This report discusses the technical and positioning outlook for oil, the potential reversal of the Mexican Peso, and the historic pessimism in utilities. It also highlights the bullish setup in crude, the change in sentiment from bearish to bullish, and the anticipation of a US recession by the end of the year or early next year.
Crude Oil’s Bullish Setup
- Crude’s Major Breakout: The report highlights the bullish setup in crude before its major breakout back in early July. However, the tape is now 2std above its midline, indicating a potential pullback or consolidation.
- Change in Sentiment: The sentiment and positioning for crude have flipped from very bearish to bullish. Both large and small specs are long with large specs above their 90th 1yr percentile.
- Reducing Energy Exposure: Despite the expectation of trend and momentum carrying oil higher over the next few weeks, the report suggests paring back energy exposure.
Mexican Peso’s Potential Reversal
- USDMXN’s Weekly Close: The USDMXN has finally put in a weekly close above its BB midline, indicating a potential reversal.
- Long Peso: Net specs are crowded long the peso, suggesting a change of trend.
- Buying on Pullback: The report suggests buying on a pullback or consolidation, providing a technical inflection point to nest in a stop.
Anticipated US Recession
- Widening Disconnect: The disconnect between Senior Loan Officer (SLO) surveys and HY spreads continues to widen, hinting at a potential US recession.
- Recession Indicators: US Hard and Soft Data Stress Indices are at levels that have preceded recessions in the past.
- Dismissive Narrative: The popular narrative has become dismissive of the possibility of a recession, despite leads suggesting one is likely around the turn of the year.
- Monitor Crude’s Position: Given the change in sentiment and positioning, it’s crucial to monitor crude’s position and consider reducing energy exposure.
- Watch for Peso’s Reversal: With the potential reversal of the Mexican Peso, consider buying on a pullback or consolidation.
- Prepare for Potential Recession: With indicators pointing towards a potential US recession, it’s important to prepare and adjust strategies accordingly.