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Capitulation: Biggest Weekly Spike In S&P Large Contracts On The CFTC In History - $19 Billion In Index Shorts Covered
This is what capitulation looks like:
The chart above is an indication of the net speculative contracts on the CFTC as disclosed by the weekly COT report. In particular, this tracks the S&P Large contracts (x 250). Last week saw the single biggest weekly short cover in the history of this data set, indicating one of several things: 1) some large fund(s) capitulated and covered a major short position, 2) the ongoing forced short buy-ins by the State Streets of the world have finally yielded results, 3) someone is positioning for a massive move higher in the market by going net short to neutral. The net weekly change in contracts of 66,043 is a record, and involves a staggering amount of capital: the money involved is 1,150x250x66,000 or roughly $19 billion. A weekly move of this magnitude was only ever seen once before, on March 24, 2009, when the government had to cement the bottom of the market following the 666 low. As the Large uses Open Outcry, it explains why we were getting numerous emails from pit traders indicating that Goldman was buying up billions worth of S&P Large.
A comparison of the SPY and the weekly change in the S&P Large contracts can be seen on the next chart.
We let readers make up their own minds as to whether last week's record short covering surge is a cause to the recent melt up in the market, or an effect to an imminent spike in the S&P.
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When the last of the shorts capitulate and cover, who's left to buy? The whole rally's been low-volume, no conviction.
oh shit, i better cover my short, just shorted on friday, time to get out, the big boys are gonna gun this puppy higher, and god knows how high we gonna go after the phony job reports.
Can I put some reason out here?
The biggest short covering in SPX history got it up 7 points this week? (I question it being bullish). And GS was the buyer? Not for themselves.
Give me 5 trades like this a year as 4 will be massivley right to fade. That said, if the covered for the Fed it could do anything. But how could the Fed be short? Still, it settled unchanged.
Falling daggers starting soon is a better guess than lift-off.
The only people left to bury are the longs.
Big boys can only buy and sell to each other for so long correct?
Exactly!. This whole sham market is just the big houses trading against eachother and milking the mutual funds whose manager feel they have to get in to make quarterly performance numbers. The Big Houses are extremely competetive and winning against each other is all that counts. It reminds me of what a mentor once told me:
Engineers want to be right; lawyers want to win; and investment bankers want to win at all cost.
Air pocket.
Anything to con the professional classes into trusting these fuckers with the 401(k)s again.
Public pension "managers" already back in. Disgusting.
Get anything you value as far away from NY-DC as you can.
Does this even matter? I thought I saw that the bond market is 10 times the equity market. Shouldn't there be more concern about the bond market?
Nobody that I talk to in the general public, with the exception of one or two recently converted econo-geeks, has the slightest clue regarding the bond market or even cares. They pretty much all know about the stock market, which can be boiled down to a basic 'up' or 'down' number, fed to them each morning with the proper 'context' and explanation.
I would say look at the timing. Apparently a plan was in effect to ensure that the market did not drop significantly following the passage of the 'health care reform' bill. With statements like this prepared and ready, it would not do to have the stock market crashing:
See, no asteroids, no crashing stock market. Just birds chirping and chuckling audiences. Soon just crickets chirping regarding any mention of health care reform in the media between now and November.
source: http://www.telegraph.co.uk/news/worldnews/northamerica/usa/7530579/Barac...
Yep. Most people don't know dick about bonds. I had a prof in a business related class start talking about it and completely lost them. I'm pretty sure the vast majority does not understand the market, and most certainly are not following it. Quite frankly most people in America are economically illiterate. But this is not a American phenomenon. I'm pretty sure most of the world is economically illiterate. That same professor got on my case for using the proper terminology in class, stating "Shameful when you talk like that only you and I know what you are saying. you need to tone it down for the rest of the class". Not he said to dumb it down, not that they should learn about it. Hell I know an econ major from an Ivy league school that I had to explain the concept of carry trade to during one of our discussion. She had no idea what it was, and this girl was not dumb(much smarter than me), just never came up before.
