Surprisingly, open interest has actually risen slightly during this sell-off, going from 232'783 contracts last Thursday to 233'231 contracts as of this morning.
This suggests that there has not been any widespread liquidation of existing positions. Some trade shorts may have been bought back while new spec shorts were established, but we suspect that spec longs remain unimpressed by what they consider to be just a dip or correction in a bull market.
We have read several publications by institutional advisors in this regard, telling clients to use these dips to add to their positions.
So what will happen next? From a technical point of view, this recent setback still has to be considered a correction until proven otherwise and that is how the specs seem to play it. In order for the market to break more substantially, either specs longs have to start liquidating, while spec shorts become more aggressive, or the trade needs to keep adding even more to its already huge net short position.
marketing@alchempro.com
