Large Traders in S&P Futures Commitments of Traders Data

I noticed the recent commitments of traders data for S&P futures generated some attention, in particular the activity in the ‘large trader’ category. This group covered a large amount of shorts this past week, in fact the largest in history, which would be interesting if the activity of large traders  (in the big S&P contract) was at all predictive. Unfortunately it’s not. Here’s a chart highlighting commercial and large trader activity in the large S&P contract over the past decade. Notice we actually saw two very similar periods of short covering among large traders, once in March ’09 (prior to strong gains) and again in June ’08 (prior to strong losses). While I was a big proponent of this data back in the day, especially the commercial category, historical correlations broke down starting in 2004 and never recovered. This is not entirely surprising given that open interest in the large S&P contract is half of what it was five years ago. Trading signals based on the volume or open interest in this contract have most likely not fared well given the decreased participation, somewhat similar to the fate of many signals based on NYSE volume.

While the pit-traded contract continues to lose market share, the electronic S&P is seeing explosive growth, with open interest quadrupling in the last five years. Interestingly, one group that’s beginning to act like one of the old smart money indicators is the large trader category in E-mini S&P futures. Historically, large traders have maintained a net position opposite the prevailing trend, but this group has begun to establish positions in the direction of the market. They were net short from early 2007 until November 2008, when they shifted to a net long position soon after the market cascaded lower. This net long position was held until just this past week. While I wouldn’t read too much into this given the limited amount of history and the fact that it’s contrary to the historical norm, it may be one chart worth monitoring on the COT front. It’s interesting to note that this trend-following behavior among the large trader category is only apparent in the electronically traded contract – in the big S&P contract this group continues to maintain positions generally opposite the prevailing trend.

The S&P500 traded as high as 1174.85 Monday, within 6 points of last week’s high. The table below lists each of the last thirty instances in which the S&P500 initially posted four consecutive up weeks and the SPX proceeded to take out the most recent weekly high the following week. Note that in 26 out of 30 cases, or 87% of the time, the S&P managed to hold onto a gain through the end of the week…

S&P Up Four Weeks, Most Recent Weekly High Exceeded
04/03/09… S&P500 Higher Highs Next Week, Ends +1.7%
10/05/07… S&P500 Higher Highs Next Week, Ends +0.3%
04/27/07… S&P500 Higher Highs Next Week, Ends +0.8%
10/20/06… S&P500 Higher Highs Next Week, Ends +0.6%
11/18/05… S&P500 Higher Highs Next Week, Ends +1.6%
07/22/05… S&P500 Higher Highs Next Week, Ends +0.0%
09/03/04… S&P500 Higher Highs Next Week, Ends +0.9%
12/19/03… S&P500 Higher Highs Next Week, Ends +0.7%
09/05/03… S&P500 Higher Highs Next Week, Ends -0.3%
05/09/03… S&P500 Higher Highs Next Week, Ends +1.2%
11/01/02… S&P500 Higher Highs Next Week, Ends -0.7%
08/16/02… S&P500 Higher Highs Next Week, Ends +1.3%
08/25/00… S&P500 Higher Highs Next Week, Ends +0.9%
11/12/99… S&P500 Higher Highs Next Week, Ends +1.9%
09/03/99… S&P500 Higher Highs Next Week, Ends -0.4%
07/10/98… S&P500 Higher Highs Next Week, Ends +1.9%
02/20/98… S&P500 Higher Highs Next Week, Ends +1.5%
05/23/97… S&P500 Higher Highs Next Week, Ends +0.1%
11/22/96… S&P500 Higher Highs Next Week, Ends +1.1%
02/09/96… S&P500 Higher Highs Next Week, Ends -1.3% (*)
02/17/95… S&P500 Higher Highs Next Week, Ends +1.3%
08/13/93… S&P500 Higher Highs Next Week, Ends +1.3%
12/04/92… S&P500 Higher Highs Next Week, Ends +0.4%
12/27/91… S&P500 Higher Highs Next Week, Ends +3.2%
02/08/91… S&P500 Higher Highs Next Week, Ends +2.7%
11/24/89… S&P500 Higher Highs Next Week, Ends +1.9%
07/28/89… S&P500 Higher Highs Next Week, Ends +0.5%
06/02/89… S&P500 Higher Highs Next Week, Ends +0.4%
04/21/89… S&P500 Higher Highs Next Week, Ends +0.0%
01/27/89… S&P500 Higher Highs Next Week, Ends +1.1%

Of course this pattern is more interesting when the S&P ends week four near its highs. This past week the S&P ended down over 1% from its 1180.69 high, so it’s not surprising that a break of that level this coming week is likely to coincide with a fifth week of gains (especially considering it’s a holiday-shortened week).

However, a fifth week of gains would tilt the odds in favor of lower prices next week. The table below lists each of the last thirty occurrences in which the S&P500 initially posted five consecutive higher closes on its weekly chart…

S&P500 Up Five Consecutive Weeks
04/09/09… S&P500 +1.5% one week later
10/12/07… S&P500 -3.9% one week later
05/04/07… S&P500 +0.0% one week later
10/27/06… S&P500 -1.0% one week later
11/25/05… S&P500 -0.3% one week later
07/29/05… S&P500 -0.6% one week later
09/10/04… S&P500 +0.4% one week later
12/26/03… S&P500 +1.2% one week later
05/16/03… S&P500 -1.2% one week later
08/23/02… S&P500 -2.6% one week later
09/01/00… S&P500 -1.7% one week later
11/19/99… S&P500 -0.4% one week later
07/17/98… S&P500 -3.9% one week later
02/27/98… S&P500 +0.6% one week later
05/30/97… S&P500 +1.2% one week later
11/29/96… S&P500 -2.3% one week later
09/15/95… S&P500 -0.3% one week later
02/24/95… S&P500 -0.6% one week later
08/20/93… S&P500 +1.0% one week later
12/11/92… S&P500 +1.7% one week later (*)
01/03/92… S&P500 -1.0% one week later
02/15/91… S&P500 -0.9% one week later
12/01/89… S&P500 -0.6% one week later
08/04/89… S&P500 +0.2% one week later
06/09/89… S&P500 -1.6% one week later
04/28/89… S&P500 -0.7% one week later
02/03/89… S&P500 -1.7% one week later
06/26/87… S&P500 -0.5% one week later
02/06/87… S&P500 -0.1% one week later
10/17/86… S&P500 -0.2% one week later

Note that in 21 out of 30 cases, or 70% of the time, the S&P posted a lower weekly close after five consecutive up weeks. That’s significantly above the 44% random odds for a lower weekly close one week later in the same time frame.

Categories : Archived EOD Commentary, End-of-Day Commentary

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