Extreme Trader Positioning In Both WTI And EUR/USD

Summary

Commodities: Commercial coffee users are optimistic about future prices. Traders are very long copper, heating oil, and WTI. Speculative positioning in silver is less long than it is in gold.

Currencies: Traders are very short NZD/USD and JPY/USD. They're still pressing their longs in EUR/USD.

Stocks: Speculators pulled back on some of their Nikkei longs and are extremely bullish on the S&P (but less so on 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 article 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

Speculators are still very short coffee (NYSEARCA:JO) futures. Producers and users are on the other side of the trade. Their net positioning is high relative to the past five years. Producers hedge by selling futures to lock in prices for their future production, and users hedge by buying futures to lock in prices for their future inventory needs.

So if producers and users as a group have a historically bullish position on, you can infer this means there's less hedging by producers and more hedging by users.

It's important to not simply fade extreme positioning. Traders who are short coffee have zero reason to exit their positions as long as the price of coffee keeps trending lower. Pay attention if the price were to turn. This is because crowded shorts would be forced to head for the exits at the same time.

Traders have recently grown more bullish on copper (NYSEARCA:JJC) futures, increasing their net long position.

Sentiment is quite pessimistic among agricultural commodities. Positioning in corn (CORN) isn't extreme yet, but it's close. I define extreme positioning as a 5-year net CoT position percentile as >90% or <10%.

The price of gold (GLD) is near the 2016 highs, but bullish spec positioning is now less crowded than it was back then. It's interesting to see that gold hedgers are more net short than they've been in years.

Heating oil (UHN) is still a very crowded trade on the long side.

Positioning is mixed in natural gas (UNG) futures. I'm honestly surprised speculators aren't more net short given the negative price action late last year.

Traders increased their short exposure to OJ futures. They were positioned the same way going into hurricane season last year, which obviously didn't work out well.

Spec positioning in silver (SLV) is significantly less long than in gold futures.

Like in corn, traders are positioned for lower prices in soybean (SOYB) futures.

Positioning in WTI crude oil (USO) is quite stretched. We're at levels not seen since early 2017 and mid-2014, two time periods when it paid to be cautious with long exposure to the commodity.

Currencies

NZD/USD is an extremely crowded short trade.

Traders are still very long EUR/USD (FXE) futures. So far they've been on the right side of the trade. Like I said above, it's a waste of time to fade extreme positioning just for the sake of it. Just do be aware that you're running with herd if you're long EUR/USD, and that any technical breakdown could bring forth a large amount of liquidation.

GBP/USD (FXB) has recently caught a bid.

Positioning in AUD/USD (FXA) has oscillated in a range over the past 18 months. It's currently at a level that has historically marked short-term price bottoms.

Stocks

As you'd expect, traders are super long S&P 500 (SPY) e-mini futures.

Positioning is much less bullish in Nasdaq (QQQ) e-mini futures.

Traders pulled back a bit on their long exposure to the Nikkei 225 (EWJ). This data is for the more liquid yen-denominated contract. Japanese stocks have been on fire the past few months, rising on accelerating earnings and better than expected Japanese economic data.

Positioning in VIX (VXX) futures has normalized over the past 12-18 months. You've probably read about the big short position that traders have, but it's important to scale the net speculator position by the contract's open interest. Think of open interest as the size of the market. The market for VIX futures has massively grown, and comparing a nominal number of net shorts doesn't account for this growth.

Conclusion

Here's an overview of how speculators are positioned in all of the commodity markets I track. Palladium (NYSEARCA:PALL), heating oil, and copper are the three most crowded long trades. Coffee, soybeans, and OJ are the three most crowded shorts.

Here's that same metric for financial futures. EUR/USD and the Dow (DIA) are the most crowded long trades.

And here's aggregate data on commodity producers and users. It typically looks like a mirror of speculative positioning.

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

  1. All eyes are on WTI positioning. There's a lot of money leaning on the long side, and if WTI starts to break down it will be a messy unwind.
  2. As a sector, agricultural commodities seem to be the most hated.
  3. Traders are massively long S&P e-mini futures, although the same can't be said for the Nasdaq.

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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.