Small-cap stocks are on a historic run; however, futures positioning could become a considerable headwind should the rally start to fade.
One of the biggest beneficiaries of the ‘Trump Rally’ has been small-cap stocks. Since just prior to the election, the space ripped 20% in 25 days for just the 6th time in 25 years (using the Russell 2000 (RUT) as a gauge). And with the RUT now back into all-time high ground – and in the midst of its favorable ‘January Effect’ season – sentiment is obviously sky-high for small-caps right now. So what are the red flags? Well, besides their obvious short-term ‘overbought’ status, there may be a longer-term potential headwind for small-caps, should they begin to reverse.
Looking at trader positioning in ICE Russell 2000 Mini futures, we note that Commercial Hedgers have just adopted their largest net short position (-57K contracts) on record, going back to 2008.
This post was published at Zero Hedge on Dec 14, 2016.