SMALL SPECULATORS REMAIN BEARISH
The weekly reading on small speculators has been one of the very best short-term indicators for the equity markets over the course of the last year. These small speculators have been on the wrong side of the trade at just about every single point during the course of the downturn early last year and during the upturn throughout the year.
Most interesting, they have been betting against the big money. As the State Street data showed last week, institutions are becoming a bit more bullish on the equity rally. Small speculators, on the other hand, have been skeptical of the rally since the March lows and remain firmly in the bear camp despite becoming less bearish than they were just a few weeks ago. As a contrarian indicator, it would be wise to continue to bet against these traders and continue to bet with the big money who continue to reallocate capital into the equity markets.
Source: CFTC
very useful info. thanks
Uncanny how accurate this has been. Thanks TPC.
Not seeing it that way. Looks to me like the small specs nailed it pretty hard in Jan and Feb 2009. Remember exactly how much it tanked then? There was serious cash made on downside trades.
Looks they managed to cover all their shorts and then some on the pullback in mid July also.
Yeah, sure, absolutely not textbook, and overall probably more wrong than right when you count the number of trading days. But, I don’t think it’s the rout that some are seeing.
A contrarian contrarian interpretation … the big players are playing the small players … I don’t think the small players are being contrarian, but rather, the big players can see their positions and have learned that their stop losses are 10% and just play them until they cover. Esp. when volume is light. My guess is the [open interest]/[one-hour averaged volume] is high and the $volume on these contracts is just lunch money for GS traders.
Of course, big players can always trumple the small ones with the sheer might of liquidity behind them.
In this paticual scenario, though, is it the case where big players better understand the nature of the all-in bet on the upside placed by the FED? Where small palyers seem to believe that in the end the market and dismal economy forces eventually overpower the flood of liquidity, the big players think otherwise. They think the liquidity wins, and they side with the FED.
In all honesty, they can’t even play against the FED because they will be destroyed by regulators. As long as the market goes up the financial reform is on the back burner.
Should market go down 20%, you’ll see how fast the talk of the financial reform will be resurrected.
have to say JT26 and ES have it pegged, but why even think short at this point, since the beginning of last year this market became a buy, net long, dig in on every pull, they are going to push it as much and as high as they can, just like they pushed it to its lows when they were sohrt. yes I know its an instinct to get short as soon as you see selling, but try to understand that the seller might be long from hundreds of percentage points ago if not thousands in some cases and if it is a short seller, most likely a very rude awakening is surely coming, look at all the upgrades this week, clearly to have the shorts take their offers. this bull-bear debate is about to escalate to unseen levels. love to see a bear winning for more then five seconds. the move up to current levels for meny just do not make any sense. can’t wait for tomorrow’s list of upgrades. lol
It appears small specs are about as bearish now as they were mid-January ’09. Likewise, seeing how small specs were increasing futures sellers as the market declined into March ’09 bottom does not support the short-term contrarian view you suggest.
Don’t get me wrong. I am not trying to pick a fight. It’s just that the risk of some outlier possibly leading to a series of days triggering exchange circuit breakers is rather elevated here, and it would be a shame to be caught on the long side with little hope of exit on account of putting too much faith in an indicator that, over the past year is not 100% reliable (not that any indicator is; it’s just that with risk elevated all due caution might be advised — did you happen to see Karl Denninger’s post re: PHK?