Following futures positions of non-commercials are as of January 24, 2017.
E-mini S&P 500: Are animal spirits back? Dow 20,000, the S&P 500 north of 2300, and the Nasdaq composite up 6.3 percent year-to-date. It surely looks like risk-on hats are out.
Safe to jump on the rally bandwagon, then? Probably not – unless you are a technically-inclined trader, who is riding it with proper stops in place.
With valuations stretched (particularly using trailing 12 months), spot VIX in the 10’s and pie-in-the-sky earnings expectations for this year and next, this is probably not a time for investors to be loading up the truck.
One group of investors/traders is doing exactly that. In the week ended Wednesday, $1.9 billion left SPY, the SPDR S&P 500 ETF. This was the third week in a row to see redemptions worth $8.8 billion (courtesy of ETF.com).
Also in the week ended Wednesday, $5.7 billion left U.S.-based equity funds. This followed outflows of $3.1 billion in the prior week (courtesy of Lipper).
For the trading-minded, the S&P 500 (2294.69) just broke out of nearly-a-month-and-a-half consolidation. It will be interesting to see what transpires when breakout test occurs around 2280.
Currently net long 72.9k, up 37.6k.
Nasdaq 100 index (mini): At the end of October last year, short interest on XLK, the SPDR technology ETF, was 18.4 million. Tech, along with stocks in general, bottomed early November, but began to lag post-U.S. presidential election. By the end of November, XLK short interest jumped to 35.9 million.
Come 2017, tech was back in favor. Year-to-date, the Nasdaq composite is up 5.2 percent. Shorts are probably helping. By mid-January, XLK short interest was down to 26.2 million. It is possible it went down more this week.
The Nasdaq 100 (cash) jumped to a new record high, with shorter-term moving averages going nearly parabolic.
Price action is great, but it is not winning the vote of flows. In the week ended Wednesday, QQQ, the PowerShares Nasdaq 100 ETF, lost $2.1 billion (courtesy of ETF.com).
Currently net long 87.7k, down 1.3k.
Russell 2000 mini-index: Yet another week, and yet another withdrawal from IWM, the iShares Russell 2000 ETF. In the week through Wednesday, $1.2 billion was redeemed. In the prior two, $572 million came out (courtesy of ETF.com).
The Russell 2000 (cash) all the same had a strong week, rallying 1.4 percent and retaking both 10- and 20-day moving averages. This followed defense of the 50-day for three straight sessions late last week and early this week.
Bulls nonetheless were unable to force a breakout. The cash has essentially gone sideways for the past seven weeks. Both the S&P 500 and the Dow Industrials broke out of a similar box this week, but not small-caps.
The 50-day is beginning to go flat.
Currently net long 75.4k, up 8k.
US Dollar Index: First, it was President Trump who said the strong dollar is killing U.S. companies’ ability to compete. Now, it is Treasury Secretary-nominee Steven Mnuchin who in a written response to a U.S. senator said a strong dollar may hurt the economy.
If this is not enough of a wink and a nod to the currency market as to which way the Trump administration leans, what is?
Besides overbought technicals, this is yet another roadblock to dollar bulls’ hopes for a sustained upward pressure on the US dollar index.
Speaking of which the cash broke out of March 2015 horizontal resistance post-election, but is struggling to save it.
A rising trend line drawn from the May 2016 low gets tested around 98.
Currently net long 48.4k, down 700.
VIX: In the last three sessions, the cash dropped – and closed – below 11. (The last time VIX had intra-day drops below 11 for three sessions in a row was July 1-3, 2014.)
This is how the last three sessions looked – doji, inverted hammer, and doji.
VIX is at the low end of a years-long range, but also faces a 50-day moving average that trended lower from the middle of November last year. The good thing from volatility bulls’ perspective is that even if the cash goes sideways here, the average should begin to at least go flat.
Along the same lines, the VIX-to-VXV ratio continues to linger around severely oversold .70s – for fourth straight week and in eight out of last 10 weeks. That these conditions will get unwound is not a matter of if but when.
Non-commercials’ net shorts rose to a record high this week – another unwinding candidate in due course.
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