MInyan Mailbag: RUT/NDX versus S&P/Dow
So...who you gonna dance with?
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"The Commercials have had a net long position in the NDX and RUT futures for a couple weeks now while they maintain a net short position in the SP and DOW futures. The speculators have had a net short position in all of these contracts (DOW, SP, RUT and NDX). Does this mean that the NAZ and RUT are at a turning point?. Considering the fact that classiifications have changed, is this significant or am I just seeing things?" Minyan RK
The COT data has had a decent (not great) track record in most of the equity indexes, so I'm not sure I would extrapolate these positions alone into a long Naz/Rut, short SP/Dow pairs trade or anything.
The commercials in the NDX last went net long against speculators last September, which worked out well, and they had been short since late December, also a good move. Now commercials are net long again in NDX futures (though they have also rapidly decreased their shorts in the Dow as well).
Looking at several other sector-specific sentiment measures for those groups, it does look like there is a better opportunity in the Naz and small-cap shares than there is in, say, the Dow.
One example is Rydex sector assets. As of Friday, there was $64 million invested in their small-cap fund, which is almost exactly equal to the amount on August 13th of last year, even though small caps are considerably higher. That seems like excessive pessimism to me.
Looking at the Dow, however, even though it has dropped about 1,000 points in the past month, assets in the long Dow fund at Rydex have stayed steady. That seems like "irrational" optimism.
Right now, I do actually prefer looking at small cap and technology shares for whatever bounce back we might get. The COT data is one small input to that idea, but there are others that back it up.
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