- Positioning in Nasdaq-100 futures dangerously stretched to the upside
- Short positions on index futures cleared completely, leaving little buffer for modest gains
- Bullish positioning at 97th percentile relative to history
- Small profits make positions more vulnerable
U.S. investors’ bullish stance on technology stocks could lead to a significant downturn in the tech-heavy Nasdaq-100, according to Citigroup equity strategists. Their analysis reveals that positioning in Nasdaq-100 futures has become dangerously stretched to the upside, with short positions on the index futures completely cleared. The strategists warn that the high bullish positioning, currently sitting at the 97th percentile relative to history, leaves investors with little buffer between modest gains and potential losses.
Positioning in Nasdaq-100 Futures
With bullish investors sitting on relatively small profits, the risk of a market turn is amplified. The average trader only holds an average profit of 2.8%, leaving them exposed to potential losses. Citigroup’s team of analysts, led by Chris Montagu, emphasizes the vulnerability of these positions and the potential impact on the market.
Comparison to S&P 500
While positioning in S&P 500 index futures follows a similar pattern, there is a notable difference. Shorts for S&P 500 futures offset the longs at a one to two ratio, making the positioning less extreme compared to Nasdaq-100 futures. This suggests a relatively lower risk for the broader market.
The current bullish sentiment among U.S. investors regarding technology stocks poses a significant risk to the Nasdaq-100. With positioning in Nasdaq-100 futures stretched to the upside and investors sitting on relatively small profits, even a slight hiccup could trigger a sharp selloff. Citigroup warns that the high bullish positioning leaves little buffer for modest gains and amplifies the risk of a market turn. Investors should exercise caution and closely monitor their positions to mitigate potential losses.