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"Smart Money" BTFATH At Most Furious Pace In Over A Year, 2Y Short-Squeeze Possible

Tyler Durden's picture




 

Positioning among "smart money" participants in the markets continues to show major divergences. While large speculators bought S&P 500 contracts at their strongest weekely pace in more than a year - shifting to a net long position - they also increased the net short Russell 2000 position to its 'most short' in five years. Large speculators also bought crude oil after eleven consecutive weeks of selling. In the rates complex, hedge funds maintained their 10Y Treasury long exposure while large speculators sold 2-Y Treasuries at the fastest weekely pace in more than three years to the biggest net short position in five years. - leaving, as BofA warns, 2Y susceptible to a squeeze pull-back. This potential squeeze extends all the way to 5Y as repo rates indicate a massive shortage into month-end.

 

"Smart Money" is buying the S&P, selling Russell, and neutral Nasdaq...

 

As BofA's proprietary positioning indicates, Russell is as short as it has been in a year and S&P and Dow longest...

 

 

2Y shorts are the biggest since 2007...

 

And the squeeze potential extends to 5Y maturities - just look at the extreme shortages implied by these repo-rates (via SMRA)

Source: BofA (most recent data)

*  *  *

This won't end well...

 

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Mon, 09/22/2014 - 18:12 | 5244870 golddigga
golddigga's picture

guess I'm stupid money.

Mon, 09/22/2014 - 18:43 | 5244962 SheepDog-One
SheepDog-One's picture

I may not be smart money, but at least I have some money. Not so sure about the 'market' participants though I think the smart money folk may be whining for more bailouts pretty soon.

Mon, 09/22/2014 - 18:13 | 5244878 Zirpedge
Zirpedge's picture

Can someone explain what this will do to my MyRA account?

Mon, 09/22/2014 - 19:04 | 5245029 Uber Vandal
Uber Vandal's picture

Make one wealthy beyond one's wildest dreams.

So wealthy, one can wall paper one's house with $100 bills, let one's neighborhood children build forts out of them, and even haul them around in wheel barrows, and maybe see signs in restrooms warning about not to use them in place of toilet paper.

 

Mon, 09/22/2014 - 18:21 | 5244879 Ben Ghazi
Ben Ghazi's picture

TZA & "Phyz Gold" bitchez

Mon, 09/22/2014 - 19:11 | 5245054 Groundhog Day
Groundhog Day's picture

shorting TNA and Owning PHYZ is a better bet imho

Mon, 09/22/2014 - 20:13 | 5245269 himaroid
himaroid's picture

And then pray it's not deflation.

Mon, 09/22/2014 - 18:14 | 5244880 q99x2
q99x2's picture

It wasn't supposed to end well in the last 6 years. We've got your CNBC billionaire money on the sidelines and FED software connected directly into both the markets and an infinite supply of fiat.

BTFATH until you see those mushroom clouds and the world is vaporized. Markets will be headed to infinity on that day.

Mon, 09/22/2014 - 18:15 | 5244885 besnook
besnook's picture

small caps are way oversold but there is still time to get in before the miraculous recovery.

Mon, 09/22/2014 - 18:14 | 5244886 Al Huxley
Al Huxley's picture

So what is it that makes this money so smart?

Mon, 09/22/2014 - 19:17 | 5245070 disabledvet
disabledvet's picture

Because instead of being faster they think they're being "smarter."

I can measure speed...but how do I measure "intelligence"?

It's pretty well understood that "IQ tests" are total bullshit.

Mon, 09/22/2014 - 19:29 | 5245102 Clockwork Orange
Clockwork Orange's picture

Inside information and no chance of negative repercussions ... what else?

Mon, 09/22/2014 - 18:18 | 5244895 DerdyBulls
DerdyBulls's picture

Dagonnit. I wasted a whole minute on this. Where's the dumb money going. 

Mon, 09/22/2014 - 18:29 | 5244924 Consuelo
Consuelo's picture

Well, it has been suggested that the Fed would need adequate 'cover' for another round of bond buying.   So then the question begs - do they preempt the beginning of a cascading event southward, or do they wait until the layoffs start showing up in the numbers 90 days hence?

Mon, 09/22/2014 - 18:44 | 5244964 SheepDog-One
SheepDog-One's picture

Funny how its always the 'smart money' guys who every 6-10 years need more bailouts...huh.

Mon, 09/22/2014 - 19:21 | 5245077 dwayne elizando
dwayne elizando's picture

They've leveraged the markets so high that the FED can't let them lose. I'm searching for my credit card to fund a margin account right now! Don't you dare let these markets down or I'll file for bankruptcy! Better yet, break out your ruler and buy LEAPS on the S&P!

Mon, 09/22/2014 - 21:22 | 5245504 golddigga
golddigga's picture

well I guess it's smart of the "smart money" to know that in 6-10 years they'll get bailed out 

Mon, 09/22/2014 - 19:15 | 5245061 Stained Class
Stained Class's picture

SO:  If short rates RISE, stocks are expected to rise also? Maybe XLF, but that's about all.

Are you expecting a 2yr short covering RALLY to boost stocks?

I think its time for Tyler to post one of his charts that shows How Much of each year's issuance is still left floating after The Fed cornered the bond market, becuz' you can't short more than the float and get away with it....

