In a previous article, I outlined my approach for analyzing CoT data to reveal how different types of traders are positioned in the futures markets. If you missed it, give the article a read to see the method behind my analysis.
Additionally, this is the first week my two Seeking Alpha accounts have been combined into one. All of my followers have been rolled into this account, so if you previously followed my Simple Stock Model account, don't worry, I'll be posting both types of articles under this account.
This is the 19th in a series of weekly updates 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.
Hedge funds have actually been shorting 10-year futures (NYSEARCA:IEF) over the past few weeks. This means they expect bond prices to go down and rates to go up.
Institutional investors have been reducing their longs in the 2-year contract (NYSEARCA:SHY), also anticipating higher rates.
Money managers quickly bought into the rally in copper (NYSEARCA:JJC) futures, despite the industrial metal's poor performance last week.
Producers and users aggressively added to shorts in natural gas (NYSEARCA:UNG). This means that natural gas producers wanted to lock in their selling prices for future gas production.
Now, we come to (in my opinion) the most interesting part of this week's CoT data. Money managers have a record long position in silver (NYSEARCA:SLV). They're more net long silver futures than they've ever been in the past five years. This positioning has been the norm for the past few weeks, so nothing new there. What is new is that silver sold off hard after the positive jobs number on Friday. Crowded long positioning plus negative price action typically leads to big moves as fund managers exit positions to reduce risk. I'll be watching the silver market closely next week.
Money managers added a ton of WTI crude oil (NYSEARCA:USO) shorts last week.
Institutional investors are quite long the euro.
Along with silver, positioning within Dow (NYSEARCA:DIA) futures is worth taking notice of. Something rare happened this past week. Both hedge funds and institutional investors are more net long Dow futures than they've ever been in the past five years.
Positioning is nowhere near as bullish in the Nasdaq (NASDAQ:QQQ).
Finally, hedge funds are very short VIX (NYSEARCA:VXX) futures.
So what are the main takeaways from this week's CoT data? Two things:
- Money managers who have been long and strong precious metals received their first true test on Friday. Will they stick to their huge long positions next week or sell out, further exacerbating the negative price action?
- Hedge funds and institutions are extremely bullish on the Dow. Will this optimism spill over to the Nasdaq and S&P or will we see a short-term top in the Dow?
If you've got 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.