Cycle Investment Strategy

Commodities Pull Back Sharply – Why We Are Buying the Dip in Oil

The Bigger Picture: A New Major Uptrend in Commodities

Commodities corrected sharply last week, a move that fits well into a long-term commodity cycle rather than contradicting it. We used the preceding rally to raise cash proactively, reducing exposure at favorable prices — a disciplined approach that is central to our cycle-based investment strategy.

As communicated to subscribers earlier, we exited our position in $UUUU near the highs, locking in solid profits and rebuilding liquidity. We also reduced exposure in Barrick Gold and First Majestic, as outlined in last week’s report.

This tactical de-risking now gives us flexibility — an essential advantage when navigating volatile phases within secular commodity bull markets.

Despite the recent correction, our macro investment outlook remains unchanged:
we are still in the next major upward wave of the commodities cycle.

Sharp and uncomfortable corrections are not a sign of failure — they are the entry price for outsized long-term returns. History shows that the strongest commodity bull markets are rarely linear.

Now that we have raised cash at the right moment, the key question becomes:


Which Commodity Dip Is Worth Buying?

While precious metals may need additional time to digest their recent gains — possibly weeks or even months — one sector has clearly improved its risk-reward profile over the past week: Oil

Sentiment in oil deteriorated sharply during last week’s sell-off. Social media and market commentary were dominated by capitulation narratives, with many investors abandoning oil exposure in favor of the ongoing technology rally — often a classic late-cycle behavioral signal.


Positioning Signals: COT Data Turns Highly Constructive

From a market cycle and positioning perspective, oil looks increasingly attractive:

  • Commercials (smart money) have increased exposure during the sell-off
  • Commercial positioning is now historically elevated
  • Managed money remains heavily underinvested, near cycle lows

This divergence between smart money and speculative positioning has historically preceded strong upside moves in oil prices.


Technical Setup: Signs of a Potential Trend Reversal

From a technical standpoint, several important signals are aligning:

  • The weekly WTI candle formed a long lower wick, suggesting rejection of lower prices
  • Price closed near the 200-week moving average, which has acted as structural support since early 2021

Taken together, these signals point to a high-probability inflection point within the oil cycle.


Macro Backdrop: Inflation, Deficits, and Rising Yields

Zooming out to the macro environment, several forces continue to support real assets and commodities:

  • Inflation remains stubborn
  • U.S. fiscal deficits resemble wartime spending levels
  • Geopolitical risk is rising
  • Long-term yields resumed their upward trend despite growth concerns

Even if the macro regime transitions from reflation to stagflation, commodities — and especially energy — remain a core portfolio hedge.


Oil vs. Precious Metals: A Rotation Within the Commodity Cycle

While precious metals have already delivered strong performance, positioning and sentiment there are no longer washed out. Oil, by contrast, now offers a cleaner asymmetric setup.

Importantly:

  • Oil prices show a positive correlation with long-term yields
  • Gold tends to move inversely to rising yields, often with a lead/lag structure

If precious metals are signaling a renewed uptrend in yields, oil strength is likely to follow with a delay. This relative rotation strengthens the case for oil exposure at current levels.


Oil Equities Confirm the Message

Oil stocks are reinforcing this constructive setup:

  • Despite weakness in crude prices, oil equities refused to break down
  • Several names printed hammer candles on a very weak oil day
  • The sector remains above the 200-day moving average

This relative strength suggests that equity investors are already looking beyond the correction.


Our Positioning: Buying the Dip in Oil

Given:

  • washed-out sentiment
  • supportive COT positioning
  • strong long-term commodity cycle dynamics
  • and a favorable macro backdrop


we are deploying capital into the oil sector, using the recent correction as an opportunity rather than a threat.

This is precisely how cycle-aware investing works:
raising cash into strength — and redeploying it when fear returns.


We wish you a great start to the trading week.

All the best,
Cycle Investment Strategy