Wednesday, May 6, 2015
If You Have a Big Line to Move, You Sell into Strength
In Eurodollar and Treasury futures I am increasingly seeing over-sized selling episodes into strong or strengthening market conditions. As noted the other day, when there are very large positions that needs to be adjusted or reversed, a position holder cannot sell into weakness (buy into strength) as this may change the tempo of trade against their interest. Instead, they must rely on any strength as opportunities to sell existing positions in size.
Increasingly over the last days, I have been seeing big selling events at times when prices firm. These sales come without any specific news event which would 'prompt' selling, instead they are likely the product of a need to adjust positions.
We would note with considerable interest that CFTC described 'Large Speculators' have existing net-long Eurodollar (futures and options) near 500K, having 2 weeks ago reached a new 2 year high for net longs. They reduced slightly these net long positions over the last two weeks. However, positions held by these account types do not, by any means, represent an ideal situation if recent positive data surprises such as Jobless Claims, Non-Manufacturing ISM and PCE persist.
We find clues to potential market movement in a number of ways. We have been fortunate to have had opportunity to work with some of the largest hedge funds, pension funds and bank portfolios on their positioning adjustments. The expectations expressed above are a reflection of this experience.