The ACD Method

It's worth bearing in mind just how bad all liquidity was in Fall 2008 when trying to understand price movements. There was forced liquidation in everything as counter party risk was undefinable and accompanying liquidity went AWOL. The disconnections were enormous and pervasive, regardless of what markets you were trading.
 
Quote from Maverick74:

Ammo, when I get a free minute, I'll post some charts on the backwardation in 2008.
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memory comes and goes ,had to go back and relearn contango and backwardation,i know dc blamed it on specs and talked about revising laws to prevent
 
Ammo, I've been looking around trying to find a chart that shows this the most clearly. Perhaps this one will help.

saupload_hai_contangodancesteps_chart1.jpg


It's not terribly easy to see since it's a very long term chart. But for three years the market was in contango for the steady rise. This means you had an upward sloping price curve. Then at the last spike, the contract went into backwardation. As you can see after when oil crashed, the market went back into a very steep contango. I believe they are only showing the 3 month curve which does not look as steep as say the yearly curves. But at least this gives you some idea.
 
thanks mav, from your post last night on commodities,your saying it's contango most of the time and every so often we get backwardation,historically..going on a weak memory, was the acccusation in 08 that the specs drove up the price and the physical followed
 
Quote from ammo:

thanks mav, from your post last night on commodities,your saying it's contango most of the time and every so often we get backwardation,historically..going on a weak memory, was the acccusation in 08 that the specs drove up the price and the physical followed
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Well, it's more nuanced then that. I think what commodity players look at is when you have a market that is structured a certain way for extended periods of time and that structure changes, usually there is a fundamental reason for this. The calendar spreads usually represent the cost of storage in the physical market plus interest, insurance, etc. So if oil is in contango for a long time and it has been trending for a long time and suddenly you see a shift into backwardation and price is spiking, there is a good chance that the trend will change.

Some markets can go back and forth between contango and backwardation on a regular basis and it doesn't really mean anything. But what you should take from this is that the calendars in oil are very very heavily traded. Especially by prop firms and hedge funds. A lot of size gets employed to make a few ticks. So when these spreads blow out, all hell breaks loose.

I think I read somewhere that the futures market in oil represents only 5% or so of the total market. So the idea that a tiny part of the market is "manipulating" the entire supply of oil in the world is something I just don't put a lot of credibility in.
 
not in disagreement with your last paragraph, but last nite you mentioned all conspiracy theories aside,i think before 08 if you believed in conspiracies, you were considered simple, and after 08 the opposite, just throwing that out there , and thanks for your efforts
 
Quote from ammo:

not in disagreement with your last paragraph, but last nite you mentioned all conspiracy theories aside,i think before 08 if you believed in conspiracies, you were considered simple, and after 08 the opposite, just throwing that out there , and thanks for your efforts
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this latest run up in oil was extremely correlated to the spuz. Oil was breaking down yesterday with spuz up, pretty massive move in oil over the last two days. Sometimes you gold and oil getting liquidated then a big move down in es, just something to watch for. Good post on oil spreads Mav.
 
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