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Any decline better begin soon


Hey,'s December!


Something I will be eagerly awaiting today is the latest release of the Commitments of Traders report in the index futures contracts. I've noted here before how I feel the increasing adoption of the e-mini contract in the S&P has greatly skewed the interpretation of this data, but it can still be useful to look at the total nominal dollar value various types of traders have committed to the market.

In the last release, which covered positions held as of November 23rd, large commercial traders were net short the full and e-mini contracts of the Dow, NDX and S&P 500 to the tune of nearly $38 billion. This is the 2nd-largest net short position in their history, second to a $40 billion position in 2001. This time is somewhat different, however, in that most of the short position is made up of S&P e-mini contracts, which is different than 2001 when the bulk of the short position was in the full contract. I'm not exactly sure of the significance of that distinction, but it's worth mentioning.

Most of the measures I follow are close or at an optimistic extreme. I typically wait for such extremes to begin backing off, showing a renewed willingness to sell, before taking on short positions. December seasonality suggests that any decline we get should be limited to the beginning of the month, as I show that the S&P has never suffered a 3% or greater loss in the last two weeks of the year.

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No positions in stocks mentioned.

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