Note: My approach for analyzing CoT data, to reveal how different types of traders are positioned in the futures markets, is outlined here. If you missed it, give the article a read to see the method behind my analysis. All data and images in this article come from my website.
This is the 41st weekly update that outlines how traders are positioned, and how that positioning has recently changed. I break down the updates by asset class, so let’s get started.
Positioning is mixed in long-term bonds (NYSEARCA:TLT). After bottoming last summer, long-term yields haven’t really retraced much of their upward spike. Hedge funds gradually reversed their long positioning, although you couldn’t really say they’re bearish right now.
Institutions have slowly gotten more bullish on the 10-year (NYSEARCA:IEF), betting on rates to fall back.
Sentiment in the oil market is extremely optimistic. Money managers haven’t been this net long WTI futures (NYSEARCA:USO) since July 2014, right before oil collapsed.
Similar story in the natural gas market. Natural gas (NYSEARCA:UNG) producers & users are massively short. This likely means that natural gas producers are shorting futures contracts, locking in currently high prices for their future production. Money managers are on the other side of the trade with a huge crowded long position.
That amount of optimism isn’t found in gold (NYSEARCA:GLD) futures. This past summer, money managers were more net long the precious metal than they had ever been in the past five years. Knowing CoT positioning would have helped you avoided going long. Ever since the summer though, money managers have abandoned their longs and are now quite bearish.
As with natural gas, cotton (NYSEARCA:BAL) producers & users are super short, locking in high cotton prices for their future production.
Both hedge funds and institutions are quite short the British pound (NYSEARCA:FXB) against the USD.
The U.S. Dollar Index (NYSEARCA:UUP) has risen roughly ~8% in the past few months. Hedge funds and institutions have chased the trade higher.
JPY/USD (NYSEARCA:FXY) provides a good template for what happens when a crowded trade collapses. Back in September, hedge funds were more net long the currency vs. the USD than they had ever been in five years. The yen went on to fall ~14% against the dollar and hedge funds were forced to unwind the position, removing long exposure each week.
It’s interesting to see how divergent positioning is in equity futures. In the S&P (NYSEARCA:SPY), hedge funds added 47,000 contracts (or $5 billion) of long exposure last week. They’re very bullish on the index.
In contrast, look at how they’re positioned in Nasdaq (NASDAQ:QQQ) futures.
Finally, both hedge funds and institutions are quite bearish on the Nikkei (NYSEARCA:EWJ).
So what are the main takeaways from this week’s CoT data? Three things:
- Be careful if you’re long WTI crude, natural gas, or the S&P. All are very crowded trades
- Most speculators are betting on the U.S. dollar to rise in value, be it through their long positions in the USDX or short positions in other currencies
- Positioning in long-term bonds isn’t as bearish as I’d guess, based on how quickly rates rose in the last half of 2016
If you have any questions about CoT data, don’t hesitate to ask me in the comments below.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked in this article or incorporated herein. This article is provided for guidance and information purposes only. Investments involve risk are not guaranteed. This article is not intended to provide investment, tax, or legal advice. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.