Short Position by Large Traders in ES at 4-year High

The latest commitments of traders data shows a noteworthy increase in short positions among large traders in ES (E-Mini S&P) futures. Pull up the ES COT chart, max out the zoom to see the last five years and focus on the green ‘large traders’ line. You may recall that beginning around 2007, this group of traders began to display unusual behavior by establishing positions in line with the market’s trend. Historically this group is on the opposite side of the market, so the switch has been interesting to monitor. This past week large traders boosted their short position significantly and it now stands at the highest level since 2007.

The Last Hour indicator is up 240 points following this morning’s sharply lower open. Pull up the Last Hour chart, zoom in to a 3-year time frame and you can see it’s been repeatedly banging up against the highs of the year. Huge gains by this indicator on August 11th and 19th signaled the retracement phase was underway, and today’s session seems to validate that view. We’re likely to see more ugly opens like today, that really propel the indicator higher, before the retracement is complete. (Based on today’s preliminary gain of 240, the indicator is roughly 1,500 away from getting back to early ’09 levels.)

Seasonally, today’s post-Labor Day selloff is not an encouraging sign for the remainder of the month (assuming we end today in the red). Looking back to 1960, there have been a total of 24 years in which the S&P closed lower immediately following the Labor Day holiday. In general, this has had consistently negative implications for stocks over the remainder of the month. Each occurrence is noted in the table below, along with the S&P’s performance through the last trading day of September…

S&P500 Closes Lower Following the Labor Day Holiday
09/07/10 S&P closes down… S&P +4.5% end of September
09/02/08 S&P closes down… S&P -8.7% end of September
09/03/02 S&P closes down… S&P -7.2% end of September
09/04/01 S&P closes down… S&P -8.1% end of September
09/05/00 S&P closes down… S&P -4.7% end of September
09/07/99 S&P closes down… S&P -5.0% end of September
09/07/93 S&P closes down… S&P +0.1% end of September
09/08/92 S&P closes down… S&P +0.8% end of September
09/03/91 S&P closes down… S&P -1.1% end of September
09/05/89 S&P closes down… S&P -1.0% end of September
09/08/87 S&P closes down… S&P +2.6% end of September
09/02/86 S&P closes down… S&P -6.9% end of September
09/03/85 S&P closes down… S&P -3.1% end of September
09/04/84 S&P closes down… S&P +0.7% end of September
09/07/82 S&P closes down… S&P -0.8% end of September
09/08/81 S&P closes down… S&P -1.5% end of September
09/04/79 S&P closes down… S&P +1.8% end of September
09/02/75 S&P closes down… S&P -1.9% end of September
09/03/74 S&P closes down… S&P -9.9% end of September
09/05/72 S&P closes down… S&P -0.6% end of September
09/06/66 S&P closes down… S&P -0.5% end of September
09/04/62 S&P closes down… S&P -3.9% end of September
09/05/61 S&P closes down… S&P -1.8% end of September
09/06/60 S&P closes down… S&P -5.3% end of September

Last year’s 4.5% gain following a post-Labor Day selloff was exceptionally strong, as no other instance led to more than a 2.6% gain over the remainder of the month. In 18 out of 24 occurrences, or 75% of the time, the S&P proceeded to trade lower heading into the end of the month. In only three cases did the S&P manage a gain of 1% or more, while it fell 1% or more fifteen times.

Categories : Archived Intraday Commentary, Intraday Commentary

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