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 49th 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.
A few weeks ago money managers were more net long copper (NYSEARCA:JJC) futures than they had ever been over the past five years. It's been surprising to watch them reduce their long exposure as the metal's price has largely stayed flat. Typically, money managers only reduce their long positioning once a sell-off begins. This is because they're mostly trend followers that exit when the trend ends.
Cotton (NYSEARCA:BAL) producers are extremely short, locking in prices for their future production. Money managers are on the other side of the trade with a huge long position.
Sentiment in gold (NYSEARCA:GLD) futures is nowhere near the optimism we saw last summer. Money managers largely missed out on the recent rally and aren't positioned for a big run in the precious metal.
Sugar (NYSEARCA:SGG) producers were quick to put on shorts and hedge their future production last summer. It's been interesting to see the price of sugar stay around that same level and producers reduce some of their hedges.
Volatility in the oil (NYSEARCA:USO) market is at multi-year lows. Throughout this period of calm, money managers have maintained their record long positioning and are betting on the commodity to rise in value. Money managers are currently long 435,475 contracts and short 48,768 contracts. Since each contract is for 1000 barrels of oil, this net position of 386,707 contracts has a value of $20,623,084,310 at the current front month price of $53.33.
Hedge funds and institutions recently raised their long exposure to the AUD/USD (NYSEARCA:FXA). This means that they're betting on the currency to rise in value relative to the U.S. dollar.
CoT data is useful because it tells you if a trade is crowded. For example, hedge funds were extremely bullish on JPY/USD (NYSEARCA:FXY) futures last September. At a 5-year net CoT position percentile of 100%, this meant that they were more net long than they had ever been over the past five years. The currency went on to fall against the U.S. dollar over the next few months. Currently, positioning isn't crowded on either side.
That can't be said for U.S. Dollar Index (NYSEARCA:UUP) futures. Hedge funds are massively long, betting on the USD to keep rising. As a reminder, the U.S. Dollar Index represents the value of the USD relative to a basket of other currencies - the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
Both hedge funds and institutions are very long DJIA (NYSEARCA:DIA) futures.
Similar positioning can be found in S&P 500 (NYSEARCA:SPY) futures. Both trader categories reduced their long exposure before the election and then chased the market higher as it rallied.
It's interesting to see traders get less pessimistic in VIX (NYSEARCA:VXX) futures as they ramp up their long exposure in stocks. You'd expect the short positioning in VIX futures to increase. A big tailwind for people short VIX futures has been the steady amount of contango in the VIX futures curve. Further out VIX futures have consistently fallen in value, as realized volatility has been much less than implied volatility.
So what are the main takeaways from this week's CoT data? Three things:
- There are a number of crowded long trades in the commodity markets: copper, cotton and WTI crude oil. Gold is not in this camp.
- Most traders are betting on foreign currencies to fall in value relative to the USD.
- Institutions and hedge funds do have a lot of long exposure in U.S. stock futures, a number of them were caught off guard as they reduced longs going into the election.
I post fresh CoT data each week, so be sure to follow me to stay on top of how people are positioned in the futures markets! 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.