Looking at the Commitment of Traders report over the weekend, the reports for the S&P 500 futures and the mini-S&P 500 presented two very different outlooks for stocks.

The one that caught my attention first was the mini-S&P contracts — commonly referred to as the ES. Small speculators hold a net long position of over 300,000 contracts and that has been the case for the last four weeks.

The only other time we saw this big of a net long position out of the small speculators was on June 5, 2012. That particular occurrence happened at the end of a 10 percent correction for the index.
The perplexing part is that small speculators are short a net 30,000 contracts of the big contracts — commonly referred to as the SPU. The last time small speculators were this short the SPU was on June 5, 2012.

My initial thought is that they are using one as a hedge against the other, but that doesn’t really make any sense as the two move in lock-step with one another only that the SPU is 10 times higher in terms of the margin requirement.

There would not be any advantage to being long 10 ES contracts and short one SPU. That trade could not make you money.

The more intriguing thing for me is the fact that the last readings this large came at a turning point in the market.