| Followers | 680 |
| Posts | 141194 |
| Boards Moderated | 36 |
| Alias Born | 03/10/2004 |
Tuesday, August 15, 2017 9:07:26 AM
Technically Speaking: COT Positioning Back To Extremes
By Lance Roberts | August 15, 2017
In this past weekend’s missive I wrote:
“So…Should I “Buy The F*$(@!# NOKO?”
My best guess currently is – probably. But not yet.”
“In our portfolios, we will wait for confirmation the current sell-off has abated before adding additional risk exposure to portfolios. In recent years, such market tantrums have been very short-lived and have provided opportunistic entry points for increasing equity related exposure. However, EVERY TIME is DIFFERENT, so it is always important to NEVER ASSUME the outcome will be the same as the last. That is how you wind up losing a lot of money.
As shown in the chart above, with the market on a very short-term sell signal, and still very overbought, it will likely prove prudent to remain patient and see if the markets can regain more solid footing next week.”
Let me update that analysis.
On Monday, the market surged out of the gate as headlines suggested that “geopolitical risk” had subsided. I find this particular explanation hard to digest given the rising rhetoric of a potential trade war with China, violence in Charlotte over the weekend, no resolution with North Korea, etc., so forth, and so on. I find little evidence of a global turn in geopolitical stresses currently.
The most obvious explanation is that “algo’s” went on a “buy the dip” frenzy which has been evident following every small dip in the markets over the last several months. Notice in the chart below, each dip to the red dashed bullish trend line, regardless of the risk (French election, Comey, Valuations, etc.) have all been met by a rash of buying.
Monday’s “buy the dip” frenzy was no different. The question will be whether the market can both reverse the short-term “sell signal” and climb above the previous resistance of the old highs? Such a reversal would end the current consolidation process and allow for additional capital to be invested.
Importantly, this is very short-term analysis.
In this past weekend’s newsletter, I reviewed all of the S&P 500 sectors and the major markets for both risks and opportunities. Today, I want to also review of the positioning by institutions which reveal where “crowded trades” may exist for more contrarian portfolio positioning.
Positioning Review
The COT (Commitment Of Traders) data, which is exceptionally important, is the sole source of the actual holdings of the three key commodity-trading groups, namely:
• Commercial Traders: this group consists of traders that use futures contracts for hedging purposes and whose positions exceed the reporting levels of the CFTC. These traders are usually involved with the production and/or processing of the underlying commodity.
• Non-Commercial Traders: this group consists of traders that don’t use futures contracts for hedging and whose positions exceed the CFTC reporting levels. They are typically large traders such as clearinghouses, futures commission merchants, foreign brokers, etc.
• Small Traders: the positions of these traders do not exceed the CFTC reporting levels, and as the name implies, these are usually small traders.
The data we are interested in is the second group of Non-Commercial Traders.
This is the group that speculates on where they believe the market is headed. While you would expect these individuals to be “smarter” than retail investors, we find they are just as subject to human fallacy and “herd mentality” as everyone else.
Therefore, as shown in the series of charts below, we can take a look at their current net positioning (long contracts minus short contracts) to gauge excessive bullishness or bearishness. With the exception of the 10-Year Treasury which I have compared to interest rates, the others have been compared to the S&P 500.
Volatility
The extreme net-short positioning on the volatility index suggests there will be a rapid unwinding of positions given the right catalyst. As you will note, reversals of net-short VIX positioning has previously resulted in short to intermediate-term declines. With the largest short-positioning in volatility on record, the rush to unwind that positioning could lead to a much sharper pickup in volatility than most investors can currently imagine. . .
* * *
https://realinvestmentadvice.com/technically-speaking-cot-positioning-back-to-extremes/
• DiscoverGold
Click on "In reply to", for Authors past commentaries
By Lance Roberts | August 15, 2017
In this past weekend’s missive I wrote:
“So…Should I “Buy The F*$(@!# NOKO?”
My best guess currently is – probably. But not yet.”
“In our portfolios, we will wait for confirmation the current sell-off has abated before adding additional risk exposure to portfolios. In recent years, such market tantrums have been very short-lived and have provided opportunistic entry points for increasing equity related exposure. However, EVERY TIME is DIFFERENT, so it is always important to NEVER ASSUME the outcome will be the same as the last. That is how you wind up losing a lot of money.
As shown in the chart above, with the market on a very short-term sell signal, and still very overbought, it will likely prove prudent to remain patient and see if the markets can regain more solid footing next week.”
Let me update that analysis.
On Monday, the market surged out of the gate as headlines suggested that “geopolitical risk” had subsided. I find this particular explanation hard to digest given the rising rhetoric of a potential trade war with China, violence in Charlotte over the weekend, no resolution with North Korea, etc., so forth, and so on. I find little evidence of a global turn in geopolitical stresses currently.
The most obvious explanation is that “algo’s” went on a “buy the dip” frenzy which has been evident following every small dip in the markets over the last several months. Notice in the chart below, each dip to the red dashed bullish trend line, regardless of the risk (French election, Comey, Valuations, etc.) have all been met by a rash of buying.
Monday’s “buy the dip” frenzy was no different. The question will be whether the market can both reverse the short-term “sell signal” and climb above the previous resistance of the old highs? Such a reversal would end the current consolidation process and allow for additional capital to be invested.
Importantly, this is very short-term analysis.
In this past weekend’s newsletter, I reviewed all of the S&P 500 sectors and the major markets for both risks and opportunities. Today, I want to also review of the positioning by institutions which reveal where “crowded trades” may exist for more contrarian portfolio positioning.
Positioning Review
The COT (Commitment Of Traders) data, which is exceptionally important, is the sole source of the actual holdings of the three key commodity-trading groups, namely:
• Commercial Traders: this group consists of traders that use futures contracts for hedging purposes and whose positions exceed the reporting levels of the CFTC. These traders are usually involved with the production and/or processing of the underlying commodity.
• Non-Commercial Traders: this group consists of traders that don’t use futures contracts for hedging and whose positions exceed the CFTC reporting levels. They are typically large traders such as clearinghouses, futures commission merchants, foreign brokers, etc.
• Small Traders: the positions of these traders do not exceed the CFTC reporting levels, and as the name implies, these are usually small traders.
The data we are interested in is the second group of Non-Commercial Traders.
This is the group that speculates on where they believe the market is headed. While you would expect these individuals to be “smarter” than retail investors, we find they are just as subject to human fallacy and “herd mentality” as everyone else.
Therefore, as shown in the series of charts below, we can take a look at their current net positioning (long contracts minus short contracts) to gauge excessive bullishness or bearishness. With the exception of the 10-Year Treasury which I have compared to interest rates, the others have been compared to the S&P 500.
Volatility
The extreme net-short positioning on the volatility index suggests there will be a rapid unwinding of positions given the right catalyst. As you will note, reversals of net-short VIX positioning has previously resulted in short to intermediate-term declines. With the largest short-positioning in volatility on record, the rush to unwind that positioning could lead to a much sharper pickup in volatility than most investors can currently imagine. . .
* * *
https://realinvestmentadvice.com/technically-speaking-cot-positioning-back-to-extremes/
• DiscoverGold
Click on "In reply to", for Authors past commentaries
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Your Due Dilegence is a must!
• DiscoverGold
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