Most people in finance didn't know dick about the carry trade either before Japan announced the end of QE/ZIRP a few years back. Then markets tanked worldwide and people learned about the perils of rate-rises in carry currencies. "Carry trade" was added to the broader lexicon overnight.
Mark my words, the entire world will be extremely aware of the power of the bond market very soon. The equity market is the pimple on the ass of the bond market. And when the bond market decides the party is over... the party is fucking over.
Seems the average person is unable to grasp the monetary system in general. I doubt most of our politicians really understand it. I make it my daily business to understand it and I still have trouble keeping it all straight. How complicated should our system be? How can average people hold it accountable? Trust the SEC & the politicians to police it? ha ha ha.
Shameful, I know the basics of a carry trade, but basically I'm a dumb-ass on the bond market too. Any places out on the web with a good primer? Thanks.
Thanks for sharing Shaemful, all I know comes from Zh, GATA, Mish's Global, ect. and everything is rigged, to hell with it!
Point well taken.
Nowhere quicker response and full-frontal exposure than S&P Large. When pops writes a check for too Trillion, 19 Bn is a day at the races.
Does this bear some relationship - either cause or effect - to the S&P rebalancing?
Anyone... Bueller....
Obvious distribution last Thursday and Friday. Wonder if these purchases enabled the S&P to close at close to even both days, instead of down significantly. Since it appears that banks have been playing the market instead of lending, are efforts being taken to help them exit the market without sinking it - at least not until they are mostly out? If would be in keeping with the past gov't practices of propping up the financial system in an environmet devoid of moral hazard.
Setting up for the Hollywood Futures Index I presume....a little early in my opinion, but never the less.
Relax, this was just the lightening up of a partial hedge against a massive CDS book. Now that the public suckers have lifted the fixed income spread product it can be taken off. The global risk correlation is alive and well, it is our access to it that is asymmetrical.
Kinda makes sense if balance sheets are to be shrunk by quarter-end.
Yes, the Lehmann plan. Of course.
China is up 2% tonight.
Emerging market indexes might be on the move on another leg up.
Could explain the late buying in Spooks futures in Friday.
Shenzen Stock Exchange
Shanghai
How about this...maybe there was a bunch of REALLY bad bets by the Abu Dhabi sovereign wealth manager who disappeared this weekend.
Large SPY short postion call closed...he had a margin call.
Negative rate swap spreads...he made a REALLY bad derivatives bet.
Maybe he told his brother, the grand poo ba, and now he has 'disappeared'.
Or, maybe this short covering is related to the insider trading arrests in London. People are liquidating to get out of connected positions.
Or, maybe some major money is raising cash to short the hell out of long Treasuries.
Or, maybe some random big hedge fund is blowing up. We saw 2 years ago they aren't all brainy-acs.
Caught this large S&P buyer in February...
http://www.matrixanalytix.com/live-market-analytix.html
February 25, 20108:16PM EST
Market Headed To New Highs As Major Buyer Remains Active...
"Mystery Buyer" surfaces yet again to buy the market aggressively in the face of major selling across the board. As we mentioned yesterday, this buyer has been extremely aggressive on the bid since SPY 107, showed up yesterday into the close as the market was about to roll over, and is clearly indicative of either someone with information and/or someone who just wants to take the market higher regardless of any fundamental news. This is a very powerful player in the market and you can actually watch them actively on the SPY bid using Level 2 and Last Sale (Topic #12 "Spotting The Hidden Buyer/Seller" in The Matrix Strategy Trading Course starting next week). As we outlined yesterday, this is a buyer we absolutely need to respect due to the intensity and longevity of the buying pressure he exhibits, and because of today's action/signal we covered our short positions during the final hour for small gains and are now looking to get long as we believe this market is now headed higher...possibly to new highs. The type of action we've seen on this market pullback is extremely similar to the action we saw back in Feb-March 2007 when after a run from DOW 11,000 to 13,000 a severe sell-off in Chinese markets caused the DOW to drop over 400 points in a single day and brought in an enormous amount of shorts into the market believing the market had topped. A couple of months later the DOW was setting new highs and on its way to 14,000. During the course of that sell-off we continued to see a relentless buyer very much like what we are seeing now. Now fundamentally should this market be headed higher? Not in my opinion, but I respect the tape much more than fundamentals or technicals. The action we've seen over the past couple of weeks is clearly indicative of someone accumulating an enormous amount of SPY shares, and we know this is for a reason. Powerful players buying billions of dollars of SPYs or S&P futures over the course of several weeks do not place bets in the markets based on hunches, it is very much based on information or the sheer power to squeeze shorts and take the market higher. Today was a very strong signal that this buyer is relentless on the bid, and will probably be buying aggressively on each and every pullback...this is not the sort of action we like to see when we are holding short positions. Watch for a break of that 1110 level on the S&P, which as we outlined in yesterday's market summary is probably where this buyer wants to take the market.
