By Senad Karaahmetovic
The overall positioning in the equity markets remains very bearish, Citi strategists wrote to clients in a note.
Still, they note that a subset of profit/loss levels on existing positions are looking “increasingly stretched,” which could pave the way for a rebound. As short profits were still building last week, the profit-taking activity may increase to ultimately support the equity market.
“Futures positioning across S&P continues to weaken, as investors unwound long positioning post-FOMC. As a consequence, net short positioning increased over the week to (USD -11.2bn), reverting back to levels seen a fortnight ago, but positioning here is still some way from the extended levels seen earlier in the year,” the strategists said.
The Nasdaq short positioning is now close to 3-year highs as investors continue to add new shorts.
“Positioning risks are increasing, in particular for Nasdaq shorts (USD -17bn notional). With almost all short positions now in profit, and average short position profits levels above 5%. Near term short profit taking unwinds could temporarily lend support to current market levels, limiting further downside,” the strategists added.
As far as Europe is concerned, the positioning also remains bearish despite the green close last week.
“Shorts positions are completely offside, with average short loss levels (EuroStoxx -5.5%, DAX -7.3%) rising, which could lead to forced unwinds,” the strategists concluded.