Hedge Funds Just Covered 35,000 S&P Shorts in a Week

01Quick refresher — what we're looking at

The COT report is published every Friday afternoon by the CFTC. It's a snapshot of futures market positioning at the close of business the previous Tuesday. Today's numbers cover positions as of Tuesday 9 June.

The bit most traders care about is the who. The Traders in Financial Futures report splits the field into four groups: Dealer/Intermediary (the market plumbing), Asset Manager/Institutional (real-money — pensions, insurance, big mutual funds, sovereign wealth), Leveraged Funds (hedge funds and the speculative crowd), and Other Reportables.

The way I read it: Asset Managers are the patient money and Leveraged Funds tend to chase momentum and squeeze setups. When the two camps disagree hard and one suddenly capitulates, that's the moment to pay attention. That's exactly what happened this week.

02S&P 500 — Hedge funds blinked. Hard.

Look at that Leveraged Funds line. Hedge funds covered 35,640 short contracts in a single week. That's a chunky move on a contract this size. They also added 8,179 longs. Net effect: roughly 44,000 contracts of "less bearish" positioning, in seven calendar days.

For context: as of the prior week's report (positions on 2 June), Leveraged Funds were net short something like 503,000 S&P contracts. They've trimmed that to −459,690. A meaningful chunk of the short side has rung the bell and gone home.

What didn't change: Asset Managers are still net long over 986,000 contracts. Real money has stayed long the whole time and added another 5,553 longs this week. The institutional bid never wavered. It's the hedge funds doing the moving.

03NASDAQ-100 — Same story, smaller scale

NASDAQ tells the same story. Leveraged Funds covered 9,596 shorts and added 8,488 longs. Roughly 18,000 contracts of swing toward bullish. The bearish thesis on big tech is being dismantled in real time.

Asset Managers actually trimmed both sides on NASDAQ this week — taking a small amount off the table — but they remain comfortably net long at +84,437 contracts. No panic, no chase. Just sitting there.

04Russell 2000 — The one place nobody is buying

Russell is the odd one out — and it's been the odd one out for weeks now. Asset Managers got more short on the small caps this week. They reduced longs by 4,507 and added 1,674 shorts. Leveraged Funds also nudged a touch more bearish.

This is the breadth signal worth keeping on your radar. The headline ES and NQ are getting hedge funds capitulating their shorts. But the broader market — the small caps — isn't getting the same love. Both groups are net short Russell. If that divergence keeps widening, it tells you the rally is being driven by the same handful of mega-cap names rather than genuine broad participation.

Doesn't mean the rally ends tomorrow. Does mean you should be honest with yourself about what's actually carrying the bid.

05What this means in practice

Let me be very clear about something: the COT report is context, not a signal. Knowing that hedge funds just covered 35,000 ES shorts doesn't tell you where to enter a trade. It doesn't tell you where the top is. It doesn't even tell you the rally has another leg in it — short covering can exhaust itself in a hurry once the shorts are out.

What it does tell you is two things:

1. One of the two big institutional camps just lost a chunk of conviction. The downside pressure from a stretched short position is now meaningfully reduced. That doesn't mean you go long blindly — it means a short setup needs to be cleaner than it would have needed to be a week ago, because there's less unwind fuel underneath the market.

2. The breadth picture is still iffy. Russell weakness paired with NQ/ES strength is the classic narrowing-leadership signal. Pay attention to the tape. If small caps don't come along, the rally is fragile even if the immediate squeeze isn't done.

06What I'm watching this week

Three things, in priority order:

One: Does the short cover continue, or did the bulk get done last week? If next Friday's report shows another 20–30k of ES shorts covered, the squeeze fuel is running dry and the next leg has to come from somewhere else. If it stops here, the move loses an obvious tailwind.

Two: Russell. If real money is still net selling small caps next week, the breadth story gets harder to defend. If they start covering, the rally gets a much wider base.

Three: The price action itself. If ES grinds higher on quietly declining volume while shorts get covered, fine — that's a healthy unwind. If it spikes vertical and then stalls, that's the squeeze topping out and a different conversation entirely.

Next COT release is Friday 19 June at 8:30 PM UK time, covering positions as of Tuesday 16 June. We'll see what the next chapter looks like then.