Hedge Funds Are Massively Long Yen Futures Going Into This Week's BoJ Meeting

| About: SPDR Dow (DIA)
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Bonds: Hedge funds reduced long exposure in the 10-year, institutions are betting on lower 5-year rates.

Commodities: Money managers are extremely long gold and sugar. Producers & users are very bullish on corn. Money managers have quickly added to their longs in natural gas.

Currencies: Institutions are much less long AUD/USD vs. the start of 2016, hedge funds are extremely long the yen heading into this week's BoJ meeting.

Stocks: Institutions and hedge funds reduced long exposure in most equity indices last week. Hedge funds only covered a small portion of their big net short position in VIX futures.

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.

All data and images in this article come from my website, www.freecotdata.com

This is the 25th 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 took off some longs in the 10-year (NYSEARCA:IEF) contract. The yield curve has steepened quite a bit since early September, with long-term rates rising faster than short-term rates.

Institutional investors are extremely long the 5-year (NYSEARCA:IEI) futures contract. At a net CoT percentile of 99%, institutions are basically more net long the 5-year than they've ever been in the past five years.


Money managers have been aggressively adding to their long positioning in natural gas (NYSEARCA:UNG).

Producers & users are very long corn (NYSEARCA:CORN) futures. This resembles how they were positioned in June 2015 and April 2016, two periods that were followed by rises in the price of corn.

Sugar (NYSEARCA:SGG) recently provided a great example of how not to use CoT data. For months now, money managers have been extremely long sugar futures. Most people interpret this as a bearish signal. As I said in my explanation article, it's key to pair an extreme CoT positioning reading with contradictory price action. If money managers are super long sugar, and price keeps on going up, why would they sell? They're profitable and in the money. In contrast, if money managers were very long and the price of sugar started to fall, you'd see money managers reducing risk and closing out of longs, causing further selling pressure. So an extreme CoT reading is only useful when price action starts to put traders under pressure, creating a "fire in the movie theater" type situation.

Money managers are extremely long gold (NYSEARCA:GLD) futures.


Institutional investors came into 2016 very long the Australian dollar (NYSEARCA:FXA) vs. the USD. As the year has progressed they've become less bullish.

Hedge funds are extremely long the Japanese yen (NYSEARCA:FXY) vs. the USD. Thus far, their position has proven correct as the yen has strengthened despite the Bank of Japan's stimulus efforts. Expect volatility this week in the currency pair as both the BoJ and Fed meet.


Both institutions and hedge funds substantially reduced their long exposure to the Dow (NYSEARCA:DIA) last week.

As expected, hedge funds covered shorts in VIX (NYSEARCA:VXX) futures during the recent volatility spike. The amount they covered surprised me though. It was a relatively small amount and hedge funds are still very net short VIX futures.

Institutional investors kept reducing their long exposure to the Nikkei (NYSEARCA:EWJ).


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

  1. Sugar provided a great template for how not to use extreme CoT readings
  2. Crowded long positioning in the Japanese yen could provide fuel for an explosive move in the currency this week, as both the BoJ and Fed meet
  3. Hedge funds are still very short VIX futures

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.

Additional disclosure: The information in this article is for personal use only. Investing involves a great deal of risk, including the loss of all or a portion of your investment. Nothing in this article should be construed as investment advice or as a warranty of investment results. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.