Nasdaq 100 analysis: Commitment of traders report (COT) – 21st August 2023

The VIX (volatility index) rose to an 11-week high on Friday, and positioning of large speculators was also increasingly bullish ahead of the pop higher.  Whilst they remain net-short VIX futures, it was by their least bearish level since May 2020. This has sent the 3-month, 1-year and 3-year percent rank to 100% across to show the relatively bullish positioning. Historically the VIX spends little time in net-long exposure.

The S&P 500 fell for a third week, although net-short exposure among large speculators rose to its highest level since March last week. Large speculators also flipped to net-long exposure to Nasdaq 100 futures, driven by a notable drop in short exposure. I suspect some bears will reconsider loading up once more should the recent weakness on Wall Street continue. With that said, asset managers remain defiantly bullish on the Nasdaq with little to no appetite for short exposure. Whilst this should signal a sentiment extreme, we’d need to see a pickup of gross shorts before assuming the current pullback is any more than a healthy retracement.

Short interest for gold and silver continued to rise among large speculators and managed funds, pulling net-long exposure lower alongside prices. Both subsets of traders also increase their net-short exposure to copper, with recent headlines form China likely coaxing more bears to the table since.

Commitment of traders (forex) – as of Tuesday 15^th August 2023:

• Net-long exposure to the US dollar index (DXY) futures contract rose for the first week in seven
• Net-short exposure to AUD/USD futures rose to a 9-week high
• Traders were net-short CAD/USD futures for a second week, with rising short exposure sending net-short exposure higher by 11.4k contracts (fastest weekly pace 21 weeks)

Commitment of traders (indices, bonds) – as of Tuesday 15^th August 2023:

• Net-short exposure to the 30-day Fed Fund futures contract rose to a 10-week high (to suggest hawkish expectations from the Fed)
• Net-short exposure to VIX futures fell to its least bearish level since May 2020
• Traders flipped to net-long exposure

Nasdaq 100 weekly chart with asset manager positioning

The Nasdaq 100 retraced lower for a third consecutive week. Whilst that has made some headlines, it doesn’t seem so bad when you consider the Nasdaq rallied over 39% in the 18 weeks up to its recent high. But looking at market positioning, it could be argued that a pullback was due anyway. Net-long exposure for asset managers reached its most bullish level since Marvh 2016 by mid June, and whilst bullish exposure has pulled back a little it remains near extreme levels, which brings the risks of a market reversal.

Gross long exposure is at a 6-week low but remains near its 1-year high. And whilst gross shorts have picked up, it cannot be said that asset managers have a ferocious appetite to short the Nasdaq 100 yet. And until we see a notable pickup of gross short exposure for the Nasdaq 100, I’ll have to assume the current decline simply is a healthy retracement against an otherwise strong trend. Even if net-long exposure remains high relative to recent history.

Commitment of traders (commodities) – as of Tuesday 15^th August 2023:

• Net-long exposure to gold fell to a 23-week low among large speculators and managed funds
• Managed funds were net-short silver futures for a second week, large speculators were their least bullish on silver in 21 weeks
• Net-short exposure to copper futures rose to a 11-week high among large speculators and managed funds
• Large speculators were their most bullish on WTI crude oil futures in 39 weeks, managed funds were their most bullish in over a year (55 weeks)

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