Commitment of Traders Report 25Aug23
Derivatives positioning in the most important equity, fixed income, FX and commodity markets
My coverage of the CFTC Commitment of Traders Report is about the aggregate net long exposure of futures and option traders in various financial and non-financial underlyings. This 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’d like to understand the background better, I did a video with Randy Kirk explaining what I am doing with this dataset and why I am doing that.
You can also revisit the original article from June 16, 2023 in which I have explained my objective and approach 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
The following notable developments have occurred during the five weeks since July 21, the last time I shared an update on the COT report:
S&P net longs have leveled off since the June short squeeze. Traders are more bullish than for most of the past year, but there is still room for more bullishness when looking at past bull markets.
NASDAQ positioning has come down towards neutral territory. Weak tech performance over the summer might have had a sobering impact. However, please note that this underlying is much less popular and hence much less informative than the S&P.
Explicit short volatility bets in the VIX have been reduced alongside a rise in volatility which is not unusual for a bull market consolidation. These bets remain well below alarming levels.
Traders have bought some USD against JPY and EUR. Strong signals from the US economy likely played a role here. They remain very long EUR & GBP and very short JPY.
Traders remain long US treasuries at all tenors and they are betting on the Fed Funds Rate remaining elevated for longer. This is an interesting dichotomy and I have not yet fully made up my mind how to interpret it. It is possible that this reflects the fear of a resurgence of supply driven inflation which would be harmful for the economy, real interest rates and potentially cause an inflationary recession or stagflation. It should be noted though that rate futures have historically had less predictive power for price movements than equity futures. It’s important to consider that derivatives positioning must be assessed from a total portfolio perspective. Build your conclusion with caution.
Traders have reduced exposure to non financial underlyings across the board, including copper, gold, bitcoin, corn, wheat, soybeans and crude oil.
I am also curious if you have any takeaways from this data that I have not appreciated yet. Let me know in the comments or by responding to this email.
Results Overview
In the following charts, the left y-axis refers to the number of contracts (delta-equivalent for options) and the right y-axis refers to the price of the underlying.