Stock Traders Are The Most Bullishly Positioned In Six Years

Tyler Durden's picture

In Late 2006, the S&P 500 futures market traded around 1435 and the commitment of traders was at an extreme net long position. The market fell shortly after only to manage a miraculous rise in the face of hedge funds going bust and an exploding and over-leveraged credit market. In mid-2008, the S&P 500 futures also traded around these levels, from where the epic collapse really began. Six years later, the S&P 500 futures traders are the most bullishly positioned they have been since those heady over-confident days. Still believe the talking heads that there is money on the sidelines waiting to be put to work? Still convinced that there will be some epic rally if the 'fiscal cliff' fallacy is resolved? Positioning (real money) trumps Sentiment (AAII surveys etc.) every day in our book. The Bernank will be pleased at his success.



Chart: Bloomberg

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mrktwtch2's picture

i still think we see 1485 spx before 1325..

rajat_bhatia's picture

DO u have a subscription service? i'd love to waste my money on it :)

SafelyGraze's picture

subscription? yes!

get my free newsletter 

you'll have to provide your own content though

Cognitive Dissonance's picture

Don't fight the Fed. It's the only (sure) game in town.

<Until it isn't. Even then people will tolerate losing (some) money if their friends and neighbors are doing so as well.>


I like the end of day melt-up trade.


< Buy 100 /ES market. Filled. Sell 100 /ES at close. Filled. Hit the Natties. >

fonzannoon's picture

Everyone is in bond funds. It's okay though because........

fuu's picture

Metals sporting some Nessie this morning.

Dr. Engali's picture

Why on earth anybody would want to be long when the market is so close to an all time high is beyond me. This market is about to make a long term triple top, which will fail. These suckers are going to feel a lot of pain. Even if that scary " fiscal cliff" is resolved ( which it won't be) it will be a sell the news event.

mrktwtch2's picture

if that is true doc then what do you do maybe buy some cheap feb spx puts??..any ideas would help as i have had my ass handed to me every time i try to short this (made a little in the nevember sell off but not enough to make up for the year)

MeelionDollerBogus's picture

vxx. My older chart shows this: - there was a 4:1 reverse split & scatterplot correlations have risen sharply to -10.2:1 in some segments. This means VXX acts like a massive inverse ETF for the SPY, DIA (market index etf's)

Look at it this way: if the more traditionally lower 4.6 inverse ratio kicks in, this is what you see:

spy vs vxx, (120/141) -4.6 = 2.09978189317 so roughly 2.10 factor,

with vxx around 33.70 this means SPY dropping to 120 puts VXX up to 70.76/share

At the -10.2 ratio I've measured for some time-segments this shoves VXX much higher.

SPY could drop to 115 but let's be more kind and stick to 120.

(120/141) -10.2 = 5.18067369871 , so 5.18 x 33.7 = 174.59/share

So let's say you decide to tap out only 50% of the way up, and further, that seeing the VXX chart any dummy can see the spikes do not last. Know what works then? Buying a VXX put with time > 60 days. Just out of principle > 60 days is good and from the chart activity you should see 90 days is already too much time premium. VXX always tanks off a spike. VXX puts always go up with linear moves down for VXX shares. Pretty simple.

Decide how much cash you can dare risk, including all fees, and think about if this makes sense. VXX shares now, VXX puts later. Just think what a VXX put can do slamming from 70 or even 170 down to 30. You could buy $10.00 OTM and still do OK.

vxx vs spy 01 zoomed out, see

vxx vs spy 02 zoomed in, see

SmoothCoolSmoke's picture

That triple top is around 1510-1530 Doc.......  5-7% up. Bernankie would consider 1213 a smashing success up 6%.

Dr. Engali's picture

We all know that the third attempt rarely makes it to the previous highs. Adjust those numbers for inflation and you'll find that it paints an even uglier picture.

GMadScientist's picture

Market != economy.

Economy goes off fiscal cliff, UE brings the QE: Ben opens the hydrants, the market rockets (nominally)...

They aren't dumb, they just don't have anywhere else to stuff green paper anymore that isn't a death trap with low yield.


Dr. Engali's picture

The market does not equal the economy. This twisted shell of a market stopped resembling any sort of price discovery mechanism long ago.

jse111's picture

The S&P Index is 7% below its all-time high of 1527. With a conservative inflation adjustment in place, the nominal number approximates 23% below its previous high. Additionally, the PE is 16.2 and the TTM Book value is 2.26.

As mentioned if Ben Graham had titled his masterful treatise, The Beer Drinkers and Lazy Mans' Guide to Wealth and Leisure vs. The Intelligent Investors, a quantum leap in 95% of investors’ quality of life would exist!

Paraphrasing, good news is never welcome here and the bitching and moaning index continues to rise geometrically!

Jake88's picture

That is what I would bet, but I've been burned badly with my betting.

