“Curiouser and curiouser“ is how I would describe the latest commitment of traders report. Records from CME indicate that commercial traders increased their net long positions by nearly 6,000 contracts in the S&P 500 index (each contract = index value X $250), and their net long positions in the S&P e-mini’s (each contract = index value X $50) by over 3000 contracts in the week to July 17. These are not large numbers by themselves, but remarkable since the commercial net long positions were already at extremes as this market climes a proverbial wall of worry.
One particularly cynical explanation I had was that Wall St. insiders were front-running the sovereign wealth funds, especially China’s. Of course, it may as well be that those running China’s 200 billion fund were smart enough to buy the futures first, knowing full well that their stock buying will drive up the S&P 500 index.
No matter what the real story, it’s hard to believe this emphatic buying is not based on certain fore-knowledge. As long as this situation persists, it’s hard to imagine a big fall in the market even as we’re seeing more Q2 earnings disappointments, Google (NASDAQ:GOOG) and Caterpillar (NYSE:CAT) being the latest examples.