CFTC report reveals the secret behind the April US stock rebound: institutions set a record by buying Nasdaq futures.

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In mid-March, as the market realized that the war with Iran would persist and the US stock market plunged sharply, asset management institutions (a category defined by the CFTC, covering almost all institutional investors) sold a record $36.2 billion worth of S&P 500 futures.

A month later, the latest mid-April COT position report showed that asset management institutions bought a record number of Nasdaq futures. In just one month, the difference was dramatic.

According to Goldman Sachs analysis, during the week of April 7 to 14, asset management institutions had a net buy of $9.7 billion, marking the largest single-week nominal amount in at least the past ten years. The capital flow included: new long positions ($5.9 billion) and massive short covering ($3.8 billion).

Flows in other directions partially offset this: other categories and non-reportable accounts increased by $1.8 billion; hedge funds sold $5.6 billion, mainly from new short positions ($4.0 billion).

Net long positions of non-commercial traders have significantly rebounded from extremely compressed low levels. Before these purchases, on April 7, the Nasdaq net long positions of non-commercial traders were only in the 11th percentile over a two-year scope, after several weeks of continuous selling.

Sentiment became even more exuberant thereafter. Goldman Sachs noted that leveraged demand may continue to heat up; from April 14 to 21, the Nasdaq three-month financing rate relative to the federal funds rate rose in absolute value (i.e., funding costs increased, reflecting higher demand). Meanwhile, as prices rose concurrently, asset management institutions likely kept buying. On April 14, the rolling six-month correlation coefficient between asset management institutions’ long positions and the price climbed back to 0.4. In the following five trading days, the Nasdaq price rose by 2.5%, and total open interest increased by $4.0 billion.

Sentiment in the options market also improved: the three-month standardized 25 Delta put-call skew for the Nasdaq narrowed noticeably, indicating reduced demand for downside risk hedging.

Financial blog Zerohedge commented that institutions are once again pouring heavily into tech stocks, betting on strong earnings from tech giants. However, this usually means that the moment when “the rug is pulled” is not far away.

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