Consensus positioning on Wall Street can be a very useful indicator to take advantage of when making investing decisions.
For example, consensus is (extremely) long the Russell 2000 and coffee as a commodity, according to the CFTC’s Commitments of Traders report.
But as Hedgeye CEO Keith McCullough explains in the clip above from The Macro Show, those positions aren’t created equal and the Old Wall can be long of them for the wrong reasons.
In the current Quad 3 market environment (growth slowing and inflation accelerating), a commodity like coffee should be a long, but the Russell 2000 is a short.
“These positions become consensus net long when they go up. After something goes up, Wall Street buys it,” McCullough explains.
“When the price of coffee comes to the low end of the [Hedgeye Risk Range], guess what the net positioning in coffee is going to do? It’s going to go down. That’ll be an even better spot to buy.”
But remember: it’s never just one thing. Net positioning is one of many investing tools.