How is the smart money positioned in 2018?


Here’s how “smart money” commercial hedgers are positioned going into 2018.
Keep in mind that the smart money isn’t always right. The smart money is essentially contrarian. The smart money tries to pick market tops and bottoms. But when the trend is insanely strong, the smart money can be forced to cover their positions.
Let’s look at the hedger positions in:

  1. The S&P 500
  2. Gold
  3. Silver
  4. Euro
  5. British Pound
  6. Yen
  7. Canadian dollar
  8. 10 year Treasury bond
  9. Oil
  10. Copper
  11. Natural Gas
  12. Sugar (and agriculture)

S&P 500

The smart money is neutral on the U.S. stock market. However, you can see that the smart money’s sentiment hasn’t been useful for picking past tops and bottoms. Sentiment doesn’t work well in stocks.

Gold

Despite gold’s multi-week rally, the smart money is neutral-slightly bearish on gold. This makes sense. Everyone knows that gold is going up over the long run (i.e. next 1-3 years). However, the smart money isn’t sure if gold will make a correction/pullback in the short run.

  1. Weekly momentum is extremely high.
  2. Gold has come up against a major resistance.
  3. The USD might make a short term bounce. Based on the inverse correlation between USD and gold, this will bring gold down.

Silver

Unlike the hedgers in gold, commercial hedgers in silver are actually slightly bullish! This makes sense. Gold tends to outperform silver in the first leg of a precious metals bull market. Silver tends to outperform gold in the second leg of the bull market.

Euro and U.S. dollar

The smart money is very bearish on the Euro and extremely bullish on the U.S. dollar. But I explained that commercial hedgers will be forced to cover their positions in a Euro bull market and USD bear market.
Here’s the Euro’s commercial hedger position.

British Pound

The smart money is bearish on the Pound, but not extremely bearish.

Canadian dollar

The smart money is bearish on the Canadian dollar, but not as bearish as on the Euro. Canada’s economy is recovering as oil prices rise.

Japanese Yen

Unlike the smart money in Euro and CAD, commercial hedgers are actually bullish on the Japanese Yen!

10 year Treasury bond (long term bond)

Commercial hedgers are rather neutral on the 10 year Treasury bond. There are no extremes here.

2 year Treasury bond (short term bond)

Unlike smart money in the 10 year bond, smart money in the 2 year bond are bullish on the market (bearish on 2 year interest rate).

This makes sense. The 2 year Treasury yield is INSANELY overbought on every single time frame: daily, weekly, and monthly. Some mean-reversion is to be expected.

Oil

Commercial hedgers are also extremely bearish on oil. This is to be expected from multiple aspects.

  1. U.S. shale will increase production significantly in 2018 (fundamentals).
  2. WTI oil has approached a big resistance.
  3. Oil is overbought on every single time frame (just like the 2 year Treasury yield).

Copper

Like oil, the smart money is bearish on copper. Copper made a new record for “# of consecutive days close higher“, so commercial hedgers expect at least a pullback.

Natural gas

The smart money is neutral on natural gas (vs the range over the past few years).

Sugar and agriculture

Sugar is representative of the agriculture sector as a whole. The smart money is bullish on sugar. However, you can see that sentiment isn’t very useful in sugar. Sentiment can be very bullish while sugar grinds lower for months.

4 comments add yours

  1. So, if the smart money is either neutral or bearish on most of the things, any advise on the strategy? It seems if we follow the smart money, we will either buy 10yr bond or keep USD. Or we should do the reverse?

    • The Smart money isn’t always right. I’m just pointing out what they’re doing.

  2. Thanks Troy. I can see you are bearish on USD, and I believe you are right as reflected by the recent trend. I just recently subscribed to your news letter and enjoy reading it. It gives me a lot of good insight. Please keep up the good work.

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