MFLTucson's picture

The clown act they refer to as the American economy is such a pile of lies, it is no wonder these idiots will put money in this grossly overpriced market.  No growth in exports to Europe, no growth in the US economy, money printing to buy 100% of the debt, higher taxes all point to higher stock prices?  Where on mars?

justanothersucker's picture

It actually PAYS to be bullish....if you're TBTF.  When it all goes south, they will get their bailout and multi-million dollar bonuses, while we get the shaft.  Wonder when they will start asking for those bonuses in PMs?

larz's picture

How can you NOT be bullish just look around at this wonderful world how can anything go wrong

thepigman's picture

The entire key is to malinvest. Bernank wants you to:-) Stocks are

a far superior malinvestment to bonds. Ask any TV sell side


JustObserving's picture

Everyone knows that Bernanke will print any amount necessary to prop up US markets.  He has already printed $2.5 trillion and engaged in Operation Twist.  He will be printing $3.06 trillion over the next 3 years.  A lot of this money will go to the stock market.

BTW, Dagong, the Chinese rating agency that the SEC will not recognize, just put US credit rating on a negative watch list.


The debt burden of the U.S. federal government increased 9.1 percent year on year in 2011 and 11.7 percent in 2012, far exceeding the country's nominal GDP growth rate of 3.9 percent in 2011 and 3.4 percent in 2012, Dagong said.

Dagong said it expects the outstanding debt of the U.S. to rise to 104.8 percent of its GDP and 608.7 percent of its fiscal revenues by the end of 2012, indicating that its solvency is experiencing a descending trend.

"Due to the pending fiscal cliff, the U.S. economy is likely to fall into recession in 2013 and stay weak in the long-term, which will further weaken the material basis for the government to repay debt," the statement said.

On Aug. 2, 2011, Dagong downgraded both the local and foreign currency sovereign credit ratings of the U.S. from A+ to A, each with a negative outlook.




Winston Churchill's picture

Egan Jones is probabl not far behind them.

No good being the cleanest shirt in  that laundry when its on fire.

JustObserving's picture

Egan Jones has lowered US credit rating twice this year - in April and in September, from AA+ to AA to  AA-

SAN FRANCISCO (MarketWatch) -- Egan-Jones Ratings Co. said Friday it downgraded its U.S. sovereign rating to AA- from AA on concerns that the Fed's new round of quantitative easing, or QE3, will hurt the U.S. economy. The ratings agency said the Fed's plan of buying $40 billion in mortgage-backed securities a month and keeping interest rates near zero does little to raise GDP, reduces the value of the dollar, and raises the price of commodities. "From 2006 to present, the US's debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%," Egan-Jones said in a note. "In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%."

yogibear's picture

F-in A minus. More and more printing by Bubble Bernanke.

Bernanke and the Fed's magic money soon to be worthless.


Onwards to junk status!!!! Quick helecopter Ben and the Fed print more. Trigger hyperinflation why don't you.


That's all right there are plenty of countries out there ready to take over the reserve currency status you abused!

yogibear's picture

F-in A minus. More and more printing by Bubble Bernanke.

Bernanke and the Fed's magic money soon to be worthless.


Onwards to junk status!!!! Quick helecopter Ben and the Fed print more. Trigger hyperinflation why don't you.


That's all right there are plenty of countries out there ready to take over the reserve currency status you abused!

justanothersucker's picture

Look, they know that investors watch these metrics more than ever before.  Everyone trying to figure out where thw 'smart' money is going........right up until the time that it isn't.  They still need suckers buyers to take their overpriced securities off their hands before the bottom falls out.  The only way that can be accomplished is through the illusion that everything is hunky dory.

BlueStreet's picture

I'd be bullish except I like to sleep at night. 

narmbs's picture

Sure looks like the net long swings positive at the turn of each of the last 6 years. Also looks like the 2nd largest net long was just around the bottom for equities and the highest net short positions almost exactly coincided with the October 2007 peak in equities.

thepigman's picture

Mal-invest! Mal-invest! Malinvest all the Way!

Oh What fun it is to ride, on Bernanke's POMO sleigh!


Ho! Ho! Ho!

NoDebt's picture

Excessively easy money for excessively long periods of time ALWAYS resuts in bubbles, regardless of how the real economy is doing.  It just happens with a time-delay.  We're all looking at the market and wondering how it's levitating in the face of deteriorating fundamentals, yet the answer is well known to regulars here and right in front of our faces.

It's going to go on like this for quite a while longer, I think.  Fiscal cliff is a distraction only at this point.  The money party ain't over yet.

I'm just dying to know what happens when the next "reality check" hits WHILE THE FED STILL HAS THE MONEY MACHINE GOING FULL THROTTLE.  What dry powder are they going to reach for to shoot back against that?  Bernanke has already SAID OPENLY the future is the next guy's problem, he's just dealing with the present.  I take him at face value on that.

ejmoosa's picture

All that bullshit hype with out a discussion about what is behind the markets? Like shares in companies that have to show some profit growth?

