As with the previous surges to the recent highs in crude oil, I had shared my preference to use a short on /CL (crude oil futures, or USO, etc.) as an “indirect” hedge to any equity short positions, specifically the $NDX and more recently, the semis. Once again, that indirect hedge did more than just “its job” of offsetting any rise in the stock market by falling more than the 3:1 suggested ratio (i.e., about 1/3rd of the amount in a short on crude vs. the position size in the $NDX to account for the fact crude has recently been moving up & down in a multiple of the market in percentage-terms). As this 120-minute chart of /CL (crude futures) & 60-minute chart of /NQ (Nasdaq 100 futures) highlight, /CL peaked on April 30th & has plunged 20% into this morning’s low since then, providing a net profitable “overhedge against an /NQ short, which only rose 5% over the same time period (4:1 difference vs. the 3:1 hedge suggestion).
CL 120m May 6th
NQ 60m May 6th
With crude futures plunging down to just below the key $90 level this morning & the Nasdaq setting up for what appears to be an imminent & potentially outsized correction based on the technical posture & other recently highlighted “yellow-flag” indicators, such as various sentiment & low volume extremes, I’ve removed half of my crude short to move from an fully/slightly overhedged position to an underhedged/net-short position & will re-assess before the end of the day before making any further adjustments (increasing or decreasing net exposure to either crude and/or equities).
My apologies for the slight delay in getting these charts out today. As you might have noticed, the website was down for a brief period(s) yesterday and again earlier today when I tried to get the post out. I spent about 30 minutes on the phone with the tech support team at my web hosting company, and the issue(s) have been identified & fixed. Please LMK in the comment section if you experience any issues or slow-loading pages with the website.