Positioning in Oil and Nasdaq Is All Wrong

Follow-up — the pullback from $105 and "an approach I have not shared before"

• Last weekend's post argued investors were "fading the recent oil rally into some short covering," and that the move from $85 to $105 this month "felt different from the speculative jam higher back in March-April."
• With the past few days' correction, the charts "confirm many investors have cut or lost their position (and faded the rally)."

Physical #1 — Dubai over Brent and Dated Brent premiums

• "We all know how tight the market is regardless of the occasional jail breaks out of Hormuz and the pretty consistent hum of leakage (~9mmbpd currently)." Dubai swaps over Brent in the 2nd month "remains sticky bid."
• Even after the back-off, "Dated Brent for immediate delivery [is] trading at premiums above the worst of the Russia-Ukraine onset in 2022."

Physical #2 — China is still in the market

• Shanghai oil futures "went crazy earlier this week and have since corrected, but still trade at a premium" — perhaps "the 'home team' clamped down on speculation, but landed barrels in China are still notably bid."
• "The warning sign that China was out of the market was a flip to discount in May — that's not happening (yet)."

Physical #3 — backwardation and the SPR loan problem

• The curve "remains intensely backwardated," with belly timespreads' roll returns "fanning speculation of further SPR loan releases."
• His objection: "aren't those loans expected to start paybacks in a few months? And how is that supposed to work when releases have slowed to 400kbpd due to physics?" — "the market is screaming at the world to bring any and all crude out of storage."

Vol — asleep into the midterms

• Realized and implied oil vol "remains unusually depressed… what happens to the flat price if oil vol picks up?"
• Brent ATM vol has drifted up since early July, but the 1m-3m ATM spread is back to the June-July lows (flat price then $72-78), and 1m/3m skew "keeps resetting back down even as the oil price trends higher."
• "The lack of skew in 1mth options is particularly surprising to me given the importance of the midterms which are just over 6 weeks out. Almost like the market thinks 'Iran is never gonna really send it, are they?'"

Positioning #1 — notional is price, not contracts

• Contracts × flat price as a notional proxy: "far too much of the notional $ increase in speculative hands is being handled by the price rally rather than the contract side of the ledger."
• Brent managed-money net long as % of OI "has quite a bit to go before revisiting the March highs, and is very far from 2017-18 levels."

Positioning #2 — the lowest net long ever seen at a "high"

• WTI non-commercial net long sits "well below not just the March highs, but even all the major highs of the past decade including the 2023-25 bear market period."
• "If there is another 'big high' at hand, it would be happening at the lowest net long (for a 'high') in over ten years. This is simply not what positioning looks like at a significant high."

The Gnome in Zug lens — gross long vs gross short

• Look at managed-money gross longs and shorts separately, then gross long as a % of total gross. The combined Brent+WTI managed-money gross short "remains outsized — far too big" for $100+ oil, where it "would normally be below 100k contracts"; gross long is off the March highs and well off 2021/2018.
• The ratio is 77%; it "should normally be north of 85% if we were at a 'big high'" (as in March or 2022).
• Regression vs price: above $100, gross long % of total gross "has only been this low once — last week."

Widening the net — prop and small traders are even less long

• Adding other reportables (prop traders, single-family offices, sizeable individuals) and non-reportables, "the gross long as a % of long+short total gross is even more depressed" — "far too much short gross in relation to total gross in the overall oil book."
• The gap between the two regressions: "institutional managed money is under-committed to the long side, and prop/retail/small money is even less committed."

The anecdote — ask the bulls if they are bigger or smaller

• "Ask around to your buddies who were really long several months ago… ask them if they are bigger, the same, or smaller today."
• "Oil bulls got massacred by Trump (and The Force — let's leave it at that), and the market is under-committed just at a time when physical buffers have thinned and the geopolitical environment has rarely been this unstable."

Verdict — not a top; the covering short is the buyer

• "I'm not saying oil has to roof. But I am saying that the current positioning is not what we see at tops… speculators are not positioned to reflect this because they got destroyed and have not recommitted to the market — yet."
• "The gross short is too big given where oil prices are, and this is a dangerous setup" with "not just Iran, but also Russia" and the midterm calendar; on an escalation "the decline in futures liquidity could create a real move."
• "The most motivated buyer is the covering short seller."

Nasdaq aside — a QQQ vol chart, no comment

• "I figured why not look at the options profile in the Nasdaq after all the chaos this week. This is incredible to me, so I will just leave this here without further comment."
• The chart: QQQ ~721, 1M ATM vol ~16.6 (down from ~28 in late July), and the 1M-3M ATM vol spread at −3.1 — the lowest in the Nov-2024 to Sep-2026 window (it spiked to ~+9 in the April-2025 selloff). Near-dated protection is unusually cheap relative to longer-dated.