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 my 51st 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.
At a five-year net position percentile of 0%, speculators haven't been this net short 30-year (NYSEARCA:TLT) futures in five years. This means they are placing a huge bet on long-term rates rising.
Positioning is quite different in two-year (NYSEARCA:SHY) futures. Since speculators are betting on higher long-term rates and lower short-term rates, they're positioned for the Treasury yield curve to steepen.
Producers & users in corn (NYSEARCA:CORN) futures both added to their longs and significantly reduced their shorts last week.
Speculators have grown less bullish on gold (NYSEARCA:GLD). It's key to remember that the CoT report released each Friday afternoon covers positions as of Tuesday's close. So this positioning doesn't include how traders positioned themselves after Wednesday's FOMC meeting when gold spiked.
Speculators are extremely long lumber futures.
Positioning in platinum (NYSEARCA:PPLT) futures has quickly reversed over the past few weeks. Producers and users reduced a good amount of their short hedges, implying that they're optimistic on the price of platinum going forward.
Recent price action in WTI crude oil (NYSEARCA:USO) is a good example of how crowded positioning can lead to rapid price reversals. In late February, speculators had a huge net long position on. The price of crude then fell ~10% in a week. During this time period, speculators reduced some of their longs, but added much more new short exposure.
One of the most crowded trades in currency markets is long AUD/USD (NYSEARCA:FXA). This trade fits within the recent "reflation" theme, where emerging market stocks/bonds, commodities, and also commodity currencies like AUD/USD have risen. Traders have chased after these assets as a result of better-than-expected economic data and higher-than-expected inflation figures.
Speculators have maintained their large net short position in GBP/USD (NYSEARCA:FXB) futures, betting on the British pound to fall in value relative to the USD. It's key to remember that CoT data only covers how people are positioned in currency futures. The futures market is very small relative to the total size of the spot forex market. That being said, I still consider it worthwhile to examine how people are positioned in currency futures.
Traders increased their short exposure to JPY/USD (NYSEARCA:FXY) last week. Since the Japanese yen typically behaves like a safe haven currency, bearish positioning in JPY/USD futures can be treated like a "risk on" indicator.
A lot has been written about optimism among traders in the U.S. stock markets. To be honest, positioning in equity futures isn't that extreme. Here's data for the DJIA (NYSEARCA:DIA):
And here's data for the Nasdaq (NASDAQ:QQQ). Traders are much less optimistic on the Nasdaq than the Dow. In fact, they've been decreasing their long exposure as the index has rallied.
Finally, speculators have gradually grown more bullish on Nikkei (NYSEARCA:EWJ) futures.
So what are the main takeaways from this week's CoT data? Three things:
- Crowded long positioning foreshadowed a rapid fall in WTI crude oil. During the correction, some longs were reduced, but far more short exposure was established.
- Long AUD/USD is an extremely crowded trade in the currency markets.
- Speculators have been reducing long exposure as the Nasdaq has rallied, which is opposite of the typical trend-following behavior you'd expect.
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.