Speculators Predict A 20% Collapse In The NASDAQ

Here’s a quick view of where speculation is huge right now, based on data we pulled from Morgan Stanley.

Net speculative positions (as a % of open interest) are more than two standard deviations above the mean for oil and the Nasdaq, as shown below. Copper has substantial speculator activity as well.


Moreover, Morgan Stanley has done a back-test to give the most recent data perspective, and this is where it gets most interesting.

As shown below in the top section of the table, the average six-month performance for the Nasdaq under similar speculative conditions as today (with speculator open interest over 2 standard deviations, ‘>2SD’) has been a horrendous -20.7%.

Looking at the bottom section of their back-test table, the Nasdaq has never risen over the next six months (0 hit observations) after having such speculator activity as we have today. To get further and important detail on this back-test, such as the exact time period covered and the number of observations used, you’ll have to chase up Morgan Stanley.

It’s also just a back-test, it’s not gospel and the future can be far different than the past. Also note we’re not describing a specific Morgan Stanley market call right now. But we still can’t ignore how bad this looks, below. If the Nasdaq ends up doing well over the next six months, it will be a historic rally given current speculator activity:


(Via Morgan Stanley, 12 April 2010)

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