Investing.com -- Positioning in the S&P 500 has returned to neutral last week after sharply pulling back from the elevated bullish levels of late January, Citi strategists revealed, citing ongoing uncertainty over U.S. trade policy.
The recent decline in U.S. index levels has led to losses for those with long positions, with the average losses increasing swiftly.
Citi’s model indicates that while some investors maintain their loss-making positions, there is also a clear trend of unwinding long positions.
The S&P 500 ended last week in a neutral position, influenced by significant new short flows earlier in the week. Short positioning in the benchmark index has climbed to the 94th percentile, a stark contrast to long positions, which have remained close to long-term averages.
The Nasdaq, on the other hand, has seen a slower pace of long positioning unwinds, and the pressure of potential forced unwinds, while still present, is less severe than the previous week.
“Recent flows have been more mixed when compared to the S&P. Market declines have been led by a Growth drawdown, in particular, one that has been closely linked to mega-cap Growth firms,” Citi strategists led by Chris Montagu noted.
In contrast, the Russell 2000 small-cap index is showing increasing bearish sentiment, with the most significant week-over-week drop in positioning levels among the indexes tracked. Dominated by new short flows, the Russell 2000’s short positioning has surged to the 81st percentile.
Elsewhere, European market positioning has seen a slight uptick, with the EuroStoxx, DAX, and European banks all exhibiting bullish but not overstretched tendencies.
Although weekly changes were less pronounced due to mixed flows, there was a consistent increase in new long flows across all European indexes.
Lastly, Asian markets presented a varied picture, with bullish positioning in the Hang Seng and China A50 showing stabilization and only minor changes over the week. The Hang Seng faces slightly higher profit-taking risks due to its elevated positioning and profit levels.
Meanwhile, the S&P/ASX 200 and KOSPI experienced divergent weekly positioning changes, with the ASX encountering significant new short positioning, and the KOSPI benefiting from a combination of new risk flows and short covering.