IS THE SMART MONEY GETTING SHORT?
5 October 2010 by Cullen Roche
27 Comments
The most recent commitment of traders report (courtesy of Sentiment Trader) shows a massive short accumulation in the Nasdaq 100. If you look at past occurrences their market timing has been fairly good. The current net short position is almost twice as large as any occurrence in the last 5 years. Is the dumb money on the wrong side of the trade or are the institutions about to become fuel for the next leg up?
What does the rest of the market look like to the short traders? That’s a pretty clear indication they believe tech is due for a correction.
I don’t have a lot of exposure to tech, at least not directly.
The market is unstoppable…
It scares me to think you have the Fed/central banks openly contemplating / actively buying actual equities in concert with a massive short position like that…
Is gold the best way to short equities?
COT reports as it pertains to equity casinos and currencies is generally pretty good. the commercial traders take some pain for weeks and months at times but the bet nearly always pays off. i noticed the huge commercial short in the nazcrack over the weekend. they are also starting to accumulate euro shorts. swiss franc shorts and big aussie shorts. can someone say QE2 will be one of the greatest sales ever along with a massive dollar short squeeze.
Hey Harold, can you explain your macro thougths (QE2 pertaining to Fx reactions?)a bit more clearly for us less familiar?
In simple words it seems he’s saying that the market has already priced in QE2 and that what else could possibly happen to weaken the dollar further in the near term. More interest rates cuts? We’re already that low? QE2? Already a done deal. Worse US economy? That might trigger a risk off day(USD up)
The other currencies are probably having it as good as it gets. For instance, the AUD is being propped up by pretty strong economic reports and expectations of a lot of interest raises in the future, which seems very optimistic to me. This while commodities are at pretty elevated prices(The Australian economy is leveraged to commodities). What else could trigger further rises in the AUD?
Covered call selling probably is a major factor.
I have taken a position in the Ultra Short NASDQ (symbol QID). During the collapse in March of 2009 this ETF sold as high as 90. Today it closed at 14 and change. I also feel that this rally has gone too far. Mutual fund cash positions are around 2%, bearish sentiment is down to 24%, Stochastics is in extreme oversold levels, MACD is breaking to the upside and the cheerleaders on CNBC are looking for a continuation on the upside. Who is left to buy any stocks after this upside action?
Mike Purling/others,
Sir/People, could you please inform me if you have one or two favourite sources for (i) sentiment (you claim “bearish sentiment down to 24%”) and mutual fund cash positions (you claim “around 2%”), stochastics (you claim “extremely oversold”). Preferably at sources at reasonable cost. Much appreciated, thanks!
Most of my data is free on the internet. Log into Stockcharts.com and you can see all of the indicators such as Stochastics, MACD, Bollinger Bands, RSI, moving averages and many more. CNBC also has great information that is free on their website. I also receive emails from several market analysts that is free if you sign up and give them your email address. I was also an account executive for leading NYSE firma for 25 years. I am currently retired.
If I were a 100 mio USD hedge fund starting today then I wud buy crash protection across EM Asia. Ideally wud love to buy puts on the ASEAN markets of Thailand and Indonesia. Trigger is possible capital controls to stem the massive currency appreciation being driven by QE2 expectations.But practically those markets are illiquid and if you are not a really big hedge fund few broker dealers will oblige by selling you any options at a decent price.
Hence as a proxy I will spend 500k USD each on buying puts on Nifty and TWSE at the close. Nifty spot 6145.80 & TWSE at 8200.43. Buying 6200 Nifty Dec 10 puts Total size 89,400 options at a cost of 250 INR per option ( FX 44.7).Buying 8200 TWSE Dec 10 puts Total size 60k options at a cost of 260 TWD per option ( FX 31.07).
Just a small error in the price..the TWSE size was 50k options at 310 TWD and not 60k options at 260 TWD..my bad
Shorts are getting creamed and will continue to bleed throughout this multi-year bull-market. And yes, we are in a global bull-market for stocks and commodities.
Indeed agree with you about the market being in an uptrend…The fact that China is on a holiday till thurs is also helping since China is now probably a leading indicator of risk-on risk off trade…Friday shud be interesting to see since Europeans have joined the chorus of calling for stronger RMB which does not bode well for chinese stock market in general
Wrong! We are in a long term secular Bear market…the bull market rallies within the bear are just about ready to end. Nice try, you must be long. The blood-letting wont stop once the fall starts and the nutty bulls run to cover their margin calls.
all this game does not make sense any more. even when I make money I am disgusted. Guessing the next move for what ? For supporting this damn system that destroys everything that’s good and usefull ? There is no logic outhere. There is too much fake monney and too much (useless) gold stockpiled during the past centuries. I sit back and wait for the end of this stupid game.
Well said…those words echo in my head daily!
Very well…!
He he I love the bullish talk. Allow me to accumulate shorts at better pricing. The screams coming from middle america is being drown out by the administration happy talks. The tune will be protectionism and more cries for taxing the rich will drown out the saner voices. CBs are looking at a potential political curtailment of their monetary power. Bye bye liquidity. Smart money are flocking to gold for safety and liquidity. Not because of inflation. China about to have more and more internal strifes. Good luck china bulls.
You say their timing has been pretty good, but as I look closely at the chart,
it appears they exit their shorts quickly- it also appears they totally missed the biggest downleg in the chart.
Shorting the markets and participants appears appropriate, but it seems to be a bet against the Fed with an election just weeks away. Today’s big rise going into earnings season could squeeze them all.
I think it’s another fail of testing 2050 level in that chart & we’ll see some massive short squeeze
Equities is very bullish until the end of the year, if you price it by GOLD !
Look how cheap it is and how much power a smart hedge fund whom defended themselves by longing gold below 1000 …. and taking profit at tomorrow price to return to their real JOB !
The picture is pretty simple , gold will show its exhaustion of gains comparing to EQUITY price today , if you think about 12 months target ! Gold will hit 1500 , now what ? it’s only somewhat 12% return – that’s just about the interest rate of some emerging countries
12% gold rise is about a 36-48% rise in the junior miners.
The only reason why gold and silver are exploding to the upside is the lack of confidence in paper money all around the world. As long as this continues people will continue to protect themselves by switching their worthless paper money to hard assets such as gold, silver, undervalued real estate and even stocks.
There’s not an “only reason” for gold blowing up. You are right about declining confidence in paper/fiat money. But there are many other reasons for strong gold/precious metals. A very substantial reason being QE from Mr. Benji. Gold being techincally overbought in the face of the fed talking about expanding the monetary base another trillion through the use of POMOs, possibly another 6 trillion.. according to some.., causes anticipatory buying combined with technical shorts getting squeezed/ran-over. Combine that with seasonality, the increasing public “fear of unrest”, leveraged ETFS, and a host of other reasons and you have many multiples of reasons for gold being strong.
On a side note.. this market is not strong.. not even close. Nominally it is going up… real terms is it flat. This market is being propped and manipulated to a degree most of us have never seen before.
There’re some signs in the credit markets that are NOT good.
1. The IRX is down sharply.
2. TED spread is (spiking) upwards.
3. TNX is down sharply.
I’d have to admit that I have been long and and enjoying the ride but it does not look good that the QQQQ and IWM have not participated in this move. Nope not good.
Maybe they know something
http://www.zerohedge.com/article/guest-post-biggest-sell-news-event-stock-market-history
Thanks for this.
It is an eye open to see whats likely to happen.
Thanks again.