Daily Brief - Positioning, finally!

TLDR: CFTC Futures positioning is back to 0, exiting the bearish glut of the last few months. Will this mark a market turning point?

Positioning is an important measure of market structure. It tells us how many short-term speculative traders tend to lean bullish or bearish, on average. And the chart above shows us the capitulation of the short specs.

Positioning is usually read at extremes. For example, when a large majority of traders are short you might worry about a snap-back in the market, caused by a cascade of short covering - what’s usually called a ‘short squeeze’.

But today Positioning is doing something different. It is non-negative, and that’s quite something because since 2022 we’ve had net negative positioning pretty much the whole time!

So what will happen from here?

The disappearance of shorts will reduce the support to market during dips, but will not hinder momentum either. Keep an eye on it though, if it stretches into long territory that will be our bearish sign.

How to trade it

For allocators, we stick with our point that expensive equities have never been good for long-term returns. Go for long treasuries.

For traders, for those wanting to try a short, we stick with our 1x2x1P suggestions. And keep an eye on our Leading Indicators, they’re far from showing bearish indications.

Market Movers: When positioning goes positive

Here are the top 3 and bottom 3 performing US sectors, according to their 1-month returns, based on previous instances when positioning rose above 0:

Top 3:

1. S&P Real Estate: 2.35%
2. S&P Utilities: 1.52%
3. S&P Financials: 1.33%

Bottom 3:

1. S&P Technology: 0.59%
2. S&P Consumer Staples: 0.43%
3. S&P Telecom: 0.24%

Macro Spotlight: Across the pond

Chinese stocks have seen a notable rally in recent weeks, with benchmark indexes surging over 30% in just a matter of days, but are now facing significant volatility, with the CSI 300 Index seeing its largest drop in over four years, falling 7.1%.

The plunge occurred as traders became impatient with the pace of Beijing's stimulus efforts, compounded by disappointing holiday spending data. The optimism seen after recent policy announcements aimed at boosting the economy has faded, as investors await concrete measures from Beijing to back up spending pledges.

Despite hopes of a recovery, the lack of fresh major initiatives is dampening enthusiasm, leading to concerns that the stock market's rapid rebound could prove short-lived. Strategists are looking for tangible fiscal stimulus to stimulate consumption and support key sectors, particularly as Beijing’s growth target of 5% for 2024 comes under pressure.

Toggle Update: Goodbye Crypto

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