Nasdaq Speculators Grow More Cautious

Summary

Equities continue to reach record highs.

US dollar continues to under-perform.

Speculators increase bets in the euro, pound, treasuries, gold and oil.

Equities continue to reach record highs once again despite cautious positioning trend by speculators. The US dollar continues to under-perform amid falling yield differentials and a growing concern of a flatter yield curve. Meanwhile, short-term momentum traders continue to fight USD weakness, while speculators increase bets in the euro, pound, treasuries, gold and oil.

The Japanese yen quietly edged higher last week, extending its recent recovery off yearly lows (vs a trade-weighted basket of currencies). Speculative futures sentiment by large traders in the latest COT report slightly backed off the largest net short position for the year. This suggests that the crowded yen carry trade has obviously started to reverse, but due to its extreme short (79%) position, still has ample room to rally further.

Meanwhile, retail FX positioning data points out that the retail population has continued to sell yen, pushing the net long by percent down to 45% from 49% a week ago. The USD/JPY has clearly settled back into the middle of the 8-month range near Y111. While (daily chart) bearish momentum hints of near-term stability, the technical picture remains negative while 111.65/112.00 (USD/JPY) caps on a closing basis.

Speculative euro positioning by non-commercial traders increased to near once again the largest net long position by (non-commercial) speculators on record. According to recent retail trading data, the retail population continued to be sellers into bouts of euro strength, but they also seem to be buyers on pullbacks. This explains why the retail FX net long remained unchanged at 35% from a week ago.

Meanwhile, the technical picture has improved for the trade-weighted euro, marking a higher base at a relatively high level within the last 6-month trend up. The bullish momentum in speculative sentiment, combined with a positive technical backdrop, together hint of a re-test of the EUR's 2017 highs especially vs the GBP & USD.

British pound speculative (bullish) sentiment rebounded significantly once again, according to most recent COT report. Large speculators upped their long positions substantially, allowing for the overall (net long) position to advance to 50% from 48%.

Meanwhile, the retail FX population continued to scale back their net long position off the recent 6-month high at 59% (Nov 3rd) to just 45% (as of this writing). While these bullish forces in sentiment are typically bullish for the GBP, recent price-action suggests that weekly technical momentum has stabilized.

A slightly upwardly tilted rectangle pattern has emerged, highlighting a solid range between 1.3080 & 1.3340 has formed. That said, if 1.32 (GBP/USD) continues to provide support on a (daily) closing basis, attention will remain on the upper end of the range at 1.3340.

Bullish sentiment by Australian dollar (futures) speculators dipped again for the 7th straight week, highlighting the recent downturn in sentiment from the record net long position seen back in September from 80% to 67% (Nov 21st).

According to the latest retail FX positioning data, the retail trading population has finally now started selling AUD vs the USD. This move in sentiment by short-term momentum traders has turned as price action in the AUD/USD has started to recover. That said, price action has only retraced a small portion of recent weakness and will need to at least clear .7625 (on a daily closing basis) to help the AUD/USD attempt to stabilize near-term bearish momentum and shift focus back towards the key .7730 area again.

Canadian dollar futures (bullish) speculation has steadied as of late, but remains extremely high, as positioning yet again persists near the highest level of net longs (by percentage) over the past 5 years. Meanwhile, the USD/CAD pushed slightly higher last week, highlighting a possible base (at 1.2630) for the USD/CAD's ongoing recovery.

This suggests that if the USD/CAD can sustain bullish momentum going forward, that large speculators will have continue to capitulate on their extremely bullish (NYSEARCA:CAD) position which still stands at relatively high mark of 75% (net long). That said, if the key range midpoint near 1.2917 continues to cap, this suggests that there could be some more consolidation heading into the year-end. If pull-backs remain limited by 1.2630 on a (daily) closing basis, however, then the USD/CAD should remain well-positioned to extends towards the 1.3000 threshold.

Gold futures (bullish) sentiment has continued to wane as of late, but remains at a relatively high level, as the net long percentage of contracts inched up to 79% from 78% a week ago. Meanwhile, gold futures since recovering off 1264 (near a key Fibonacci retracement) over a month ago, have thrusted higher towards the top end of the latest consolidative range. This is partly due to the retail population, which according to recent positioning data, has reversed highly positive sentiment towards the yellow metal and has trimmed sentiment from 74% net long to 66% (as of this writing).

If this trend in sentiment continues and retail traders continue to sell gold, this could highlight a key higher base (in price action), which would potentially re-open 1320 to the upside. That said, if 1305 continues to cap on a daily closing basis, then expectations for a lower top could emerge.

Crude oil futures sentiment remained near extremes, as positioning by futures traders (into Nov 21st) bumped up to 82% from 81%. Net long positions actually fell for the first time in a month, but because the drop in open interest was distributed proportionately (by long & short contracts), bullish sentiment (by percentage) was able to match the highest of the year.

Meanwhile, crude oil prices thrusted higher last week, extending to another 52-week high. That said, last week's thrust higher doe look a bit exhaustive and daily bear divergence highlights crude's overbought (weekly) status. If early November's former closing highs at 57.45 fails to materially support price action, then on-going bullish momentum could stall, which could thwart a potential move towards the 2015 highs just above the 60 region and re-focus the 55 handle once again.

E-mini S&P 500 futures continue to mark fresh all-time highs despite sentiment remaining cautiously upbeat. In the latest COT report, however, futures speculators pulled back slightly by trimming their gross long total by nearly 20K contracts and adding 11K in gross shorts. The overall uptrend in S&P 500 futures, while technically overbought (weekly indicators), should remain intact while maintaining support ahead of the key 2591/94 region. If price action were to quickly penetrate back below the former 2594 swing peak, then it could easily set the stage for a well-needed 3-5% pullback that could help further unwind overbought (weekly) conditions.

Nasdaq 100 futures speculators pared-back their overall bullish stance to 55% from 58% in the latest COT report, which has fallen once again to the lowest level (net long) for the year. Technically, there's been some indecisive price action once Nasdaq 100 futures have reached new highs, which could be a cause for some concern, especially if price action fails to penetrate through the recent record highs in the 6350 region. That said, only a sustained daily close below 6225/35 (Nasdaq 100 futures) would stall overall bull momentum and potentially re-open the 6125 region ahead of the psychological 6000 threshold.

US 10-year futures bullish sentiment remained relatively upbeat, as non-commercial traders accumulated both gross long and short positions, but added 36K contracts to the net (long) total. The aggressive bump-up in long positions suggests futures speculators remain somewhat skeptical towards the run-up in yields. While most of the attention has been focused on the front end of the curve, it seems that US 10-year futures are coiling within a triangle pattern, while 10-yields have fallen into a comfortable range between 2.30% & 2.40%. That said, while 10-year yields maintain support by 2.30%, then there's an upward bias to the upside for the longer end of the yield curve.

US 30-year futures speculators continued to add to their slightly bullish stance, according to the latest COT report. Meanwhile, the latest move in 30-year yields now highlights a potential lower top at 2.78%. And, although much of the focus has been on the narrowing of the yield curve, if US 30-year yield were to materially close below 2.74%, not only would it shift US 30-year futures back towards the highs seen back in September & June, but it would most likely further flatten the yield curve, which could signal risk aversion that would potentially influence the entire global financial market.

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.