Upcoming unemployment data has investors positioning defensively, increasing short positions in SPY, SPX, and bonds like IEF and XLU, suggesting cautious market sentiment and curve flattening expectations.

With the upcoming unemployment numbers, we can look to the short market for clues about investor positioning. In the TLT (long bonds), there is no clear bias either way.

However, in both the SPY (S&P 500 ETF) and SPX (S&P 500 index), there has been a recent increase in shorting activity, which is unusual. Typically, investors increase short positions when the market is rising and decrease them when the market is falling.

The current increase in shorting while the market is lower might suggest that investors believe the unemployment numbers could be negative for the S&P.

SPY Price and Short Position

TLT Price and Short Position

One area showing notable activity is the IEF (intermediate-duration bonds), which have recently rallied as short positions have increased. This pattern is characteristic of the IEF, where investors tend to short bonds as their prices rise and buy them as prices fall. This pattern is characteristic of the IEF, where investors tend to short bonds as their prices rise and buy them as prices fall. This shows that investors believe the middle of the curve could flatten during market activity.

IEF Price and Short Position

XLU Price and Short Position

We observe a similar pattern in the XLU (utilities sector), where investors are shorting as prices rise. In contrast, other sectors show either less shorting or a sideways holding pattern, indicating a more bullish sentiment.

Overall, investors are taking long positions in most sectors, including financials, consumer discretionary, healthcare, and staples, while maintaining short positions in intermediate bonds and the XLU, which behaves similarly to bonds.

This positioning suggests a curve flattening trade in response to the upcoming employment numbers, that the middle part will come up.

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