What's $19B when the Fed is giving the banksters $35-40B (according to Bill Laggner) each week in gambling money?
One cannot estimate the magnitude of the apparent $19 billion push toward neutral/long futures relative to the theoretical size of the equivalent move this would be in the S&P cash. Wouldn't that be, at 5% margin, a minimum 20X $19B, or $380B? And with the squid likely getting the cash for its initial margin position by leveraging up its balance sheet further from whatever (15X, 20X) higher, this would likely suggest that the move is likely giving the squid control (risk to) of a theoretical additional $750 billion to $1.2 trillion of cash equities?
Another point is the squid probably is very long equities right now (200% long, 300% long, 1000% long), and this source of buying (rigging) is now gone, done, kaput?
Looks to me like a big speculative short was built from the beginning of the year and covered at the mar expiry...
Well, here's an economic theory: things are not "that" bad.
What is happening is that, yes, for 95% of the people out there, it's a terrible recession. We are seeing a hollow "recovery" just like in 2003, except even hollower.
The people I know at the top, the true 1%ers, are doing better than ever. The people below them are doing worse, and the people in the bottom 90% are getting crushed. None worse than those in the bottom 50 or bottom quartile.
The government is now paying their wages. So, they are going to respond by taxing those at the top. This isn't totally inequitable, as the fking system has created this situation. The real problem is that all the ingredients that made the middle class are now gone.
The unions are gutted and have been co-opted to such a degree by the political elite that their leadership are now MEMBERS of the elite. The unions are run just like any corporation, as the personal playground of its executive class.
At the same time as this was happening, boards began forming tight interlocks and now have conspired amongst themselves to put all profits into executive hands, instead of paying dividends, which was the case during most of the heyday of the USA. Cash *used* to go to pensions and dividends, leaving not a whole lot for the executives. This was why the pay multiples of CEO to rank-and-file were 25 or so for 30 years, then blew out from the 80s onward.
The solution is NOT to have the government try to tax it out of the top 1% and then redistribute it, because every single government solution involving money always draws corruption and the same elite parasites as it always has.
But, those who are in "power" and seek to rectify the stratification truly know of no other way to try to "accomplish" it and their faith in gov't is so unshakeable that they cannot accept that they will merely create another trough for the hogs.
We will get our hollow 2003-07 recovery redux, a shorter one this time, a hollower one, until the sovereigns start to blow up. The last deflation was hell on the leveraged - the banks. This next one will take out the leveraged sovereigns as well.
But, as energy demand destruction permits additional economic activity now, and the supply curve is overhead by 2-3mbdp, there will be apparent "growth." When we ram into the curve again, and oil again spikes, the next wave down will be like the previous one, except worse.
The NG glut is currently subsidizing our energy equation...that won't last forever.
Your theory is based in a rational analysis of stuff. And Stuff, at a minium, is not behaving rationally.
Stuff It is happening as if certain key players have been and are positioning themselves for events that they will set in motion, if they haven't already been doing so, so that they gain the most from forthcoming roll out of events.
In an earlier millennium, your take would be golden. In this one, it is merely quaint.
