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"(Not Always) Smart Money" Hedgers Are Record Long S&P 500 Futures
It seems like sentiment indicators used to be more straightforward. That is, when one group of traders or survey respondents were positioned to an extreme, either bullish or bearish, a reversion in prices seemed to be on tap. Some of these indicators have gotten a bit more complicated in recent years, however. One such example comes from the Commitment Of Traders report on S&P 500 futures out of the CFTC.
To refresh, the CFTC tracks the net positioning of various groups of traders in the futures market in the COT report. One such group is the Commercial Hedgers. As their name implies, their main function in the futures market is to hedge. By definition, therefore, they typically build up positions contrary to the prevailing trend. As a result, this group is typically correctly positioned (and extremely so) at major turning points in a market. It is for that reason that the group is usually referred to as the “smart money”. However, that is not always the case. Consider the case of the Commercial Hedgers’ position in the S&P 500 futures.
As of the September 11, 2015 COT report, Hedgers were holding an all-time record net long 80,316 S&P 500 futures contracts, as shown in our Chart Of The Day.

So naturally, the tendency is consider this an overwhelmingly bullish signal. However, when we look at other similar extremes, it’s not at all straightforward.
There have been 2 other occasions in which Hedgers were net long more than 60,000 S&P 500 contracts. The last time was September 6-13, 2011. Interestingly, that period bore significant resemblance to the current market in that the market was trying to stabilize itself following an August mini-crash. The S&P 500 would continue to swing wildly for another few weeks before embarking on substantial rally. Thus, despite a short-term hiccup or two, the large bullish position eventually paid off in spades for the Commercial Hedgers.
On the other hand…
The only other time the S&P 500 Hedgers’ net long position exceeded 60,000 contracts was…September 25-October 9, 2007. I may or may not have to remind you that October 9, 2007 marked the all-time high in the S&P 500 to that point – and for 6 years to follow. Obviously, this was decidedly NOT a well-timed long extreme.
So what is the deal here with what is supposed to be a reliable non-contrarian sentiment signal? The reality is we don’t know and likely nobody knows. Some of these metrics have become so complicated, it is hard to keep them straight. This is especially true with some of the COT reports. There are now so many derivative products based off of these futures, and derivatives OF THOSE derivatives that it is impossible to keep track of all of the cross-currents. Thus, it is impossible to know for sure if the smart money really is long or short – and therefore, if they really are the smart money.
I suppose the important takeaway here is to always do your homework when it comes to sentiment indicators and who is supposed to be the so-called “smart money”. Don’t merely take it for gospel when told who such groups of investors are.
And even then, know that sometimes smart money does dumb things.
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More from Dana Lyons, JLFMI and My401kPro.
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Time for a nice flushing of the longs :)
Maybe they know something we only suspect, QE4
https://app.box.com/s/ztgvh9e0u9skbdctnnrm29h2xpuq3854
https://app.box.com/s/rvlhbckx959xahjysa30zwyallimx0qb
https://app.box.com/s/cik3teki4u11tj7erkxqh1t1lw0eayvj
https://app.box.com/s/4osj89qktftxezveo6v023zsjq5ua13d
"All In II" coming right up.
Commercial longs in the futures market are hedgers who are short the cash market (by definition). Maybe there are more ETFs out than underlying stock? That would show up in this metric. So would a lot of other unbalanced positions in the stock market.
The commitment of traders report is VERY difficult to interpret accurately.
Looks like German traders took care of the re-test of the August lows today. Now we can bounce. Thanks DAX.
They also had record longs in gold at the top. Now they have record net shorts in gold. That should bode well for us stackerZ as i've never seen "smart" from them. Most can't beat the S & P in normal times.
May they all lose their asses.
Looks like somebody's gonna lose alotta $$
When Gartman goes long...then it's time to short!
Sorry retail. It took us six year to get you back in, now it's time for your ass raping.
Sincerely,
A banker
P.S. Don't forget your complimentary Spider-man towel on your way out.
Who knows what position Gartman last advised his "clients"?
NoVa
Have to be a client to know. By the time it reaches the masses it has already changed again.
Dont make asumptions. Buy this dip nowww. It will blow yo mind once it start to go up. btfd
Maybe they're short cash equities?
