Commitment of Traders Report 21Jul23
Derivatives positioning in the most important equity, fixed income, FX and commodity markets
It’s time for an update on the CFTC Commitment of Traders Report. Remember, this is about the aggregate net long exposure of futures and option traders. It informs us about their risk appetite and whether there might be crowded trades or potentially dangerous leverage building up in the system.
The CFTC publishes this data on a weekly basis and I believe it is prudent to revisit the data regularly. Compared to many other publications out there that also attempt to measure positioning of certain investors and traders, my report is as far as I know the most comprehensive one, looking at the aggregate exposure of all traders (incl. option traders). It also comes with the underlying Excel workbook with a dashboard in case you would analyze the data further yourself.
If you would like read further into what I am doing here and why I am doing that, please revisit the original article from June 16, 2023 in which I have explained that in detail.
In that article, I covered the entire history available since 2006. In this article, I have chosen to present the charts only for the past 5 years. It’s easier to visualize the most recent trends in the charts that way.
Summary
Since I published on this topic the last time a month ago, the net long exposure in S&P futures and options has grown substantially. In my opinion, this is by far the most important underlying. It’s not excessive yet, but we should take notice that this bull market has likely entered the next stage as the traders’ risk appetite is rising. The short squeeze has happened as anticipated.
For further increases, we will need actual fundamentally motivated buying. As a bull market progresses, downside risks naturally increase along the way. And that’s okay. We can’t have the crazy no brainer set-up from the first half of this year forever.
We can observe the same phenomenon in the NASDAQ 100, the net long exposure of which has risen to very high levels. It’s noteworthy however that the NASDAQ 100 is a much less important underlying than the S&P 500. To illustrate that: There is currently $83bn in net long exposure in the S&P 500 while there is only $12bn in the NASDAQ 100.
Short volatility bets have increased in size as well, although they are still quite a bit lower compared to recent volatility events. Black swans can happen all the time, of course. But it’s encouraging that the risk for a carry crash is limited in the near-term.
With respect to international equity markets, traders are still long both developed and emerging markets.
In FX markets, traders are still long Euro and short Yen. There has been a meaningful long impulse in British Pound in recent weeks.
In the fixed income space, traders are still long in all Treasury tenors.
In commodities, traders have increased their long bets over the past month. In oil specifically, short bets have been reduced which is encouraging that we will soon see Contango again in the oil futures term structure.
