Delving Into Hedgers' Equity Positions
...these pictures say one word...caution.
Now on to the data. I will be examining the CFTC data (COT data-Commitments of Traders) versus several indices-the Dow, S&P 500, Russell 2000 and NASDAQ 100. It seems that directionally they are making the same bet lately, that is, to be either short or liquidating longs into this much ballyhooed rally. Obviously, this is not a prediction that they will be right or wrong. They are simply data points that I take note of in my firm's overall analysis and asset allocation process. In addition to this data, we have many other data points, notably negative divergences like less new 52 week highs on each new index high and investor sentiment polls reaching 'ebullient' levels. In sum, all the data continues to make my firm cautious, but not bearish. If we are wrong, which is certainly possible, we do so with preservation of our client's capital in mind. Better to miss the end of a move than get caught chasing a market only to wish you hadn't later.
Note that the charts below have circles marking important turning points, rectangles showing persistent positions and arrows showing the direction of their position (an arrow pointing down is a position being liquidated while an arrow pointing up shows accumulation). There is also text in some cases so I will let the pictures speak for themselves. Like I said, in general the hedgers are selling/shorting this rally or in Wall Street parlance, 'fading the rally.' One last note, on all four indices I netted out the 'big' contract and added the electronic version (e-mini as they are called as they are worth 1/5 the value of the 'big' contract) to get a net number of contracts long or short. This is extremely important as more and more volume is taking place electronically as opposed to the 'open outcry' version you would see on the floor of a futures exchange or in the orange juice pits in the movie Trading Places.
Hedgers Overall vs. Dow Jones Industrial Average
Hedgers Overall vs. Russell 2000 (small caps)
Hedgers Overall vs. NASDAQ 100
Hedgers Overall vs. S&P 500
Like I said, pictures tell a thousand words. In this case, and in my book, these pictures say one word…caution.
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