Is Gartman Long?
Still in wave 5 down, just started. Target is a retest of 1860 at least. Sell the bounce up to 1985-2000 (if it even pops back up that high before Lower Lows).
http://tripstrading.com/2015/09/19/sp500-weekly-chart-2-or-5/
Wonder how much of this is the PPT just trying to help us out?
They will prop the indices via R2K futures today. Relatively cheap and easy way for PPT to spoof.
They are hedging. When shorts get crowded, the short squeezes can make the sp push up quickly. I have a lot of downside , but also some hedge calls. If the marky takes off north, then will truly trigger something bad.
http://www.bloomberg.com/news/articles/2015-09-22/chart-watchers-zero-in...
Chart-Watchers Zero In on More Warning Signals for U.S. Equities
by Anna-Louise Jackson
September 22, 2015 — 12:00 AM EDT
- Technical analysis patterns suggest further weakness ahead
- Head-and-shoulders, Dow Theory point to shifting trend
Equity investors rattled by last month’s correction, the prospects for the global economy and the Federal Reserve’s interest rate policy can add a few more reasons to worry.
Several technical charts are sounding warning signals that the worst of equities turmoil may not be over. So is the market headed toward another selloff? It may depend on how much stock you put into such omens. Some investors see technical analysis as only so much voodoo, claiming past market patterns give no insight into future movements.
The latest signals come after Wall Street early last month was fixated on another chart -- the “death cross,” in which the 50-day moving average of the Dow Jones Industrial Average fell below the 200-day average. The two lines crossed on Aug. 11, and less than two weeks later the gauge dropped 10 percent in four days for its first correction since 2011.
With that in mind, here’s what the chartists are seeing in the latest batch of data:
1. A downward sloping neckline in a head-and-shoulders pattern:
The Dow this year has formed “probably the most famous pattern in technical analysis” -- and it’s not particularly encouraging for stock bulls, according to Murray Gunn, head of technical analysis in London at HSBC Holdings Plc.
A so-called head-and-shoulders pattern is a formation comprising two peaks separated by a higher peak. This particular one -- marked by shoulders in March and July and a head in May -- could be “the first crack in the dam” and is special because of the rarity of its downward sloping nature, he wrote in a report Monday.
“It’s a bearish pattern which could be signaling a new bear market trend,” Gunn said in an e-mail. Investors should watch for increasing volumes on down moves in this benchmark index as the next indication that sentiment is becoming more negative, he said.
If the Dow -- which climbed 0.8 percent to 16,510.19 Monday -- were to trade above 18,137, a level last seen in July, that would provide more optimism, he said. Otherwise, “a new long-term and potentially powerful bear market has started; one that should end below the 2009 low.”
That low, on March 9, 2009, was reached after a head-and-shoulders pattern occurred during 2007 and 2008 at the start of the financial crisis, HSBC noted. The date marked the beginning of the current bull market.
2. Dow Theory sell signal
The signal that’s “causing the most angst” for Jeffrey Saut, chief investment strategist at Raymond James Financial Inc., in St. Petersburg, Florida, is one that happened last month.
When the Standard & Poor’s 500 Index fell to a nearly 10-month low on Aug. 25, two other indexes were below an October 2014 low that many chart watchers were closely monitoring. The Dow Jones Industrial Average and Dow Jones Transportation Average both breached this level, flashing a so-called Dow Theory sell signal. Such a signal occurs when the industrial and transport indexes fall below the low of a previous selloff.
What’s behind this angst? There’s only been one false Dow Theory signal in the last 18 years, Saut wrote in a report Monday, which gives him “cause for pause.” There is reason for optimism, he said, because that one false signal came in May 2010 during the so-called flash crash -- the last time the 30-stock gauge lost 1,000 points intraday, until it happened during the market upheaval in August.
Saut said he hoped this latest signal will prove faulty as well, but that if these two gauges breach their Aug. 25 lows again, this “suggests a change in trend that must at that point be honored.”
Another reason for optimism: the S&P 500 has yet to breach its October 2014 trough. True, that index has nothing to do with Dow Theory, Saut points out -- chartists may want to create a new theory.