The Last Time the Smart Money Was This Well Hedged the S&P Dropped 20%

posted in: Dow, Nasdaq, S&P 500 | 30,010

Commercial hedgers (“smart money”) are almost always short equity futures to some extent. As a market timing gauge when the commercials move to near a neutral positioning in futures it is usually a good time to get long equities, whereas, when the commercials move to an extremely large short position it’s usually a good time to get out of stocks or to even get short.

The smart money has recently moved to an extreme hedge position on US equity indices totaling some $48 billion net between the Dow, Nasdaq, and S&P 500. In fact, the last time the commercials had this large of a short position in the S&P 500 was June of 2011, just before the market cratered 20%+:

SP_CoT

Meanwhile, the “dumb money” as represented by the total assets in Rydex Bear Funds (a favorite retail vehicle) are near an all-time low in short exposure after sharply reducing bearish positioning in recent months:

Rydex_Bear

With S&P futures up another 27 points today and given the aforementioned unique confluence of smart/dumb money positioning it might be a good time to consider cutting ones own equity portfolio exposure..