Wednesday, May 26, 2021

Morning Note: Sentiment Signals From the Futures Markets

Our weekly assessment of futures speculators positioning offers up sentiment indications, across asset classes, among traders sophisticated enough to play in that space. As I perform the exercise I typically make notes along the way on the positioning, and/or change thereof, of key indices, commodities and currencies and interpret what that says about what these folks are thinking/anticipating.

Here's the latest. I'll highlight the bottom line implications in each note:


  • SPX net short 23191 contracts d1w 

  • Nasdaq net short 6102 contracts i1w   

  • Russell 2000 net short 36791 contracts i3w

  • 10-yr treas net long 31654 contracts i2w   

  • VIX net short 61778k d3w 

  • Gold net long 199K contracts i2w

  • Silver net long 50981 contracts d1w

  • Copper net long 38978 contracts d2w 

  • Lumber net long 36 contracts, d1w

  • Platinum net long 25814 contracts d3w

  • Palladium net long 2537 contract d2w

  • Oil net long 476k contracts d2w

  • Nat Gas net short 68752 contracts d2w   

  • Dollar net long 2684 contracts i2w

  • Yen net short 50978 contracts 21w

  • Euro net long 99858 contracts i4w

  • Pound net long 24900 contracts d1w  

  • Aussie net long 3002 contracts i3w    

  • New Zealand dollar net long 8450 d1w

  • Swiss Franc net short 4265 contracts i3w

  • Canadian Dollar net long 46112 contracts i4w

  • Mexican Peso net short 10118 contracts i3w  

  • Brazilian Real net long 4831 contracts i2w

  • Russian Ruble net long 4680 contracts d2w  

Notes: 5/23/2021: (IMPLICATIONS): 

SPX, 3rd straight week net short, although by 13,000 fewer contracts. Net bearish for US equities, but less so week-on-week.

10-year treasuries
: 2nd straight week net long, increased by 25k contracts. Bearish re: economy and equity fundamentals. Bullish for equities in terms of sentiment toward interest rates.

Nasdaq: 13th straight week net short, slightly more so week-on-week. Bearish sentiment toward tech/growth.

Russell 2000: 8th straight week net short, tanking by 9k contracts week-on-week. Very bearish on smallcaps, and prospects for reopening oomph.

VIX: Net short since January 2019. Although the overall net position has been trending less short since February; currently lowest net short number June 2020. While still bullish for stocks, notably less-so of late.

Gold: Net long since 11/2018, trending higher over the past few weeks. Speaks to general anxiety over prospects for inflation, etc. But, more so, speaks to the prospects for the Fed keeping a lid on interest rates amid an arguably inflationary setup (i.e., real yields lower).

Silver: Net long since June 2019, slightly less so week-on-week. Speaks to bullishness on prospects for the economy, inflation and infrastructure spending going forward.

Copper: Net long since June 2020, but notably less so for 2nd straight week. Still speaks to overall bullishness on the economy, inflation and infrastructure, but also reflects profit taking after a huge runup in price, as well as evidence that China is working to cool the price of industrial metals going forward.

Lumber: Net short for first time since June 2020. Reflects the utterly epic runup in price over the past year, and evidence that some builders are halting construction as the price has become prohibitive, and, in some instances (so I’m hearing), supply simply doesn’t exist (counterintuitive in terms of recent negative price action). Also speaks to a growing angst that the euphoria around reopening has maybe gotten ahead of itself.

Yen: Net short since March, notable spike lower week-on-week. Speaks to general angst over global conditions -- despite growing machine tool orders, etc.

: Net long since March 2020, more so for 3rd straight week. Speaks to optimism over vaccine uptake in Europe and prospects for strong reopening economic bounce in the months to come. Bullish for Eurozone equities.

Aussie: Net long for 3rd straight week. Speaks to optimism over commodities’ outlook, flies in the face of strife with China.

Swiss Franc: Net short for 2nd straight week, with notable week-on-week increase. This is clearly due to the SNB president commenting yesterday that he sees no need to tighten anytime soon; in fact, he sees room to add to their bond buying program if necessary.

Canadian dollar:
Net long since last December. Notable spike higher past 3 weeks. Bullish signal for commodities, although the strong rally in CAD (best performing G-10 currency to date) makes it, in my view, ripe for a correction. Particularly in light of recent weakness in the commodities space, and despite sovereign bonds' relatively attractive yields.

4 of the 16 Asian markets we track were closed overnight, of the remaining 12, 9 closed higher.

Europe's mixed this morning, with 10 of the 19 bourses we follow trading lower as I type.

U.S. equities are mixed to start the session. Dow down 3 points, SP500 down 0.06%, SP500 Equal Weight up 0.1%, Nasdaq 100 up 0.09%, Nasdaq Comp up 0.21%, Russell 2000 up 0.68%.

The VIX (SP500 implied volatility) is down 0.48%. VXN (Nasdaq 100 i.v.) is up 0.38%.

Oil futures are down 0.95%, gold's up 0.15%, silver's down 0.62%, copper futures are up 0.11% and the ag complex is down 0.85%.

The 10-year treasury is up (yield down) and the dollar is up 0.23%.

Led by MP (rare earth miner), uranium miners, solar stocks, Indian equities and metals miners -- but dragged by ag commodities, silver, Eurozone equities, materials stocks and Verizon -- our core mix is off 0.02% to start the day.

Man, it would be amazing if policymakers (the Fed in particular) would embrace the following line from Albert Rutherford's essential book Learn to Think in Systems:
"At the end of the day, every big change is the result of the cumulative actions (or lack of action) of each and every one of us."

Okay, that's extreme; here's how I'd rephrase it for the policymaker:

"At the end of the day, the historic debt bubble, and ever-inflating asset prices, that -- in our attempt to circumvent/delay one hellacious bursting -- have us printing money and buying up billions worth of treasury and mortgage debt every single month is the result of the cumulative actions (or lack of action) of each and every one of us, and our predecessors."

Have a great day!

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