Hedge funds’ surge in long positioning may presage a correction

July 16, 2019 | Hedge Funds
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Macro investing and commodity trading funds went long with a vengeance in March

According to Jason Goepfert, founder of Sundial Capital Research Inc., trend-following hedge funds swung from a 25% short positioning in March 2019 to over 50% long exposure.

This kind of aggressive long positioning exceeding 50% for the first time in 30 or more days has generally been followed by a market correction.

S&P 500 trends

Goepfert’s analysis of data since 2003 showed that following such a positioning by hedge funds, the index proved weak over the following two months. Moreover, the risk-reward scenario was “terrible” for up to three months later.

Usually, the S&P 500 turned lower by 0.3% after the warning, and by 1.4% in two months.

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