S&P 500 Large Speculator Positioning (From Traders Report Commitments):
As of Tuesday 9thth May 2023:
- Net short exposure hits weakest level since October 2011
- Gross short exposure is at its most bullish level since June 2020
- Total long exposure continues to trend downward, just above 17-year lows
- Such extreme positioning may require price drops or short selling to justify bearish exposure.
- And US debt ceiling negotiations could be a potential catalyst, increasing volatility as markets repricing.
Big speculators are very bearish on the S&P 500 index. In fact, his net exposure to S&P 500 futures is at its weakest since October 2011, when it happened to be the index’s biggest low. Investors are likely to hedge their long-term portfolios with short futures positions, with speculators betting big on the downside as US debt ceiling negotiations drag on and the US could default on its debt. .
However, the price of the S&P 500 futures market is still rising relative to its underlying net short exposure. And that means either the price needs to fall to justify an extreme short position, or the short has to cover, which can lead to a rise in the index.
S&P 500 Futures Weekly Chart:
Of course, in a less extreme scenario, the two could converge as prices fall and net short exposure decreases. But with the U.S. debt ceiling fast approaching, there are heightened risks that could prompt serious position changes among traders and lead to a volatile market reaction.
At this rate, it is estimated that the U.S. could default by June 1st.cent If you can’t find a solution. President Biden plans to resume talks with Republican Speaker McCarthy today, but talks so far have shown no progress. As a result, indices such as the S&P 500 have remained in a low volatility maintenance pattern, with a mixture of hope that a solution might be found and fear that it won’t.
Seasonality of the S&P 500:
That said, seasonality-driven volatility is not the norm at this time of year, and returns in May and June are lower than at other times of the year. Yet, over the last 30 years, even if the high-to-low range is low, there is a 69% chance that he will make a profit in May (May has the lowest data variance of the year). However, since seasonality is fundamentally focused on the average of the data, minor themes such as the debt ceiling can easily overwhelm seasonality. And rather, it provides a reason for the market to wake up from its seasonal lull.
S&P 500 Futures Daily Chart:
The S&P 500 E-mini futures were confirmed within last Wednesday’s 60 point range, with the daily range getting smaller by the day. This suggests that it may be time to extend the range, but until the right catalyst arrives, range trading strategies are the priority.
Note the active trading around 4133 within the current range, with the price moving back towards this potential support zone ahead of the opening of Europe and the US. The RSI (2) reached oversold a few bars ago and the Stochastic Oscillator is inside the overbought zone but has not yet generated a buy signal.
From here, we are looking for a bullish setup near the support zone/61.8% Fibonacci level and a first retest of yesterday’s high, which could lead to a high near 4070.
— By Matt Simpson
Follow Matt on Twitter @cLeverEdge
