Use CoT Data To Avoid These Crowded Trades

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Includes: CORN, EWJ, FXB, FXY, QQQ, SLV, SPY, UNG, USO, UUP
by: Movement Capital

Summary

Commodities: Money managers are super bullish on WTI futures, have recently increased their long exposure in silver, and their recent excess optimism in natural gas marked a short-term top.

Currencies: Hedge funds haven't been this net long U.S. Dollar Index futures in five years.

Stocks: Of all the U.S. equity indices, positioning is the least bullish in Nasdaq futures. Hedge funds are pessimistic on the Nikkei.

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 46th 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

The prices of some agricultural commodities has started to rise. Here's how traders are currently positioned in corn (NYSEARCA:CORN) futures. Neither producers & users or money managers have a crowded position on.

The opposite is true in WTI crude oil (NYSEARCA:USO) futures. Money managers are extremely long, betting on the rally to continue. Oil producers are very short, locking in current prices for their future production.

Money managers have increased their bullish bets on silver (NYSEARCA:SLV). Positioning is nowhere near the bullish extremes of last summer though.

CoT data recently proved useful in natural gas (NYSEARCA:UNG) futures. Back in December my CoT analysis showed that money managers were more net long than they had ever been over the past five years. This ended up marking a short-term top, with natural gas falling more than 10% since then.

Currencies

With a 5-year net CoT position percentile of 100%, hedge funds are massively long U.S. Dollar Index (NYSEARCA:UUP) futures.

Both institutional investors and hedge funds are quite short GBP/USD (NYSEARCA:FXB) futures, betting on the British pound to fall in value relative to the U.S. dollar.

Hedge funds have rapidly reversed their stance on JPY/USD (NYSEARCA:FXY) futures. They had a huge long position on last fall, which proved to be a good contrarian indicator, and now they're much less bullish.

Stocks

Money managers are surprisingly not that bullish on Nasdaq (NASDAQ:QQQ) futures. This is in contrast to some sentiment indicators like the NAAIM Exposure Index, CBOE's total put/call ratio, and spot VIX that all point to a lot of optimism in the market.

Both hedge funds and institutions are negative on Nikkei (NYSEARCA:EWJ) futures.

Positioning is a good bit more optimistic in S&P (NYSEARCA:SPY) futures. Hedge funds were extremely long a couple of weeks ago, but have since reduced some of their long exposure and added to shorts.

Conclusion

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

  1. Being long WTI crude (and natural gas to some degree) is a very crowded trade
  2. Betting on the U.S. Dollar to rise in value is a consensus trade among money managers
  3. Positioning in the Nasdaq is less bullish than you'd guess based on other stock sentiment indicators

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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