How many longs are left in the market?

A primer on market psychology.  Long means you believe the price is going up therefore you bet by buying the commodity.  Short means you believe it's going down so you sell the commodity.

 

Price of Oil has gone up for two reasons.

 

People believe that the price will go up and up so they are long oil.

 

People believe that the value of  the dollar will go lower and lower and so they are short the dollar.

 

Now we are at a crisis point in the market.

 

If you had ten thousand dollars, would you bet the price of oil is going to go higher and or that the value of the dollar were going to sink further?   I think that anyone who can read a tea leaf will say that for the dollar to make a big run a great deal higher is a risky bet.  To say that the dollar is going to collapse much more is equally risky. 

 

So we have this convergence.  Weaker dollar but a dollar that is not going to fall much more. 

 

I don't know how many more deeply convinced longs on oil or short on dollar investors there are.  I know this, there are fewer and fewer.  That indicates a bubble.

 

Some good economic news (which is starting to come out) will strengthen the dollar and fundamentals in the oil market are starting to take their toll on people who are speculators.  Part of what is driving this is the money poured into the economy by the government.  Faux money invested by banks in commodities to offset the losses banks are seeing otherwise.

 

The problem is with one single indicator that the jig is up will cause panic selling in oil, and panic buying in dollars.  Meaning that oil sees 70 dollars or less.  If this happens quickly it will amplify the banking crisis because oil speculation has been a safe haven for cash flush banks.

 

This will be a painful thing.  Markets and economies don't like sudden change. This sudden change will have as many ramifications as oil drops in price as it does as oil goes up in price.

 

What we need is for the government to get out of the business of bad market management.  And we need a few business failures.  If you buy oil at 125 and you lose your shirt when it goes to 70 you deserve to be broke.

 

If you bet against the dollar at 1.54 Euros to the dollar (buying Euros against the dollar) and the euro goes back to a par with the dollar and you lose your shirt, you deserve to be broke.

 

My old buddy Larry used to say, that's what makes a horse race.  This is one of those and the lead horse is faltering.