Just as important as vetting the fundamentals of any investing idea is knowing the investment community’s positioning around that idea. Namely, is this a consensus or contrarian trade? It’s another essential tool in your investing toolkit since, if Wall Street is too bullish or bearish, you may have already missed the move.
At Hedgeye, we measure and map the CFTC’s Commitments of Traders report, across asset classes, to learn precisely that: What does current investor consensus positioning look like and where can we add the most value with a non-consensus market call?
Due to popular demand for a primer on the topic, we’ve produced another special video as part of our “Understanding” series. Macro analyst Ben Ryan breaks down how we interpret Wall Street consensus positioning in this video, “Understanding the CFTC COT Report.” In it, Ryan describes why we focus on the report’s “non-commercial” investors, how to interpret the Z-score of investor positioning and the critical threshold at which, historically, investor positioning tends to be “crowded.”
In case you missed it, click here to watch our primer on “Understanding Volatility.”