The Most Crowded Trades

Herd-mentality, group-think, safety-in-numbers, or lemmings. When a trade becomes one-sided, we are often taught that contrarianism is the smarter position. When a trade becomes extremely one-sided, the market is at its most fragile. There are currently three trades that have become not just consensus, but are near record levels of extreme positioning - and with the help of leverage (and record margin levels) this all adds up to a risk-on market (since all the three trades are on the same side of the long central bank largesse, short safety view) that is over-prone to more significant corrections. Join the crowd or join the smarter money?

Crowded Trade #1 - US Equities.

 

Crowded Trade #2 - Short JPY


 

Crowded Trade #3 - Short Precious Metals

 

and it's at record-levels of margin...

Current levels of both Net Free Credits and Margin Debt indicate extremely bullish sentiment in the equity market, the implication is contrarian bearish.

 

But the 'smart money' is hedging...

Based on BofAML's exposure analysis, macro hedge funds continued to add to their shorts in risk assets including the S&P 500, NASDAQ 100 and commodities.

 

Charts: BofAML