Investing.com — The rally in the S&P 500 has coaxed many into chasing the market higher, taking futures positioning in the index to extreme bullish levels and potentially limiting the markets upside over the coming weeks, analysts at Citi said in a recent note.
“S&P 500 positioning is very one-sided extended bullish with notional levels at extremes,” Citi analysts said. The recent flows into equities that have been chasing the rally suggests “it’s hard to describe investors as being currently ‘under invested’ in S&P 500 which may limit the market’s upside over the coming weeks,” the analysts added.
futures positioning is “currently at the 100th percentile and effectively one-sided net long,” the analysts said, creating a “more asymmetric risk profile, where an unwind of such large positions could add to market volatility.”
Investors got a sense of this volatility last week. The recent S&P 500 pullback left about a “third of positions in loss,” the analysts said. The extreme bullish bets seen in the S&P 500 has also been observed in the iShares ETF (NYSE:), which is the second most extended market after the S&P 500.
The , however, appears more neutrally positioned, with the long position size at the 90th percentile and the short side at a 3-year high. This positioning setup, the analysts warn, “creates unwind risk in either direction that can amplify near-term market moves” for the Nasdaq.
“If markets sell off a large group of long investors may still cover losses and extend the sell-off near-term, but similarly a short squeeze could amplify and further rally,” they added.
