Whilst this year's 'rally' on the S&P 500 has been mediocre at best, the increase in net-short exposure to S&P futures has been impressive. As of last Tuesday, large speculators pushed their net-short exposure to the futures contract to their most bearish level since late 2007.
Yet with prices rising whilst speculators increase bearish exposure, there is a clear mismatch between the two data sets. And one that will need correcting, one way or another.
Prices will either need to roll over to justify the short-exposure of large speculators, or bears will have to capitulate which could also trigger a short-covering rally to send prices higher.
A potential catalyst could be if (or when) the US increase their debt ceiling, with reports suggesting we are on the cusp of a 2-year raise - and that could support risk assets such as the S&P 500. But if the talks break down, the deadline is missed and the US government defaults (which would also see the US lose their 'AAA' rating), it could be a case of 'watch out below' as the market slumps to justify the aggressive positions of bears.
Either way, this is one to watch as the week's progress.
It costs zero for them to change their biases, they will not tell you in advance … so we see what Price tells us
Robertus
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a brutal scenario would be a massive short cover, trap longs at the top and then proceed to a cruel dump, triggering a change to a more dovish posture in monetary policy for the next cycle. Biden it seems will have trouble being elected, he does not wants the market to dump now, that is perhaps his motive for raising the debt ceiling...Just guessing...best case is market will go sideways for a while.
Matt_Simpson
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@Robertus Yes sideways is also an option over the near term, given the time of year. Nasdaq is a much cleaner trend and the S&P 'rally' as far from impressive. Could really do with a catalyst to shake things up, one way or the other.
robed1
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Either way... no fun investing in theae markets.. retirement? Or lose my shirt to a banker with 200 already..lol
SKYLOBSTER
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@robed1 my friend, these markets are everybody’s dream. Wealth comes from properly taking advantage of cycle lows in markets.