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Investors have continued to aggressively increase their short positions in the global equity markets, Citi strategists led by Chris Montagu said in a note.
The stock market is currently being “dominated” by new short flows. Montagu notes that bearish positioning extended further last week with as much as $22 billion in new short positions added. Just the S&P 500 saw $13.4 billion in new shorts added.
“Short profit levels have become the focus, with profits near 10% and, given the much larger notional exposures, risks have tilted towards short profit-taking, which may alleviate some of the recent declines,” Montagu told clients in a note.
In Europe, Euro Stoxx 50 is the most extended short futures market, according to Citi.
“DAX Futures (-2.4) have been trending in line with EuroStoxx, with FTSE futures net notional positioning also in decline, however positioning is still net positive (+1.4) overall despite the significant rise in market volatility last week.”
Montagu also discussed a “difficult” September for global stocks with the S&P 500 recording the worst monthly performance of 2022 after falling over 9%.
The S&P 500 staged a relief rally yesterday, rising 2.59% to 3,678.43. S&P 500 Futures are also trading around 1.8% higher in Tuesday’s pre-open trading.
