Cycle Investment Strategy

Oil Continues to Deliver: Why Energy Remains Our Highest Conviction Trade

Our highest-conviction trade — long oil — continues to perform strongly, validating our cycle-based investment strategy focused on commodities and macro market cycles.

Our most recent additional entry via a 3x leveraged oil position is already up 24%, after buying near $75 WTI. This move confirms that the oil market has likely entered the early phase of a new upward cycle. 

Tactical vs. Strategic Positioning in the Oil Cycle

While we see further upside in oil, our approach remains disciplined:

  • The leveraged oil position will be exited around $85 WTI, capturing only the first impulse wave
  • Our long-term core position in GPRK remains untouched
  • Our short- to mid-term position in $SGY also remains in place

This structure reflects our broader philosophy: leverage tactically, hold quality assets strategically, and always stay aligned with the dominant market cycle.

What stands out most, however, is how deeply contrarian the oil trade still is — a powerful signal for investors focused on long-term commodity cycles rather than short-term narratives.

Fund Manager Positioning: Energy Still Deeply Unloved

Despite the rally, institutional positioning remains extremely light.

The latest Bank of America Fund Manager Survey shows:

  • Energy exposure cut the most, alongside materials
  • Fund managers remain structurally underweight oil & gas

From a historical perspective, the z-score of energy exposure remains near cycle lows — a textbook setup for continued upside as positioning normalizes.


COT Data: Smart Money Confirms the Bullish Oil Setup

The Commitments of Traders (COT) data continues to reinforce our thesis:

  • Managed money positioning is at historically low levels
  • Commercials (smart money) remain heavily positioned
  • Commercial exposure is rolling down from elevated levels — a pattern that has historically preceded price acceleration

Viewed through Bollinger bands, commercial positioning remains firmly in bullish territory, signaling imminent further strength in oil prices.


Technical Structure: Former Resistance Turns Into Support

From a long-term technical perspective, oil is behaving exactly as one would expect at a cycle low:

  • The 2018/2019 resistance zone has now turned into structural support
  • The long-term oil chart suggests bottoming and trend reversal
  • Price action increasingly points toward higher levels ahead

This technical behavior aligns perfectly with the positioning and macro backdrop.


Geopolitics, Fiscal Dominance, and the Dollar Risk

Rising geopolitical tensions between Israel and Lebanon add a further layer of upside risk to oil prices. Should the U.S. become more directly involved in another Middle East conflict, the implications could be profound.

Under conditions of fiscal dominance:

  • Initial USD strength is possible
  • But exploding U.S. deficits could quickly pressure the dollar

Notably, COT data for the U.S. Dollar Index ($DXY) shows smart money aggressively positioning against the dollar— one of the most significant shifts across all markets.


CAD Positioning Confirms the Oil Signal

The Canadian dollar, which correlates strongly with oil, is also sending a clear message:

  • Commercials are rolling down positioning from historically extreme levels
  • This typically precedes CAD strength vs. USD
  • A rising CAD is historically bullish for oil prices

This intermarket confirmation strengthens the conviction behind our oil exposure.


Crowding Risk Elsewhere: The Setup for Mean Reversion

The broader market context adds fuel to the trade:

  • Cash allocations have fallen to 4%, the lowest since June 2021
  • The “LONG MAG7” trade has become even more crowded
  • Mean reversion is taking longer than expected — but when it comes, the unwind is likely to be violent

In such environments, real assets and commodities historically outperform.


Crowding Risk Elsewhere: The Setup for Mean Reversion

The broader market context adds fuel to the trade:

  • Cash allocations have fallen to 4%, the lowest since June 2021
  • The “LONG MAG7” trade has become even more crowded
  • Mean reversion is taking longer than expected — but when it comes, the unwind is likely to be violent

In such environments, real assets and commodities historically outperform.


Investment Outlook: Still Very Bullish Oil

Combining:

  • extreme underinvestment
  • bullish COT structures
  • supportive long-term technicals
  • rising geopolitical risk
  • fiscal and monetary tailwinds

we remain very bullish on oil and energy-related assets.

For investors following a long-term commodity cycle strategy, oil continues to offer one of the cleanest asymmetric opportunities in global markets.


Have a great start to the trading week!

All the best,
Yours
Cycle Investment Strategy