Looking at the weekly chart take a close look at the COT-Traders in Financial Futures, you see this only reflects net positions, which is the way to analyze this vital report. You can see that Dealer Intermediary and Leveraged Funds have been dropping net shorts signaling a possible correction is coming. Now have a good look at the spreadsheet with the actual positions held by each group. Looking at this you can see exactly how big money affects the S&P. Look at the total contracts held, interesting isn’t it. Dealer Intermediary defined as the sell side of the market, but you can see how Leveraged Funds also added to this side of the market with Asset Manager holding a large long position.
Now who are Dealer Intermediaries? Well the top four are JPMorgan, BofA, Citi, and Goldman Sachs (same four who are the largest Swap Dealers from the Disaggregated COT report). Reading the CFTC rules of the Form 40, which is used to classify these groups one finds that these large institutions can fill out more than one Form 40 to be classified in more than one group. Meaning Goldman Sachs can be classified as a Dealer Intermediary and an Asset Manager. When you see this you realize that these institutions can then take both sides of a trade. Again take a good look at total contracts held.
And one more point before I let you go. A very large percentage of the $85 billion QE3 dollars goes to these four large institutions. So Janet Yellen does not see a bubble in the markets. Exactly what does she see? A hot air balloon.
If you need help understanding how to understand how to use the NEW COT report to your benefit get instant access to my new e-book "What Lies Beneath ALL Trends". It is filled with eye opening information.Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.
Proceed to Page 3 for this week's detailed fundementals...