The Most Crowded Trades In The Futures Market

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Bonds: Institutions bid up 30-year futures, hedge funds have profitably stayed short the 5-year.

Commodities: Money managers have gotten much less bullish on silver and crude oil, commodity producers are locking in prices in natural gas and cotton futures.

Currencies: Hedge funds are extremely short the British pound and the Euro against the USD.

Stocks: The Nikkei has put pressure on crowded shorts, hedge funds are much less bullish on the Nasdaq relative to their positioning in the S&P.

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 35th 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.


Institutional investors have eagerly bought the 30-year bond (NYSEARCA:TLT) as long-term yields have spiked up after the election.

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Hedge funds have maintained their monster short position in the 5-year bond (NYSEARCA:IEI), meaning they expect yields to keep rising.

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Money managers have steadily lowered their long exposure to silver (NYSEARCA:SLV) futures. Notice just how bullish they got in the summer, when the precious metal topped out at $20 per ounce.

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Natural gas (NYSEARCA:UNG) producers nailed the top in October. As producers & users got more net short, this likely means that natural gas producers were selling futures contracts, locking in prices for their future production.

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Going into the OPEC meeting, money managers drastically increased their short exposure to WTI crude oil (NYSEARCA:USO) futures. This marks a big shift in positioning. Just a few weeks ago they had a record long position on.

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Cotton (NYSEARCA:BAL) producers & users haven't been this net short in the past five years. This means that cotton producers are happy to lock in current prices for their future production.

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Ever since the Brexit vote, shorting the British pound (NYSEARCA:FXB) vs. the USD has been an incredibly popular trade among hedge funds. So far it's worked out well for them. The short side is now very crowded and vulnerable to a painful short squeeze.

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JPY/USD (NYSEARCA:FXY) futures provide a good example of what can happen when positioning gets too lopsided. A couple of weeks ago, hedge funds were more net long the currency than they had ever been in the past five years. That crowded long positioning marked a short-term top and the currency has since fallen against the USD.

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Hedge funds are also very short EUR/USD (NYSEARCA:FXE) futures, similar to how they're positioned in GBP/USD.

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I think the recent divergence in equity positioning is interesting. Hedge funds have gotten less bullish on the Nasdaq (NASDAQ:QQQ).

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While at the same time increasing their long exposure to the S&P 500 (NYSEARCA:SPY). Take a look at current positioning levels. This amount of bullishness in S&P futures has historically marked short-term tops over the past year.

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The Nikkei (NYSEARCA:EWJ) provides a great example of why to use CoT data. In recent articles I've pointed out how both institutional investors and hedge funds were extremely bearish on the Japanese index. What's happened since? The Nikkei has steadily risen. The short side was extremely crowded, and going long was (and still is) a truly contrarian trade.

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So what are the main takeaways from this week's CoT data? Three things:

  1. Money managers have drastically reversed their stance on WTI futures ahead of the OPEC meeting
  2. GBP/USD and EUR/USD are both very crowded shorts
  3. Hedge funds are positioned differently in equity futures. They're bullish on the S&P, but much less so in the Nasdaq

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.