Crude, Copper, And Cotton: 3 Massively Crowded Commodity Trades

| About: The United (USO)

Summary

Commodities: Lots of crowded long trades. Copper, WTI crude, natural gas, and cotton. Money managers got more bullish on gold for the first time in months.

Currencies: Hedge funds and institutions have profitably stayed short GBP/USD. The U.S. dollar is also a crowded long trade.

Stocks: Traders are just now covering their Nikkei shorts. There are a lot of bulls in DJIA and S&P futures, and 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 42nd 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.

Commodities

Positioning is extreme in natural gas (NYSEARCA:UNG) futures. Producers are extremely net short, locking in currently high prices for their future production. On the other side of the trade are money managers, who are more net long than they've ever been in the past five years.

Last week was the first week in a long time that money managers became more bullish on gold (NYSEARCA:GLD). They added to longs and cut some of their short exposure.

As in natural gas, money managers are extremely long WTI crude oil (NYSEARCA:USO). It was helpful to know how traders were positioned in crude last year, as peaks in bullish sentiment were great tells of short-term tops in price.

One commodity that's not a crowded long trade is corn (NYSEARCA:CORN).

Currencies

Hedge funds and institutions have profitably stayed short GBP/USD (NYSEARCA:FXB).

Positioning is much more dispersed in EUR/USD (NYSEARCA:FXE) futures. Institutions are extremely long and hedge funds are quite short.

The last time money managers were this bullish on the U.S. Dollar Index (NYSEARCA:UUP) was in August 2015.

Stocks

Hedge funds and institutions have just started to cover their shorts in the Nikkei (NYSEARCA:EWJ), right when the index is starting to roll over.

Hedge funds were partial to the long side in VIX (NYSEARCA:VXX) futures during all of 2014 and the last half of 2015. For the past few months, they've leaned to the bearish side.

Hedge funds surprised me last week by adding $8 billion in fresh S&P (NYSEARCA:SPY) shorts. Total positioning levels are still optimistic, betting on a higher path for stocks.

Of all the U.S. equity indices, positioning is the least bullish in Nasdaq (NASDAQ:QQQ) futures.

Conclusion

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

  1. Be careful with commodity exposure. There are lots of crowded trades, with corn and gold being two exceptions.
  2. The consensus trade in currency markets is for a higher U.S. dollar.
  3. Positioning in equity futures is a mixed bag, with bulls mostly concentrated in the Dow (NYSEARCA:DIA) and S&P.

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.

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