Going Into The Italian Referendum, Hedge Funds Are Massively Short The Euro

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About: iPath Series B Bloomberg Cotton Subindex Total Return ETN (BALB), DIA, FXA, FXE, FXY, GLD, IEF, JJCTF, QQQ, TLT, USO, VXX
by: Movement Capital
Summary

Bonds: Hedge funds haven't been this bearish on the 30-year bond in nearly two years.

Commodities: Cotton producers and users are extremely short. Sentiment has shifted in the gold market, and money managers had a big short position going into the OPEC meeting.

Currencies: The Italian referendum should bring volatility back to currency markets next week. Beware of the crowded short in EUR/USD futures.

Stocks: Bulls are back in the Dow, but much less so in the Nasdaq.

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 36th 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.

Bonds

It's been almost two years since hedge funds were this bearish on the 30-year bond (NYSEARCA:TLT).

Institutional investors have recently bought up the 10-year contract (NYSEARCA:IEF) as Treasury yields have spiked.

Commodities

Sentiment has definitely shifted in the gold (NYSEARCA:GLD) market. Back in July, money managers were more net long than they had ever been in the past five years. Since then, money managers have been steadily selling out of their long exposure.

Cotton (NYSEARCA:BAL) producers and users are extremely net short, most likely meaning that cotton producers think prices are high. They're locking in prices for their future production by selling cotton futures.

Money managers got completely blindsided by the OPEC meeting. Over the past four weeks, they've shorted 100,000 contracts of WTI crude (NYSEARCA:USO). This is equivalent to $5 billion worth of oil since each contracts represents 1,000 barrels. Needless to say, this was the wrong position to have last Wednesday.

Speaking of extreme positioning, money managers are currently more net long copper (NYSEARCA:JJC) futures than they've ever been in the past five years.

Currencies

The upcoming Italian referendum should provide some fireworks in the currency markets. Hedge funds are going into the meeting with a huge short position. If the EUR/USD (NYSEARCA:FXE) were to rally next week, expect a good amount of that to be short covering.

The AUD/USD (NYSEARCA:FXA) has fallen out of favor as both institutions and hedge funds have recently reduced their longs.

The Japanese yen (NYSEARCA:FXY) fell 8% in value vs. the USD in November. During this drop, hedge funds were rapidly reducing their long exposure to the currency.

Stocks

The bulls are back in Dow (NYSEARCA:DIA) futures, with both hedge funds and institutions rapidly buying the index after the election.

I think it's super interesting how hedge funds are much less bullish on the Nasdaq (NASDAQ:QQQ).

Hedge funds are still very short VIX (NYSEARCA:VXX) futures, betting on equity volatility to stay low.

Conclusion

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

  1. Hedge funds have not bought the dip in Treasury bonds as yields have spiked.
  2. Money managers got in trouble with their huge short position in WTI crude.
  3. Beware the crowded long positioning in copper, and the big short position in the Euro.
  4. Hedge funds are much less bullish on the Nasdaq vs. the other equity indices.

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.