U.S. stocks short 100% loss! Citigroup warns that extreme bullish positions may signal a sell-off is coming
1min read Trading enthusiasm for stocks has alarmed a team of strategists at Citigroup.
According to data from the team led by Chris Montagu, head of global quantitative research at Citigroup, net long positions in S&P 500 futures have reached their highest level since July 2023. That extreme tilt toward bullishness presaged a sell-off in the following three months, with the S&P 500 falling 10%.
Montagu worries that if investors aren’t careful, they could again experience a similar decline. “When the market was as extended as it was last time, the S&P 500 retreated by about 10% in the next 2-3 months. We are not suggesting that investors should reduce their exposure immediately, but when the market is this extended, the position risk does increase.”
Positioning in Nasdaq 100 futures is much more modest than in S&P 500 futures, far from the bubble levels seen in July 2023 and July 2024. The Citigroup team said that activity in covering short positions in S&P 500 futures may have been one reason for the recent market rally. The team also detailed the latest flows in the futures market in the report, using charts.
Montagu noted that one key difference now versus in the summer of 2023 is that investors’ profit and loss positions are not as tight. That means they may not be as eager to sell stocks to protect profits as they were before.
Meanwhile, 100% short positions in both the S&P 500 and Nasdaq 100 futures have recently been in the red, which could force more traders to cover their shorts, further pushing up the stock market.
Despite that, the market continued to rise in October, though the S&P 500 recorded its first back-to-back two-day decline since Sept. 6, according to FactSet data.
Monday’s market appeared to be spooked by rising U.S. Treasury yields, and the discussion of a possible repeat of the 2023 sell-off that began in August and saw the S&P 500 fall 10% until the end of October. The 10-year U.S. Treasury yield rose 2.5 basis points to 4.204%, its highest since July, on Tuesday.
