Top Crowded Trades

The chart below shows the fund managers’ opinions on which trades are the most crowded. As you can see, the long bitcoin trade has become a less popular choice which is understandable because it crashed. Surprisingly, my top call ended up being correct. Recently the total cryptocurrency market cap has rallied from $283 billion to $418 billion. That’s a large percentage increase, but it remains in a bear market. In order for it to break the trend of lower highs, it would need to break above $600 billion. I don’t see that occurring based on sentiment. There will always be believers which keep it worth something, but the faddish popularity peak probably will never be reached again. The new trade on this list is the short US dollar trade. It’s ironic to see the short dollar trade take the place of long bitcoin. After having a mini rally a couple weeks ago, the DXY index has fallen about 0.8% in the past 2 days.

I used to think the long oil trade was the most crowded trade, but the recent weakness makes me less likely to pick that one. I’m not saying oil won’t go down from here. It could go down because of the increased supply from shale, but it’s less likely to go down because it’s overcrowded. The current overcrowded trade to me is short treasuries. On Tuesday, the 10 year yield fell by about 3 basis points to 2.83%. However, it has been going up swiftly since September. I’m bearish on treasuries for the intermediate term because of the Fed’s unwind, high deficits, the increased economic growth, and the increase in inflation. However, there needs to be a correction in the trend. The proportion of capital in bonds fell to the lowest level since 1998.

Obviously, the short volatility trade became much less popular after the crash in the short VIX ETFs. This opinion by fund managers that the trade was crowded ended up being correct. Showing how quickly markets trade, I think the VIX will decline in the next few weeks as we return to normalcy after the correction. The VIX declined 2.5% to $24.97 on Tuesday. I don’t agree with the opinion that the long corporate bonds trade is crowded. The LQD investment grade index is at the lowest level since March 2017.

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