I track the “Commitment of Traders†(COT) reports for the S&P futures. This is a weekly report of the open interest in the S&P futures contracts broken down by “Large Specsâ€, “Commercials†and Non-Reportablesâ€. The non-reportables are small investors. I track the large specs and commercials because these are supposed to be the “smart moneyâ€. The reports are delayed but still very useful. The most recent report is dated June 23 but was released last Friday on June 26. Furthermore, it is my understanding the date was compiled over the week prior to the releases. So the data can be at least a week and half delayed.
In tacking this, I use a “long/short ratio†since volumes fluctuates between expirations. If the long/short ratio is 100%, there would be 2 long contracts for every short position and the position would be net long. A negative long/short ratio means they are net short.
Since the beginning of 2008, the three largest one-week moves in the long short ratio occurred in 2009, which is surprising since you would have thought at least one of these large changes would have occurred in October 2008 during the financial meltdown. I guess the financial meltdown caught most people by surprise.
Two of the largest changes are as follows:
January 13, 2009: The long/short ratio dropped from POSITIVE 125% to Positive 25%…..a net change of 100%…..still net long but a huge drop. The following week the ratio went negative and continued going negative until it bottomed at NEGATIVE 48% on March 17, 2009. The S&P 500 peaked around 940 on the third trading day of January 2009 and ran down to around 680 on March 9, 2009.
March 24, 2009: The long/short ratio rose from NEGATIVE 48% (net short) to POSITIVE 74%….a net change of 122%. Since then, the S&P 500 has risen from 680 to about 940 two weeks ago.
The third largest change since the beginning of 2008 came with the most recent COT report for June 23, 2009 which showed the long/short ratio for the large specs dropped to NEGATIVE 10% from POSITIVE 53%….a net change of minus 60% and a change from net long to net short.
The last two significant changes were precursors to significant moves in the market that lasted several months. A lot of people here on the MW boards having been calling for a plunge or crash for quite some time now based on the fundamental data. Several weeks ago I pointed out the negative divergences in the S&P and NASDAQ. Now we have the large specs making a large shift to net short. These technical indicators are worth paying attention to!
Exercise caution going forward……and you might want to get your shorts on.
(Sorry for the long post but I think this is important…don’t want to see my friends get hurt. And don’t get irritated when I re-post this later…I want to make sure as many people as possible to get the warning)
Vics
