The commitment of traders measured on the S&P 500 using COT data from the SEC is a useful sentiment indicator to warn when big money is leaving the market. The following chart shows a strong cross in Commercial Hedgers declining COT with a strong rise in Small Traders commitment.
We have often heard it said, “Something too good to be true probably is.” And so it applies to the way loans were issued in the years leading up to the subprime lending crisis. Political forces identified a need for low-income home-ownership and impressed on capital institutions the importance of more engagement with a high-risk market. Some simply blame the loan crisis on banks and greed. “The greater the profitable opportunities, the greater the coercive force. Ethics be damned” (Watkins, 2011, pp. 365).