Peek Into Future Through Futures, How Hedge Funds Are Positioned - Tuesday, Dec. 29

Five weeks ago, the crude broke out of crucial resistance at $42-$43. Even earlier, on November 3, it bottomed at $33.64 before going straight up. Last week, WTI gave back 2.1 percent, but before that, it rallied for seven straight weeks. There is major horizontal resistance at $49-$50. Unless this gets taken out, the risk is to the downside – if nothing else just to unwind overbought conditions.

E-mini S&P 500: Currently net short 24.6k, down 10.1k.

Bulls continue to step up in defense of 3640s. On November 9 when Pfizer (PFE) announced positive vaccine news, the S&P 500 rallied to a new intraday high of 3645.99 but only to reverse hard and end the session at 3550.50. Bulls since have used this level as an opportunity to go long, including Monday last week. Despite signs of lethargy of late, with the 10- and 20-day flattish, as long as 3640s is intact, bulls hold the momentum card. After this comes 3580s, which is where the large-cap index peaked on September 2.

Noticeably, in a sign of a meaningful increase in the willingness to lever up, from March when the S&P 500 (3735.36) bottomed at 2191.86, FINRA margin debt is up 50.7 percent. In November, it rose $62.8 billion month-over-month to $722.1 billion – a new high (chart here). At least vis a vis disposable personal income, it is dangerously close to a reversal. In November, margin debt made up 4.18 percent, which was the highest since 4.26 percent in May 2018. In January that year, the metric reversed lower after hitting 4.33 percent; the S&P 500 fell in both February and March. Historically, readings north of four percent are hard to sustain (more on this here).

Euro: Currently net long 143.9k, up 2.1k.

On December 17, euro bulls managed to rally past resistance at $1.21-$1.22 posting $1.2274 intraday, but staying there proved difficult. Throughout last week, as well as Monday this week, they were forced to defend the 10-day. A loss of $1.2170s raises the odds the $1.19-$1.20 breakout late November gets retested. This has been an important price point going back to May 2003. This is where the 50-day ($1.1945) lies as well.

The euro ($1.2215) has come a long way. In March, it languished at $1.0635. Conditions are getting overbought. The aforementioned breakout retest will be significant.

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