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How to use Q-Models on Oil and Commodity

Oil has been on an incredible run in the last month. A series of things have led that rally, but most and foremost is the energy translation. Whether one agrees on it or not, the energy translation has created a supply shortage. 

As funding becomes harder for conventional oil, upstream producers have been incentivised to reduce capex and favor dividends. On top of that, we have had the Ukrainian crisis and OPEC+ cutting production. 

Today we will talk about oil’s latest price action, to show that Friday’s adjustment was getting set up. We had been talking about oil for a week or so, and had raised the fact that Oil was very stretched. 

In the next few weeks we will release our Options Screeners that will be able to help you better filter Stocks, ETFs and Indices based on the option chain data. Those will be the V1 version of our screeners. 

We will then go on and layer in momentum features to get confirmation of what we are seeing in the option chain. Eventually, we will also have macro inputs and AI. As usual, as we build we will create supporting material to help you understand it. The screeners will be at no additional cost for Premium Members.

Positioning on Oil

The first thing we started to look at was the oil positioning, specifically we took this chart from Bloomberg where one could see how stretched money managers long/short funds were.

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Q-Models on Oil via our Discord Bots

Using our Query Bot you can go one step forward and download all our models. We created a Guide to learn how to use the Bots. Here you can find the list of Bots Commands.

Right now you can use $USO, the biggest Oil ETF. While not perfect it is helpful. Option positioning on commodity futures is coming up soon. There are different features that you can use. 

To start you can take a look at the one day expected move, that will show you based on volatility how we expect next day price movement. This is the query you can use: /mainchart. 

A good way to screen for a stretched asset is to compare the 1D Exp Move against the Call Resistance Level. Generally the call resistance level works like a bounce level as calls get monetized and market makers close their length that helps them delta hedge. 

This pull back is not necessarily bearish, but more like a technical adjustment. Best way to compare is to download our levels on TradingView. This is the query in the Query Bot: /levels_tw ticker.

Next we compared what we were seeing on Bloomberg with our own models. We took the Brent CTAs. Here you can clearly see that we were very stretched. Remember CTAs add liquidity once certain price levels are triggered, they do not drive that movement. In our Bot we upload everyday all our CTA Models.

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Technical Move on Oil

Then we looked at some Technicals. While we rely mainly on option positioning, we like to layer in Technicals and Momentum analysis. For that we already have models ready to be released to our users. Those should be used for confirmation. More on that coming soon. 

As we could see from this chart, the RSI was extremely stretched. 

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Friday, we saw the technical pull back that we were expecting. Again, all of these moves are going to be a lot clearer when we have options on futures. Will be there shortly!

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