Oil ETFs Suffer From Demand Fear

Crude oil took a steep dive today and closed below the $100 level for the first time since the middle of March. USO, the ETF equivalent, lost 9.11% for the day.

The entire commodity index followed suit with DBC dropping 6.7%, while gold (GLD) and silver (SLV) gave back 2.88% and 11.89% respectively. The dollar was the beneficiary and gained against the major currencies.

One of the reasons for the recent fall of the metals was that margin requirements had been raised; in some cases by 84% over the past two weeks. With many commodity speculators “investing” on borrowed money, selling the positions was the only viable option.

Starting the equity market out on the downside were the jobless claims numbers. All interviewed economists had expected the weekly number to drop; instead we got the opposite reading, which translates into continued sluggish job growth.

That’s no surprise to me, as I have continuously harped on the fact for the past 1-1/2 years or so, that there is no real recovery. What we’ve seen has been stimulus induced, which means we’ve only kicked the reality can down the road a bit.

Now, the question is whether tomorrow’s jobs report will bring similarly bad news by presenting a picture that the perceived improvements are simply not there. I have no idea how things will play out tomorrow, but if the numbers are not too bad, we may very well see a relief rally. On the other hand, if they are worse, we may see more downside activity.

In any event, watch your sell stops closely and execute them if they get triggered.

Disclosure: Holdings in GLD, DBC. Above chart courtesy of MarketWatch.com

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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