Mon, 09/22/2014 - 19:40 | 5245105 Keltner Channel Surf
Keltner Channel Surf's picture

Not sure the full context of "Smart Money", but despite the Russell's recent bungee plunge, the index's path has been so severely sawtoothed that many shorting and holding after the chart's "Net Russell Positioning" went negative in April would still be in the red, depending on their trigger date (e.g., the week of April 10th, most of the month of May, the 1st half of Aug, etc.).  

RUT's path in calendar 2013 was a steady rocket shot up, never falling much below the weekly 20MA, but 2014 has been mainly for day-traders (like yours truly), with constant frustration for longer term shorts.  You have to go back to 2007-8 to find a long, steady decline (2011's breach largely happened in a single week).  

Could this be the start of a small-cap led major correction?  Sure it could.  But after following R2K closely for years., we're just as likely to see it scream back a few times to the 200 or 20 DMAs in ludicrously large green daily candles a few times before that happens.   Many would suggest that, as it currently sits at the lower daily Keltner limit, longer-term shorts may want to wait for such a bounce before comfortably committing.  

Or, perhaps this is it, and they're planning to ambush those playing the bounce.  In any event, RUT will be THE index to watch over the coming weeks . . .

Mon, 09/22/2014 - 19:44 | 5245143 Stained Class
Stained Class's picture

Hi KCS,

Could the "screaming back" part be the ETFization effect? Buying IWM raises all ships in weighted proportion, but thin floats skew closing prices. And wide Bid/Ask spreads on individual stocks could bounce the ETF 2% +/- easily.

These are not the stocks that are candidates to be sold to raise easy cash, but the etf IWM is. 

Is there another dimension that we could be missing?

Mon, 09/22/2014 - 19:59 | 5245202 Keltner Channel Surf
Keltner Channel Surf's picture

Without question there has to be an ETF effect as individual stock ownership dwindles, and plan sponsors increasingly do their own thing with funds, rather than over-pay hedgies and "our style will come back into favor" underperforming managers.  

But given the bounces have increasingly stopped nearly to the penny at major MA's, volatility envelope limits and other machine favorite signposts, I believe we've been seeing increasing algo activity in RUT, which has many advantages in hexadecimal chicanery over its better-known index brethren.  I've had to completely alter my trading style vs what worked just a few years back, and though of course steady trend vs. trading range top will impact what works, I think there's more going on.  Perhaps after HFT profits peaked a few years back, and with the scrutiny from Lewis' book and Nanex, the big boys have focused even more on algorithmic manipulation (?)

Mon, 09/22/2014 - 20:15 | 5245240 Stained Class
Stained Class's picture

Looking at the 2000 names, and with the largest weight being 0.47% I think its hard to Stop at a penny, although I have seen it with my own eyes.

I'm no math expert, but the B/A spreads on 2000 stocks should have a big affect on IWM when they go Spaceballz Vacuum cleaner......

Mon, 09/22/2014 - 20:17 | 5245290 Keltner Channel Surf
Keltner Channel Surf's picture

Yeah, I hear you -- I'm not enough of an insider to know the process (my connection to the world is through a Time-Warner cable modem), but I assume the index futures plus VIX activity leads the charge, then arbitrage robots clean up the mess with basket trades of individual stocks, magically ending, for example,  at VWAP (Veers Where Algos Prefer).  

Mon, 09/22/2014 - 19:42 | 5245136 sandiegoman
sandiegoman's picture

The smart money is anyone who didn't buy gold in the last 3 years.... miners too... and quit saying "its on sale".  I agree there is no way this will end well buy gold and silver might not be a sure bet either.

Mon, 09/22/2014 - 19:50 | 5245170 Stained Class
Stained Class's picture

Don't sell yourself short, as they used to say...don't think you are not smart.

Smart is being able to see the future, like Nostradamus. Its a long term thing.

Mon, 09/22/2014 - 20:10 | 5245239 uncle_vito
uncle_vito's picture

Short the RUT????    Bullish!

Mon, 09/22/2014 - 20:21 | 5245308 Soul Glow
Soul Glow's picture

Long the SPX?  Bearish!

Tue, 09/23/2014 - 06:00 | 5246404 Wahooo
Wahooo's picture

Just looking at the chart, life after the death cross on the RUT doesn't look so bad. Seems to mark a bottom in the making.

Mon, 09/22/2014 - 20:25 | 5245303 Soul Glow
Soul Glow's picture

Long SPX short RUT?  LOL!  Confused much, traders?

Mon, 09/22/2014 - 20:39 | 5245370 Keltner Channel Surf
Keltner Channel Surf's picture

It may be the new "Carry Trade" -- retail investors will be carried out of local Schwab offices after fainting, seeing 3:30 algo-bots make mincemeat of their fancy SPY/IWM strategy in their Roth IRAs.

Mon, 09/22/2014 - 20:30 | 5245333 IronShield
IronShield's picture

Wait, what? Large Specs = Commercials? Otherwise this don't make sense. Cause Specs ain't considered the smart money. ;-)

Tue, 09/23/2014 - 01:59 | 5246212 Wild Theories
Wild Theories's picture

2yr shorts too jittery on the last chart, need some more bars of consistent red to put a timer on doom

Tue, 09/23/2014 - 22:53 | 5250359 rex-lacrymarum
rex-lacrymarum's picture

Actually, big speculators have been eerily correct about the Russell for many years now. 

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