Hedge Funds Most Long The S&P500, Most Short The 10 Year In Six Months, Still Long Crude

Once upon a time hedge funds were actual rational, sensible, intelligent creatures whose PMs – rightfully – collected 2 and 20 (i.e., hundreds of millions) for not only outperforming the market but for providing a natural hedge to collapsing asset prices. Since then they have devolved into sniveling, expert network and insider trading-constrained, “beta is the new alpha”, leveraged momentum chasing E-trade babies (which have underperformed the S&P for 6 years in a row).

As such we doubt anyone will find it one bit surprising that as Bank of America observes in its latest weekly hedge fund monitor, “S&P500 longs increase to six month high” with all equities bought. And alongside that, and confirming that the short squeeze in the Treasury market will continue indefinitely, “10-yr contracts were sold at a strong pace to increase net short positioning to largest in six months.” Why? Because that imminent economic recovery which everyone has been betting on since the second half of 2013 is just not coming, seasonally adjusted low-paying temp, retail, teacher and secretary jobs notwithstanding.

Some more on hedge fund positioning:

Equities. Large specs bought S&P500, NASDAQ and Russell contracts. S&P500 longs have increased to a six month high. Technicals recommend remaining bullish and MAA suggests buying can continue. For a second week specs reduced EM net long position. Techs recommend remaining bearish.
Metals. Large specs bought gold increasing net long position. Silver was bought for a fifth consecutive week, at the fastest pace in more than three months. Both MAA and technicals suggest remaining bullish. Specs sold copper increasing net short to largest in a year. Our indicators recommend remaining bearish.
Energy. Large specs sold crude decreasing net long position. Specs have reduced net long crude position in twenty of the past twenty three weeks. Specs also reduced natural gas shorts for a second week but at a reduced pace. We recommend remaining bearish both.
FX. Specs sold JPY for a fifth week increasing net short positioning. Specs also sold MXN for a tenth week in the previous twelve weeks to increase net short position to largest in ten years. We recommend remaining bearish JPY and MXN.
Agriculture. Large specs bought wheat for the third consecutive week to now be net long. Our indicators suggest remaining bullish. Specs sold corn after seven consecutive weeks of buying. Technicals recommend remaining bullish and MAA suggests we should see further buying.
Interest Rates. Specs sold 2yr, 10yr and 30yr contracts. 10-yr contracts were sold at a strong pace to increase net short positioning to largest in six months. Techs suggest remaining bearish 10yr and 2yr.

BofA’s take on the data:

S&P 500

Large speculators increased their net long position in S&P500 index to $8.4bn from $3.2bn notional Bullish. The breadth, VIM & VIGOR (volume), and seasonal backdrop is bullish as the S&P 500 pushes deeper into weekly channel resistances between 2071 and 2090. Given the bullish backdrop, we remain willing to buy into dips and favor a rally to 2100+ into year-end and early 2015. Monday’s 2049.57 low is very nearby support, but while above the prior highs from September and July in the 2020-1985 areas (rising 50-day MA at 1994), the underlying bull trend is firmly in place.

Meanwhile, the short-covering in the Russell continues:

Russell 2000

Large speculators decreased Russell 2000 net short position to -$4.2bn from -$4.8bn notional. Range trading since Feb. 2014. The 200-day and 50-day moving averages at 1150-1136 provide support ahead of more important chart support at 1107-1104. While these supports are intact, the Russell should be able to rally back to the March and July peaks in the 1212-1214 areas. But more relative strength is needed”

Curiously, there is still a net long HF position in WTI:

WTI crude oil (Jan. contract)

Large speculators decreased WTI crude oil longs to $17.7bn from $18.7bn notional. Bearish on the breakdown from long-term support between 74.95/73.65. While momentum and sentiment remain at levels that have coincided with previous market lows, until price can confirm, one should maintain a bearish bias for 60.00/58.32. Bulls need a move above 73.22/74.95 to say the trend has turned.

Then there is gold:

Gold

Large speculators increased their gold net long position to $10.7b from $9.1bn notional. Bullish. The Friday breakout in 2yr yields failed to damage the bullish setup for gold. Indeed, from the Nov-07 low at 1132, gains have repeatedly unfolded impulsively, while weakness has been corrective and counter trend. This means the trend has turned higher. Stay bullish for 1241/1255 ahead of 1345 and potentially beyond. Below 1146 warns of trouble.

And finally, the asset class that stumped everyone in 2014: Treasurys.

10-yr T-notes

Large speculators strongly increased their net short position to -$16.3bn from -$7.5bn notional. Bearish. The Dec-01 Outside Bar and impulsive break of 2.227% points to further gains to 2.404% and beyond. Below 2.227% indicates stalling; bulls gain control below 2.150%