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Looking for Meaning in Big Open Interest Drop in S&P 500 Futures

Here’s something I noticed today that I found REALLY interesting.

First of all, take a look at this Commitment of Traders data chart for the last year. The green line is Open Interest. Notice the pattern of steadily lower troughs, as highlighted by the red trend line. The troughs come at each quarterly contract rollover period.

S&P 500 Futures Commitments of Traders Data through December 22, 2009

The reason this grabbed my attention was that Open Interest, meaning the number of active futures contracts outstanding, has been steadily declining through the year, even as the stock market has been rising. In other words, stocks have been going up in the face of increasingly less participation by the major institutions (those being the main players in the S&P futures).

Now look at how this year’s Open Interest compares to where it’s been over the last few years.

Monthly S&P 500 Futures with Open Interest

My initial reaction is to be concerned about the fact that the participation of the big players during this rally has been so light. Of course, on the flip side, it suggests there might be a lot of buying potential still on the sidelines.

I’m still mulling it all over, though. What do you think it means?