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Small change in smart money bias may signal upcoming change in price direction

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Small change in smart money bias may signal upcoming change in price direction

Thelatest signals from so-called "smart money" traders show very littlechange in their overall bias, which is an alteration from previous weeks andcould signal that a change in price direction is near.

Datafrom the U.S. Commodity Futures Trading Commission's "Commitments ofTraders" report published on April 29 showed the largest change in netpositions being made by noncommercial traders in natural gas, which subtracted16,879 contracts from their net short position to reach 116,452 contracts inthe week ended April 26.

Thereduction was mostly the result of short covering as there were 22,187 longpositions liquidated while 39,066 short contracts were cut. The net short is nowthe smallest reported since the week ended June 17, 2014.

Tradersclassified as managed money reduced their net short position by 2,432 to reach55,079 contracts. The breakdown of trades showed that 21,108 long positionswere cut while 23,540 shorts were eliminated.

Thebalance also leans toward short covering, which is not necessarily a bullishfactor for prices and marks a change from the when new long positionsoutweighed new shorts. Prices have fallen 11.7 cents from the close on April 26through May 2.

Noncommercialtraders include those that are large enough to meet minimum position thresholdsbut are not involved in hedging, while the managed money category includesthose who engage in futures trades on behalf of investment funds or clients.Both are widely followed by traders and are considered to be the smart money,as their positioning can track or sometimes lead changes in price trends.

Incrude oil, the picture was a bit more neutral although some short covering wassignaled.

Themanaged money net long increased 1,596 and reached 223,467 contracts, with1,536 longs eliminated while shorts were cut by 3,132 contracts.

"Thelatest CFTC data show net-longs held by speculators such as hedge funds haveincreased to their highest level in a year, as short positions have dropped toa 10-month low," Matt Smith, director of commodity research atClipperData, said in a note. "Once again, this has been driven by a 'lessbearish' stance, as opposed to '[more] bullish' one, with both long and shortpositions shrinking."

Inthe noncommercial category, the net long position increased by 90 to reach334,265 contracts. There were 4,234 new long positions added while shortsincreased 4,144 contracts. The net long reached the highest level since theweek ended June 2, 2015.

Thesmall addition to the net long is a fairly neutral move by noncommericals,which added 45,014 contracts to their net long position in the previous weekmostly through short covering. Crude oil prices closed on May 2 with a gain of$0.74/bbl from the April 26 settlement.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.