VIX Traders Unphased During Wall Street Pullback | COT Report
VIX traders remain calm as Wall Street shrugs off Middle East tensions. USD longs surge while S&P 500 and Nasdaq futures remain bullish.
Matt Simpson
- Equities
VIX Traders Unphased During Wall Street Pullback | COT Report
By: Matt Simpson, Market Analyst
Volatility traders showed little concern over Wall Street's recent pullback, with bearish VIX positioning increasing despite heightened geopolitical tensions and uncertainty surrounding the Middle East. The latest COT report also revealed resilient bullish exposure across major US equity indices, while net-long US dollar positions climbed to a 16-month high. With reports of a potential peace agreement between the US and Iran boosting risk sentiment at the start of the week, traders are now assessing whether the rally in the US dollar and demand for defensive assets may be nearing a turning point.
Wall Street, VIX and US Dollar Positioning from the Latest COT Report
Asset Manager / Managed Funds Positioning | COT Report
Source: CFTC (COT), LSEG
- VIX: Net-short exposure to VIX futures rose to a 16-week high among asset managers and an 18-week high among large speculators.
- S&P 500: While asset managers remained net long and were effectively flat on the week, they continue to hold a net-long position of 984k contracts.
- Nasdaq 100: Tech futures traders de-risked by reducing both longs and shorts, although they remain heavily net long by 83.4k contracts.
- Dow Jones: Asset managers flipped to a net-short position after a three-week stint net long.
- Russell 2000: Net-short exposure rose to its most bearish level since October 2023.
- Gold: Large speculators and asset managers slightly reduced net-long exposure, although both groups increased bullish exposure notably the previous week.
- Silver: Net-long exposure fell by 1.7k contracts to 22.2k, remaining just above its two-year low.
- WTI Crude Oil: Net-long exposure fell to a 16-week low among large speculators.
- Brent Crude Oil: While managed funds increased net-long exposure to 7.8k contracts, positioning has trended lower since the 22.7k peak in March.
- US Dollar Index: Asset managers increased net-long exposure to a 16-month high of 16.6k contracts.
Volatility Index (VIX) Futures Positioning | COT Report
There has seemingly been little concern among volatility traders over the stock market in recent weeks, with gross longs trending lower among large speculators and asset managers. This has seen their gross-short exposure rise to multi-week highs without signalling a sentiment extreme, despite the S&P 500 pulling back from record highs.
Asset managers appear to be hedging against a deeper pullback. Gross-long exposure to VIX futures reached an 18-week high, sending their net-short exposure to 26.4k contracts and extending a two-week trend higher.
Large speculators also increased their net-short exposure to 74.4k contracts. This hardly screams concern from Wall Street traders, particularly as S&P 500 futures gapped higher at this week's open following reports that the US and Iran were set to sign a peace deal. Given the reports were confirmed by Pakistan rather than originating from social media speculation, traders may be more willing to take them seriously.
Source: CFTC (COT), CME, LSEG
Wall Street Index Futures Positioning (S&P 500, Dow Jones, Nasdaq 100) | COT Report
S&P 500 futures (ES) positioning
Net-long exposure among asset managers has been trending higher overall, although it has pulled back alongside prices in recent weeks. Still, gross longs remain elevated without being extreme, and while gross shorts have picked up, they remain relatively low. Ultimately, there is little here to suggest a sentiment extreme, and the S&P 500 has remained resilient despite turbulence driven by Middle East headlines.
Now that hopes of a genuine peace deal have emerged, it could pave the way for a lower US dollar, reduced Fed hike expectations and more favourable conditions for Wall Street traders.
Nasdaq 100 futures (NQ) positioning
There seems to be slightly less optimism among Nasdaq futures traders, but not much. Gross longs and shorts have both declined in recent weeks, suggesting futures traders have been de-risking their exposure to the tech sector. That said, the reduction has not been extreme, allowing net-long exposure to pull back without collapsing while remaining elevated overall.
It could be argued that the AI trade has been frothy for some time, so perhaps the Nasdaq can continue to rise alongside its peers without necessarily leading the market as it has in recent months.
Dow Jones Industrial futures (DJ) positioning
And that is where the Dow Jones comes in. It gapped higher at this week's open and is the only major Wall Street index trading near its record high. Could this suggest the Dow is ready to assume market leadership? Possibly.
That said, traders flipped to a marginal net-short position of -689 contracts. Volumes are much lower in Dow futures, however, so the move should be taken with a pinch of salt.
Russell 2000 (RUT) positioning
Small-cap stocks remain the weakest area of the US equity market from a positioning perspective. Net-short exposure among asset managers rose to its most bearish level since October 2023, suggesting little appetite to rotate into smaller companies despite the broader rally on Wall Street.
While hopes of easing Middle East tensions could improve risk sentiment more broadly, traders appear reluctant to embrace the Russell 2000. Until positioning begins to improve, the index may struggle to keep pace with its large-cap peers.
Source: CME, NASDAQ, CBOT, LSEG
US Dollar Positioning | COT Report (IMM Data)
Traders continued to favour the US dollar last week, with net-long exposure rising by $11.4 billion to a 16-month high of $27 billion. While well below the record $51.4 billion peak reached in 2014, bullish USD positioning is becoming increasingly stretched relative to recent years, having rarely exceeded $30 billion since 2019.
Asset managers also added to their bullish dollar exposure, lifting net longs to 16,600 contracts. However, the sustainability of the rally may depend on geopolitical developments rather than positioning alone.
Signs of easing tensions in the Middle East could undermine one of the market's key bullish arguments for the greenback. If the proposed agreement between the US and Iran helps keep energy supplies flowing through the Strait of Hormuz, concerns over inflationary pressures and a more hawkish Federal Reserve could begin to fade.
With the US Dollar Index still unable to reclaim its March high, an improvement in risk sentiment could encourage traders to rotate away from defensive positioning and into risk-sensitive assets. While dollar bulls remain firmly in control for now, the latest developments suggest the rally may be entering its latter stages.
Source: CFTC (COT), CME, LSEG
- Equities
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