodities and options, searching for popular and tradable market misconceptions. Brett has been featured in The Economist, Forbes, The Globe and Mail, Chicago Tribune and Seeking Alpha. He is a graduate of Cornell University, with a degree in operations research and industrial engineering. In addition to his love of investing, Brett is an experienced technology entrepreneur. He co-founded two successful high-growth software companies, Chrometa, maker of the world’s most advanced timekeeping software, and LeadDyno, an online marketing tool for small businesses.

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