1. The open-interest washout screen — extreme lows precede rallies, not more declines
The repeatable method
- Pull a long (10-year) chart of open interest in the commodity's futures — the count of live contracts, a proxy for how engaged (or exhausted) participants are.
- Treat the extreme lows, not just the spikes, as the actionable signal: when open interest collapses toward a prior nadir, positioning is washed out and the setup is asymmetric to the upside.
- Back-test the pattern on the same instrument's history: does each prior open-interest trough map to a subsequent multi-month rally? If so, a fresh trough is a springboard, not a warning.
Here: WTI oil-futures open interest fell back to its COVID-nadir low; every prior washout preceded a big rally (the ~$18 June-2020 trough → $90 in 18 months; the late-2022 trough → $90 by fall 2023). So the current trough is read as bullish, not bearish.
Watch for
- Open interest at or below a prior multi-year low; the historical map from each trough to the following rally; confirmation from a second washed-out gauge (see below).
2. The record-short contrarian signal — a crowded short is a reservoir of future buying
The repeatable method
- Check speculative positioning in the most-liquid vehicle (here the main oil ETF): a record short or bull-vs-bear ratio near a multi-year low is a positioning extreme, not a fundamental verdict.
- Invert it: every short must eventually be repurchased to close, so an all-time-high short is a stack of mandatory future buying — "a considerable reservoir of potential future buying and upward pressure on prices."
- Corroborate across gauges (ETF short interest, futures spec positioning, open interest) so you're reading capitulation, not a one-off.
Here: the "largest short position ever" on USO, plus futures bull-vs-bear positions among the lowest in 15 years (per analyst John Kemp), and multi-year-low open interest — three gauges all pointing to a bearish extreme that must unwind by buying.
Watch for
- Record ETF short interest / spec net-short extremes; whether multiple positioning gauges agree; the trigger (a price uptick or supply headline) that forces the short-covering to start.
3. The price-vs-fundamentals divergence — flag a mispricing when the tape ignores the physical market
The repeatable method
- Put the spot price next to the physical fundamentals (inventories, supply/shortage): a price falling while inventories draw down hard and supply is the tightest on record is an internal contradiction.
- Treat a large, persistent divergence between a weak price and a tightening physical market as evidence the price is being set by positioning/sentiment, not fundamentals — and will re-converge upward.
Here: crude "plummeted to $70 despite the mammoth inventory drawdown that has occurred this year," with open interest at the COVID nadir "given this is the worst supply shortage ever seen" — a divergence Haymaker reads as another reason to expect a spike.
Watch for
- Price down while inventories draw and supply tightens; how wide and how long the divergence has run; the catalyst that reconnects price to the physical market.
4. The strategic-reserve demand watch — layer a structural buyer on top of the positioning setup
The repeatable method
- Beyond the technical washout, identify a structural demand source that has to buy regardless of price — here, nations needing to replenish or establish strategic petroleum reserves.
- Weigh it as an incremental, price-insensitive bid that collides with the short-covering reservoir, compounding the upside case.
Here: "the planet's largest nations — and many smaller ones, like Pakistan — needing to replenish, or establish, strategic petroleum reserves," colliding with the future-buying reservoir from the record short.
Watch for
- Government/SPR buying programs and refill mandates; how much of it is price-insensitive; whether it lines up with the positioning washout for a combined bid.