Sir Larry Wildman says buy stocks. Dollar is dead. GS says capitulation of Dollar shows reversal of US. Sir Larry will Buy huge blocks on the way up to burn Gordon Geckos ass. Blue Horseshoe loves stocks, Hates shorts. Sir Larry is going to eat your lunch for ya. Piece of cake Gordon
I've been calling for SP 1,200.00 - 1,1210.00 all month and thought we'd see it in the last week (end of Q window dressing and all). Looks like it may happen.
Next stop = 1256.00
After that = The moon!
Aw crap, it's just a thin layer of green cheese over a tungsten core--WAITER--
Someone spooked by the CFTC silver controversy...?
Is GS about to get stopped out of their Euro trade a second time in a row, first suggesting going long and afterwards suggested going short? Their prop desk traders must be feasting on the corpses of their broke clients.
Like Senor Ferrari in Casablanca, they get to pay themselves when they own the casino.
The shorts get cleared out buyers are drawn in so the investment banks can bail?
So whadda say late April crash?
I don't see much significance to the spike except that it was an outlier event. The weekly change seems to be directly lagging equity prices. The sum of negative change from early Jan to early Feb as the mkt turned lower is about equal to the positive spike in the last week. The spikes seem to correlate with big recent moves in equities. Anyone watching the tape last week saw some unbearable pain for many bears. XLF and IYR both broke out to new highs. Heavily shorted names got squeezed worse than the general market.
There's no way to interpret how this effects future price. If it does represent the capitulation of large short positions, it might portend lower equity prices ahead.
Unless the Abu Dhabi fundy disappeared after making this cover or some fundy blew up maxkeiser style, does this portend to a real belief that we are going to default on the dollar and or the Federal reserve note is going to collapse?
http://funy1.blogspot.com/2010/03/do-recent-parabolic-market-moves.html
I could be wrong, but as a floor trader for many years (over 25), when short covering like this came in it was only a low if it was near a bottom, which was very, rare in itself, and profits were taken in March 2009. These buys are losses. And as much as GS bought, they have account all over and could have easily faded them. If we tank this week, "The Game's Afoot!" These buys are usually cries of "UNCLE". We shall see.
I could be proved terribly wrong as these are very large numbers by corrupt people, but they have stolen from the shorts. If that was indeed retail, then the only people to steal from now are the longs.
I think your analysis is a bit off. Although the commercial traders closed an unusually large number of contracts, not all of the contracts were long.
The overall net position went from 1.1% to -0.5%.
This means that the commercial traders went from net long of 1321 contracts to net short of 262 contracts.
This is not really that significant in the scheme of things.
I posted your article link on another forum. I got the following response to it
"T
hat $ 19 billion is probably nominal value. It is not like it took someone $ 19 billion to short the market via SnP big futures contract."
Any CFTC guru out here care to explain the above? TIA.
Please, please, please PTBs... consider the meaning of "glossary" and apply it usefully for this site.
The current "glossary" (sic) is a keyword index.
The Fed seems to believe if it can continue to ramp the market higher, it will transfer some of the euphoria on Wall Street to Main Street. I've talked to a lot of markets people this weekend, and there is a sense that things are being driven higher, even though the fundamentals are lagging, but as long as they are making money, they don't really care.
Back on Main Street we have high unemployment, a housing market that is as bad as it has ever been, given all attempts to support it and retail sales that are sluggish at best.
As Greenspan believes, the economy follows the markets, this is the crucial juncture to give things a boost during quiet sessions. There must be some big sellers going into quarter end and a strong conviction that it is about time for a modest pullback, so it will be hard to get genuine buyers into the water this week.
The thing to keep an eye on is the bond market, since our affluence is mainly a function of the ability of the government to borrow vast amounts of money at a very low rate and to me, it is looking very edgy at the moment.
Complete analysis:
Bernanke keeps rates low until employment rises. That is a very, very, very long horizon.
In the face of crushing unemployment and a dead (and will remain dead) housing market, there must be good economic news.
That would be the stock market. So, yes, the Feds are pumping the market, so that the unemployed can see the pie in the sky even though they're unable to eat it (let them eat SPY?).
