As Harvey continues to flood Houston, the heart of oil refining in America, Jim Cramer used his "Off the Charts" segments on Mad Money Tuesday night to talk with Carley Garner, co-founder of DeCarley Trading and a contributor to, about where crude is headed.

Since West Texas Crude peaked in January, the commodity has seen a series of lower highs. Each time oil has moved significantly higher, speculators and money managers have jumped on the chance to go long at elevated levels, according to Cramer. And each time they've been disappointed.

Garner thinks it's worth stressing this now because oil is approaching an historically bearish time of year for the oil markets.

Garner started with a weekly chart of West Texas Intermediate crude, which contains the CFTC's Commitments of Traders Report. The Commitments of Traders data tells you what large speculators -- meaning money managers -- small speculators, and commercial hedgers are doing with their futures positions.

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Garner told Cramer this is an incredibly useful tool because it measures the level of fear or complacency in the futures market. In the case of oil, whenever large speculators own too many futures contracts, it's been a bad sign, as it means that the buyers have run out of firepower. As of the latest report, large speculators had a net long position of 445,000 futures contracts. That's lower than the 500,000-plus reading earlier this year, but Garner said it still points toward an extremely one-sided trade.

In short, if a hedge fund manager was going to bet on oil, they've probably done it already, which means there's little chance of fresh money coming in to push up the price of crude.

Even worse, at some point bullish traders will need to exit their positions by selling the futures, and when that happens, the price of oil will go lower. If they all decide to sell at the same time, the decline could be very sharp.

Garner warned that it's not just the current state of the market that's a worry; the other big problem is historical.

This seasonal chart shows the overall pattern of oil prices over the past 15 years. In most years, crude takes a beating from August through December. Just because big fall selloffs have happened before doesn't necessarily mean they'll happen again, but it doesn't bode well for the bulls.

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The weekly chart shows oil has been directionless for months. Oil rallies up to the low 50s then sells off back to the low 40s. Garner's started to wonder whether oil's floor of support near $40 will finally fail sooner rather than later. Crude can't keep making lower highs unless it takes out the $40 level and goes lower still.

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According to Garner, in recent months, downswings have made lower lows as the traders' stop loss orders start kicking in, which exaggerated the selling by roughly $1 per barrel.

If oil fails to hold above last month's low of $42, Garner expects speculators will push it down further as their stop loss orders flood the market with supply, hence the $40.90 floor underneath. Similarly, if crude gets hammered down to $37.50, another floor, Garner can't rule out a quick sell-off down to $35.50.

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However, if Garner's suspicious prove to be correct and oil does pull back down to the mid $30s, she thinks that would actually be a fabulous buying opportunity.

Oil may not be the only big commodity in danger. Consider the case of copper, which has been roaring because of a weaker dollar and firm demand from China, thanks in part to a proposed Chinese ban on importing copper scrap. Since China consumes nearly half the world's copper and imports more scrap than refined metal, the news offered a nice boost to copper pricing.

But Garner sees a number of signs that copper could be done running, now that it's rallied over $3 a pound.

A weekly chart shows the CFTC's Commitments of Traders report for copper. The net long position of more than 40,000 contracts is highly significant. And because the data is a week old, Garner suspects that the real number is probably in the vicinity of 50,000. Historically, whenever large speculators amass around 51,000 futures contracts on copper, the market tends to run out of buyers. If history's any indicator, the bulls have already expended most of their firepower.

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When you check out both the daily and the weekly charts for copper, you see a bunch of indicators that suggest it's already overbought. The Relative Strength index is well over 70 on both charts, and whenever it gets that high, it generally means there's a looming correction.

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On Real Money, Cramer says the bulls took this one. They made the bears eat some real crow. Get Cramer's insights with a free trial subscription to Real Money.

Cramer and the AAP team say the markets are recovering but oil positions are still struggling. Find out what they're telling their investment club member and get in on the conversation with a free trial subscription to Action Alerts PLUS.

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