Actionable insights — Haymaker Daily: Wall Street Misunderstood the Memo of Understanding
The repeatable analysis behind the note: not that Hay is bullish oil, but how he found the bottom and the entry — trading the divergence between physical inventories and price, using extreme bearish positioning as the setup, and reading a lagging equity as the second-chance opportunity — written so each step can be rerun on the next commodity/sector.
How to read this page: each insight is a method — the pattern to apply when a hated commodity or sector is trading against its own fundamentals. The boxed line shows how it played out in this post. (Written newsletter — "read" links open the source post; no timestamps.)
1. Trade the divergence between the physical fundamental and the price
The repeatable method
- For a commodity, track the physical tell (inventories/stockpiles) alongside the price, and flag any period where the two move in opposite, "bizarre" directions.
- When inventories are plunging while the price is falling, the market is pricing a fundamental that doesn't exist — a tighter physical market than the tape implies.
- Anchor the fundamental in a hard reference (a break-even, a supply/demand balance) so you know whether the price is stretched below fair value, not just cheap.
Here: WTI sat at ~$68 on June 30 — "barely above the break-even point for producers in the prolific Permian Basin" (Dallas Fed) — while "oil inventories have been plunging along with oil prices, a most bizarre occurrence." That "astonishing" disconnect between "deeply depleted inventory levels and depressed prices" was the whole thesis; crude then vaulted 17% MTD.
Watch for
- Inventory draws that persist regardless of headlines; a spot price stuck at or below producers' break-even. When both are true, the price is the anomaly, not the fundamental.
2. Use extreme bearish positioning as the precondition for the rally
The repeatable method
- Measure the crowd: sentiment surveys, futures open interest / net short positioning, how "lonely" the contrarian side feels.
- Treat a crescendo of one-sided negativity not as confirmation but as fuel — the more extreme the bearish positioning, the larger the potential snap-back once the catalyst arrives.
- Weight the setup even against consensus that expects any rally to be "mild and delayed" — the very fact that even bulls are timid is part of the signal.
Here: "The extremely bearish positioning and sentiment created the preconditions for the resounding rally." Hay notes the bullish stance "was a lonely stance" — even most bulls expected a muted move — and that their June-30 Daily "nailed the bottom," precisely because the negativity had "hit a crescendo."
Watch for
- A record or multi-year extreme in net-short positioning into a supply shock; a consensus that assumes a geopolitical dispute will "almost instantly and painlessly resolve." Both mark a crowded, vulnerable short.
3. Read a lagging equity as the second-chance entry
The repeatable method
- After the commodity moves, compare the sector equities' move to the underlying — normally producer shares out-move the commodity because their profits are geared to price.
- When the equities lag the commodity instead, interpret the shortfall as market disbelief that the move will hold — i.e., the re-rating hasn't happened yet.
- Add through that disbelief: prefer the higher-beta expression (services over producers) if you want the shares to catch up fastest; expect and use a near-term pullback after a straight-up move as the actual entry.
Here: oil +17% MTD but XLE only +7.5% — "less than the move in oil," when "typically the shares of oil producers move more than the price of crude." Hay reads the lag as "continuing disbelief… creating an opportunity to add," singles out oil-services SLB and HAL as "particularly underpriced," and flags that a "near-term pull-back in crude… will be another chance to position against the complacent consensus."
Watch for
- Sector ETF trailing the commodity by a wide margin; the highest-beta sub-group (services) lagging most; a post-spike pullback to buy rather than chase.
Methods distilled from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.