in our free newsletter.

Thousands benefit from our email every week.

3 types of market participants

Cramer points out that the Commodity Futures Trading Commission releases data on the net holdings of three types of market participants every week: the public, large traders and fund managers, and commercial hedgers.

He explains that commercial hedgers are “companies that are actually involved in a given industry, meaning buying the futures because it’s part of their business model.”

And that group’s actions deserve investor attention.

“When it comes to these three groups, Williams has told us that he thinks the latter group — commercial hedgers — tend to have the best understanding of the particular sector because they are the only ones involved who are doing more than just gambling,” Cramer says.

He goes on to explain that commercial hedgers in stock futures mostly consist of banks, mutual funds, and governments.

“When these guys get very bullish in their positioning, even though the charts may look bad, it’s often a great buying opportunity.”

Contemporary art has outperformed the S&P 500 by 131% for the past 26 years. Join the exclusive platform to invest in million-dollar works by artists like Banksy, Basquiat, and more. Get started today and diversify your portfolio with art.

Learn More

The opportunity

Interestingly, commercial hedgers and big money managers don’t always move in the same direction.

“Especially at important bottoms, Williams points out that the commercial hedgers tend to be bullish, while the large speculators like money managers, and of course the public, tend to be bearish,” Cramer remarks.

Looking at data on the Dow Jones Industrial Average futures from late 2009 to 2014, Cramer notes that commercial hedgers typically increased their buying at important bottoms. And it’s a similar story from 2015 to 2019.

Cramer points out that the pattern is appearing again: commercial hedgers are stepping up their buying while money managers are selling.

Which side should investors take?

“[H]istorically, when the commercials and the hedge funds are going in opposite directions, you’re much better off betting with, yes, the commercials,” he suggests.

“Larry’s right. Markets bottom when the hedge funds throw in the towel and the public throws in the towel. And based on the history, he suspects that’s exactly what’s happening right now.”

Will Williams be right again?

Cramer likes Williams’ technique because of his excellent track record “especially when it comes to clogged bottoms at moments where everybody else has given up.”

One example is Williams’ strategy during the pandemic-induced market crash in early 2020.

“Remember April 2020 when everyone was terrified that COVID would destroy the economy and we might be headed for the second Great Depression? Williams said buy,” Cramer recalls.

“He said business would start rebounding and within weeks and the market would bounce with it and that was one of the greatest calls ever.”

Meet Your Retirement Goals Effortlessly

The road to retirement may seem long, but with WiserAdvisor, you can find a trusted partner to guide you every step of the way

Wiseradvisor matches you with vetted financial advisors that offer personalized advice to help you to make the right choices, invest wisely, and secure the retirement you've always dreamed of. Start planning early, and get your retirement mapped out today.

About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.

What to Read Next

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.