Over the last couple of weeks I have highlighted the activity of the hedging community in a way that I hope highlights their overall positioning. As I have said, I get two valuable data points from this analysis. One is the direction, or trend, of their positioning, and the other is their net position relative to past bets. Below please find the data I gathered that was released Friday (as of the prior Tuesday).

The conclusions I get are one of caution about stocks, and a move from caution in bonds to flat. I will highlight their position in the 10 year future; 30 year future and then, an 'overall, duration weighted' position in bonds using 2's, 5's, 10's and 30's.

In stocks, I will show their recent selling of strength in the NASDAQ 100 and Russell 2000 and the outright large short side bets in the Dow and S&P 500. Please note that in the equity futures, I have netted out the electronic (e-mini) futures with the 'big, open-outcry' futures to give a complete picture. This is necessary due to the popularity in electronic trading.

When we compare this data from the data in my last report entitled 'Delving Into Hedgers' Positions,' we can conclude that the smart money crowd - as many refer to them - are selling to the faster money, 'momentum crowd.' This usually, and I stress usually (many have noted the unnatural underlying bid to stocks lately), is a time that the market will turn.

The hedging accounts are not always right, but they are known for 'taking the other side of the trade,' usually at extremes. So these data points can be very useful in defining high-risk and low-risk entry points in all sorts of markets. My sentiment data continues to flash warning signs and the new highs in the Dow were not confirmed by the other indices. All of these data points suggest caution. It is important to note that I am not bearish, I'm just maintaining a lower than normal allocation to equities.

10 Year Future



30 Year Futures



‘Overall’ Yield Curve Weighted for Duration



NASDAQ 100



Russell 2000 Small Cap Index



Dow Jones Industrial Average



Combined S&P 500 Index



Conclusion: If they are truly smart money, the stock market should stall here or retreat, and bonds might meander in a range for a while.