Market Tanks! Was the Smart Money Wrong?
The market is caving in today, and that prompted a trader friend to express frustration about the commercial hedgers in the Commitments of Traders data. You’ll recall from my post last Friday that they got uber-bullish last week. So what gives? Are they wrong? He also noted that commercials used to have a better record a few years back. It made me wonder if there were types of markets when the correlation has worked differently. So I checked out the numbers. Check these correlations out. Overall, contrary to conventional wisdom, the “smart money” commercial trader net position as a percentage of the total open interest has had a negative -25-percent correlation with S&P 500 weekly open prices a week later. That’s right – a negative correlation. So trading alongside the commercials week to week would have lost you piles of money. That actually makes sense, in a way. These guys accumulate positions as markets decline and vice versa. It’s only when they hit extremes of positioning that I’
