We call this daily note Everybody’s Wrong because it certainly feels that way sometimes.
The truth is the crowd is usually right through the duration of most trends.
So when asset prices are trending but the crowd is wrong, it actually does stand out.
And that’s exactly what’s happening right now with asset managers and hedge funds.
The Speculators
Opportunities come when the S&P 500 is moving one way and speculators’ positioning is moving in the opposite direction.
Here’s the latest data from the weekly Commitment of Traders Reports published by the Commodity Futures Trading Commission (CFTC):
Speculators, which are mostly asset managers and hedge funds, haven’t been participating in this historic rally we’ve seen since the early spring.
They’re not buying in.
And, to me, that means there’s plenty of upside left in this trend.
It would be one thing if we were seeing monster ETF flows and the speculators were all piling in.
That would actually be perfectly normal, in fact.
What stands out is just how mispositioned these speculators are.
And so their year-end chase for returns is on!
Never a Top With This Much Short Interest
This divergence between S&P 500 pricing and speculators’ positioning gets even more pronounced when we move down the market cap scale.
In fact, asset managers and hedge funds are currently net short the Russell 2000 Futures, which represents a basket of small-cap stocks.
Our pal Macro Charts made a great observation over the weekend: “There has never been a major Top with this level of Short Positioning.”
The setup for an epic squeeze in equities – particularly small-caps – is absolutely there.
We say Everybody’s Wrong on a daily basis.
But rarely is everybody this wrong.
I’m here for it!
Stay sharp,
JC Parets, CMT
Founder, TrendLabs