Someone, probably Karl Rove, went way, way short against the health bill. Bad move, Karl.
Would I invest in the stock market? That's a lot of cognitive dissonance.
"there must be good economic news."
Exactly right. Otherwise, even those who spend a large chunk of their lives 'glued to the tube' will realize that something is up--or down.
Now, for your last question of whether to invest in the crock market....I dunno. Would you loan money to vampire squid or their minions? It seems a little like buying a gun and give it to a street thug for a large % of the profits obtained from mugging people.
Who says this $19 bln were directional trades? For all we know this could have been (partially) offset with long stock positions. Looking at the CFTC numbers is a complete waste of time.
No other moves in major markers (bonds, bills, gold, euro, jy) would lead me to believe that managers with shorts wanted to cover at quarters' end to look good on paper ... or ... since US gov / Fed beats the bush to restrict short sales, said managers don't want to explain why they are short.
If these guys were so well connected to the 'inside scoop' why were they short in the first place with SPY hitting new tops every week?
Very interesting ... ES at 1070 at 6:20 EDT
Hey, my sister-in-law, wants to go long. - Big counter indicator. Sell.
Check out /ES (minis) where the exact opposite happened. Big long positions were liquidated by Large Specs after being long the whole time since March'09. I think they offset each other.
COT data is not that simple to parse.
When this US equity market breaks it is going to be a real Nantucket sleigh ride to the downside.
I wonder if Benny Boy has the nuts to create another bubble.
The too Trillion he just put in the system does not constitute a bubble??
Wondernuts indeed.
So bombing crowded train stations is another "UP" trigger for the market i presume?
The air that they are using to blow this bubble is going to get more expensive. I would like to see greater coverage and explanations of what is happening in the commercial and government bond markets here at zerohedge. The stock market's push higher is interesting in light of the current depression, but sounds like the bond market is where our journey to hell will begin.
Well,according to my calculations,the Fed must own around 61.8% of the entire Sp500 by now.Since that is a significant Fib number it is worth shorting.
Also given the Squids gone all Katy Perry on EUR/USD: yes then er no,in then your out,out then your in/short long er maybe not,this whole tell the market what were doing is the equivalent of the three card trick man letting you turn up the corner of the "lady",hence I'm short QQQQ.
If they covered that many shorts last week, how come the vix went up?
Shhhh...the baby is sleeping.
I assume everyone knows what's happening here. This is just one of several moves taken for exactly one purpose - to get all those democrats who voted for totalitarianism (health-care and otherwise) and would be thrown to the wolves next november... unless... unless... unless what? The obvious answer is, unless the powers-that-be do what they have shown they are masters of... trading short-term on-the-surface fantasy gains for certain long-term disaster. So clearly this adminstration and congress have decided to do anything and everything to attempt to create false appearances of "see, everything is good" through election day. Once they have congress locked up again, what they will do for the next two years can be best described as "you ain't seen nothing yet". For the record, the republicans are arguably just as evil and dangerous as the democrats, but what is clear as day to any honest, productive human is: if we can't elect someone outside the system (which arguably includes RonPaul), the only hope two slow the implementation of world totalitarianism (starting with the USSA), is to gridlock government as thoroughly as possible. What the current powers-that-be are trying to achieve, in many ways, is to somehow keep total control of this government-gone-wild in DC. Keep this in mind as you see other amazing statistics over the next few months, and remember, the money that buys stocks, options, futures, bonds and everything else is printed in unlimited quantity at zero cost by these powers-that-be, and you and I have no freaking idea how huge are the lies and games not being reported (which is why we need a total audit of the federal reserve, prior to its elimination and thousands of prosecutions for treason of high government/corporate "officials").
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No other moves in major markers (bonds, bills, gold, euro, jy) would lead me to believe that managers with shorts wanted to cover at quarters' end to look good on paper ... or ... since US gov / Fed beats the bush to restrict short sales, said managers don't want to explain why they are short. 70-519 | 70-523 | 70-526 | 70-528 | 70-536 | 70-542 | 70-547 | 70-562 | 70-564 | 70-573 | 70-576 |