http://themacrotourist.com/images/PooNov0116.png

Every time I find myself on the same side of a crowded trade, I try to convince myself this time will be different. Surely the hedgies won’t all stampede for the exit at the same time. I try to justify it with thoughts how the crowd is right for the majority of the move, and it’s only the extremes I need worry about.

Then, as sure as god’s got sandals, it happens. Out of nowhere comes a swift liquidation that sends the price careening lower in a sickening swoosh.

So my antennae perked to attention when the following chart went across my screen:

http://themacrotourist.com/images/NascrackNov0116.png

The net speculative long position in Nasdaq futures just hit all time highs! The hedgies and other speculators have never had a longer nasdaq position.

Yet, this speculative excess is not equal across all the stock index futures markets. The S&P 500 futures speculative position is actually net short.

http://themacrotourist.com/images/SpoozNov0116.png

It is only the Nasdaq experiencing this overly optimistic exuberance.

It is easy to see why the hedgies are stuffed full of Nasdaq futures. The outperformance of this index over the past eight years has been mind boggling.

http://themacrotourist.com/images/8Nov0116.png

It has been a one way shot higher. Yet when we drill down to a shorter time frame chart, the technical picture is not nearly as pretty.

http://themacrotourist.com/images/TwoNov0116.png

The recent rally is overextended, and looking toppy.

I am fading the hedgies by shorting Nasdaq and buying S&P 500 futures. I expect them to puke out that massive long Nasdaq position. It might come at the most inopportune time, and by then I will most likely have already covered my trade, but I just don’t trust them to stick with it.

In this market, record net long speculative long positions are the stuff accidents are made of…

Thanks for reading,
Kevin Muir
the MacroTourist