Actionable insights — On Inventories and Derivatives
The repeatable analysis behind the call: not what he buys, but how he uses extreme money-manager futures positioning as a contrarian oil-buy signal and dollar-cost-averages the entry, written so each step can be rerun.
How to read this page: each insight is a method — reading the futures-positioning extreme, back-testing the signal, and the entry discipline that separates investors from traders. The boxed line shows how it applied to crude oil in May 2025.
1. Use money-manager futures positioning as a contrarian sentiment gauge
The repeatable method
- Pull the net position of money managers (the CFTC Commitments-of-Traders "managed money" line — Kemp/Reuters publishes it weekly) for the commodity in question.
- Recognize that this cohort is dominated by hedge funds, which are far more active in futures than traditional advisors — so the line is a clean read on fast-money sentiment, not long-term conviction.
- Lean against it: it has been "consistently rewarding to move in the opposite direction" — be greedy when this cohort is fearful (extreme net-short) and fearful when it is greedy (extreme net-long).
Here: managed money was as net-short crude as at any point in five years — more bearish than even the Covid demand collapse — flagging a contrarian long.
Watch for
- A managed-money net position at a multi-year short extreme in a commodity whose physical fundamentals (here: low inventories) don't justify the despair.
2. Back-test the signal before trusting it — quantify what prior extremes paid
The repeatable method
- Mark the previous occasions the positioning line hit comparable extremes and measure the forward return from each.
- Include the worst-case stress event (Covid: futures went negative, physical bottomed just under $20 in April 2020) to confirm the edge survives a true tail.
- Only act on the signal if the historical payoff is large and consistent: here ~100%+ over a year (2020), 26% in under six months (Sep 2024), ~10% in ~half a year (a reading comparable to now).
Here: three prior contrarian entries paid 100%+, 26% and ~10% — a strong, repeatable edge, so the current net-short extreme is treated as an opportunity, not a warning.
Watch for
- A sentiment signal with a documented, sizeable forward-return history — not a one-off; the back-test is what converts a chart into a trade.
3. Separate the investor's entry from the trader's — DCA now vs. wait for stabilization
The repeatable method
- For long-term-focused capital: dollar-cost-average into the commodity while bearishness is intense — accumulating through the extreme has historically been the best approach, and you don't need to nail the bottom.
- For traders: wait for price stabilization / confirmation that the downtrend has turned before committing, since a still-falling market (oil −~30% since January) can extend.
- Anchor either decision to the physical backdrop — low inventories globally and in the U.S. — and remember the opposite discipline: take profits when the same crowd swings to the bullish extreme (as Team Haymaker did into the early-2025 rally).
Here: Hay tells long-term investors to DCA crude into the bearish extreme but tells traders to wait for stabilization — the same signal, two different entry rules.
Watch for
- The need to match entry style to time horizon: averaging-in works for investors at sentiment extremes; trend confirmation matters for traders.
Methods distilled from the paid Haymaker Substack post (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.