You see earnings improving in 2013 because of what?

European Growth?

Our new tax burdens?

Our new regulatory burdens?

Record levels of food stamp recipients who can now afford to shop?

The rate of year over year profit growth continues to decline.

So watch your chart all you want.  And when you need a reason it didn't happen, I suggest you look at the pathetic outlook for American business in 2013.





WhiteNight123129's picture

I am the most bullish on my short Treasuries ever.


buzzsaw99's picture

i'll take the other side of that trade

WhiteNight123129's picture

You should not because I will lose money first and then short more treasuries and then you will run for the hills... And then I win.

The key is to be focused on the long term and not fear the short term pain. Beside it is my source of leverage. Long term financing to buy distress stocks in Hong-Kong gushing 7% DVD and so forth. You can not win this trade because you are focused on the nominal gain not on value. The price might go ~up~, whatever that means. The guys working in my team I usually rotate the Bloomberg Screen 90s degrees and ask them, now it moves from left to right, are you a leftist or a right winger? So the price might go ~up~ while the value goes ~down~ at the same time....


See you in 5 years. Long treasuries / short brains.

Why would you pass on borrowing at 2.8% for 30 years? Makes no sense, just because you expect to be able to borrow at 2.2% for 30 yeras soon? Well I will borrow more from teh gov, as for price move in the short term = noise.


The problem is that everyone is anticipating a repeat of 2007 which is wrong. 2007 was a surprising move on treasuries, while stock tumbled. The risk is not in so much in stocks (a 20% could be in order) but in bonds this time around. The Treasuries might resist this economic slowdown but then after that what? Broke by the next recession after 2013-2014, that is by the end of the decade, the bonds will have cracked totally.



TWSceptic's picture

Closer to a top than a bottom for sure. It's just waiting for a black swan event to crash.

Joe moneybags's picture

The chart in the article shows that the CoT had the timing almost exactly right, in that there was almost a full year of bull market left at the bullish extreme in 2006.  It shows that the top was made with the CoT at a bearish extreme, late in 2007.  If history is to repeat, we have about another year with new rally highs in the SPX.

1eyedman's picture

based on prices of SPY puts and cals....i dont see extreme bullishness out there.  puts have been very expensive for anyone who hasnt owned late-Dec and Jan puts for longer than 2 weeks.   the typical put/call ratio is crap b/c it doesnt measure price...just number of contracts

jse111's picture

Of course you do not see extreme bullishness here for good reason, bullishness is not present e.g., the S&P PE and Book Values are at or below their mean numbers!  When the cast of ZH characters sees the light as to what they have missed and most assuredly they will, say goodnight! 

Around here, positive thought is never welcome and every day is bleak even in beautiful South Florida with a temp of 82 and blue skies overhead.


ebworthen's picture

Double sixes at 30 to 1 odds.

I'll win eventually, right?  Ben?

orangegeek's picture

Peak bullish sentiment usually occurs at major tops.


SP500 Weekly is looking weakly, but denial is far more powerful.


It's going to be a happy new year, right?

DowTheorist's picture

Maybe such traders are right, and the Dow Theory is wrong. Diversity of opinions is vital for healthy markets and sustainable trends.

However, it is good to bear in mind that:

a) The primary trend is bearish, since the Dow Theory flashed a primary bear market signal on November 16:

b) December 21 witnessed a monster volume day whose most likely implication is bearish:

If we wrap up all together, I'd be, to say the least, a very cautious bull.






km4's picture

David Stockman: "The Capital Markets Are Simply A Branch Casino Of The Central Bank"

Alex: It sounds like what you're saying is that the Fed is effectively paying bankers to stay confident in the Fed, and that the moment that stops – either because the Fed stops paying them or something else shakes their confidence – this all goes down in one big house of cards?

David: Yes, I think that's right. The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread. And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

Alex: That's a pretty stark picture. So as an individual investor, what are we to do? How do we protect ourselves in this type of situation? Should I be owning bonds and staying out of stocks? Should I be owning stocks?

David: No, I would stay out of any security markets. These are unsafe markets at any speed. It's all tied together. As I was saying when the great margin call comes and they start selling the Treasury bond, they'll take everything else with it. Real estate is priced off Treasuries. Mortgaged-backed securities are priced off Treasuries. Corporates are priced off Treasuries. Junk bonds are priced off Treasuries. Everything. The stock market will go into a panic. We don't know when the timing will come – we've never been in a world where there is $15 trillion worth of central-bank balance sheets, like we have today. The only thing I think you can conclude is preservation is the only thing you are about as an investor. Forget about yield. Forget about return. Just keep yourself liquid and preserve your capital, because you can't predict the day when, as I say, the great margin call in the sky comes down.