April 18, 2023

Brace For USD/Oil Jump on Earnings

Frank Cabibi

After a slew of unimpressive economic news, the US faces another earnings week that will test the market strength of USD, stocks and commodities. Here are the some of the best setups we see on dollar/commodity longs.

EdgeFinder Analysis

UJ looks increasingly bullish as price keeps pushing higher despite a dollar decline. The EdgeFinder is going back and forth between a +5 and +6 strong buy score. The retail crowd is mostly mixed sentiment while COT is not making any big moves on either currency.

The most likely factor that could shift the score to a strong buy again would be if the crowd goes short this pair. Seasonality shows this pair historically has the best month in the first half of the year this month. The two fundamental metrics that USD struggles with over the Yen is inflation and unemployment.

SPX500 now lower on the day as bank earnings continue to roll out. We're seeing some selling pressure on the 1D timeframe during an uptrend since March. The way price has moved on this timeframe suggests that the index wants to complete its move higher towards the $4300 level. However, it's hard to tell in the short term where earnings will take price.

Smart money is still over 70% short SPX and retail agrees this time. There aren't many setups we see on this index because the short term is extremely uncertain. Heavy bearish news and extreme optimism on both sides makes for a difficult market to trade in.

USOil is currently reading neutral on the EdgeFinder. This brings our attention because it was recently a strong sell at -7 in late March. Now its at +2 which suggests that the EF is flipping sentiment on the commodity. Who knows how long we'll see a neutral or even a buy rating, but with production cuts in the last OPEC meeting, we could see more demand in this market.

One metric that shows lots of promise for the asset is that smart money continues to grow interest. Oil is now a little over 80% long by institutions. Retail is mixed. It seems rare to find an asset on the EdgeFinder that's also a neutral rating. That's what makes this asset look increasingly bullish.

Retail Spotlight

One thing keeping oil from reaching a +3 buy is that fact that retail is still mixed on this asset. If price moves higher, we could likely see bearish sentiment from the crowd. Meanwhile, most indices are shorted with the exception of NAS100. Gold is also considered mixed with a slight bearish lean.

Smart Money Spotlight

Here is an overview of all the assets listed on the EdgeFinder. Smart money interest is still heavily short JPY, CAD, CHF, 10 year bonds, and SPX. On the other side of the coin, institutions really like JP225, EUR, gold, and oil. Last Friday's report showed an increase in longs on oil. So, oil is not only the most bullish by COT, but is also increasing in interest. Meanwhile, the price of oil has done nothing but decline 3% in the last 4 days of trading. USOil could be looking at a deep discount.

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