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.