Whilst this year's 'rally' on the S&P 500 has been mediocre at best, the increase in net-short exposure to S&P futures has been impressive. As of last Tuesday, large speculators pushed their net-short exposure to the futures contract to their most bearish level since late 2007.
Yet with prices rising whilst speculators increase bearish exposure, there is a clear mismatch between the two data sets. And one that will need correcting, one way or another.
Prices will either need to roll over to justify the short-exposure of large speculators, or bears will have to capitulate which could also trigger a short-covering rally to send prices higher.
A potential catalyst could be if (or when) the US increase their debt ceiling, with reports suggesting we are on the cusp of a 2-year raise - and that could support risk assets such as the S&P 500. But if the talks break down, the deadline is missed and the US government defaults (which would also see the US lose their 'AAA' rating), it could be a case of 'watch out below' as the market slumps to justify the aggressive positions of bears.
Either way, this is one to watch as the week's progress.
Yet with prices rising whilst speculators increase bearish exposure, there is a clear mismatch between the two data sets. And one that will need correcting, one way or another.
Prices will either need to roll over to justify the short-exposure of large speculators, or bears will have to capitulate which could also trigger a short-covering rally to send prices higher.
A potential catalyst could be if (or when) the US increase their debt ceiling, with reports suggesting we are on the cusp of a 2-year raise - and that could support risk assets such as the S&P 500. But if the talks break down, the deadline is missed and the US government defaults (which would also see the US lose their 'AAA' rating), it could be a case of 'watch out below' as the market slumps to justify the aggressive positions of bears.
Either way, this is one to watch as the week's progress.
