Guess Who Bought The Dip

 | Oct 28, 2014 04:45PM ET

After a near correction of 10% in the U.S. equity market, many traders hid behind their chairs as volatility had one of its largest multi-day advances in the last several years. While the cause of the downturn, whether it be the Ebola scare, ISIS, the end of QE, or the fact that the Royals aren’t playing as well as they should be, is irreverent in my opinion, but it’s interesting to note who may have been buying the dip.

In a recent Market Masters post I wrote for , I discussed using Commitment of Traders (COT) data as a tool to seek out turning points in varies markets. COT data is like a footprint left by buyers and sellers in the futures and options market. Luckily those footprints get categorized by the type of trader that left it. Below is a chart of the S&P 500 along with its corresponding COT net-positions in the bottom panel.

The red line represents Commercial Traders, who are large institutions and are often considered the ‘smart money.’ It’s not very often we see this trader group become net-long the equity futures markets. However, when they do get close to being or do become net-long, a bottom is often put in for the market. Last week we saw an example of this as markets were falling the Commercial Traders increased their position pushing it nearly to being net-long.