Citigroup warns that net long positions in S&P 500 index futures have reached their highest level since July 2023, which may signal an impending sell-off. Analysis shows that extremely bullish positions have led to a 10% decline in the S&P 500 in the following months. Despite the market continuing to rise in October, a 100% loss in short interest positions may force more traders to cover their shorts, further boosting the stock market
Traders' enthusiasm for stocks has raised concerns for Citigroup's strategy team.
According to the information from the Wise Finance app, data from a team led by Chris Montagu, the global head of quantitative research at Citigroup, shows that net long positions in S&P 500 index futures have reached their highest level since July 2023. At that time, such an extremely bullish positioning indicated a subsequent sell-off over the next three months, leading to a 10% drop in the S&P 500 index.
Montagu is worried that if investors are not careful, they may experience a similar decline again. "The last time market positioning was so extreme, the S&P 500 retraced slightly over 10% in the following 2 to 3 months. We are not suggesting investors reduce their exposure immediately, but when the market is so stretched, the positioning risk does increase."
Compared to S&P 500 futures, the positioning in Nasdaq 100 index futures is much more moderate, far from the bubble levels seen in July 2023 and July 2024. The Citigroup team stated that short covering activities in S&P 500 futures may be one of the reasons for the recent market rally. The team also detailed the latest flow of futures markets through charts in the report.
Montagu pointed out that a key difference between now and the summer of 2023 is that investors' profit and loss situation is not as tense now. This means they may not be as eager to sell stocks to protect profits as before.
Meanwhile, the 100% short positions in both S&P 500 and Nasdaq 100 futures have recently been in a loss-making state, which may force more traders to cover their short positions, further boosting the stock market.
Nevertheless, the market continued to rise in October. However, according to FactSet data, the S&P 500 index recorded its first consecutive two-day decline since September 6 on Tuesday.
On Monday, as U.S. Treasury yields rose, the market seemed to be spooked, sparking discussions about a possible repeat of the 2023 sell-off. The 2023 sell-off began in August, leading to a 10% drop in the S&P 500 until the end of October. On Tuesday, the 10-year U.S. Treasury yield rose by 2.5 basis points to 4.204%, reaching its highest level since July