Equity positioning weakening, short-covering risk increasing - Citi
Global equity positioning continued to weaken last week, according to Citigroup, raising the risk of a possible short-covering rally. Citi's model showed a deterioration in positioning last week as investors turned more defensive, following recent rate hikes from the Federal Reserve, Bank of Japan and European Central Bank, and as oil prices and bond yields rose.
1% Financials lag, retail leads Oil prices rise Wall Street futures little changed Welcome to the home for real-time coverage of markets brought to you reporters. You can share your thoughts with us at Equity Positioning Weakening, Short-covering Risk Increasing - Citi Global equity positioning continued to weaken last week, according to Citigroup, raising the risk of a possible short-covering rally. Citi's model showed a deterioration in positioning last week as investors turned more defensive, following recent rate hikes from the Federal Reserve, Bank of Japan and European Central Bank, and as oil prices and bond yields rose.
But, Citi notes, the growing build-up of bearish bets leaves markets vulnerable to a short-covering rally, particularly in the Nikkei, Kospi and S&P 500. "Increasingly stretched bearish positioning leaves the indices vulnerable to sharp counter-trend rallies on improving sentiment," Citi's David Chew said. In Europe, positioning is not as bearish, although it has been weakening too, Citi notes. The problem in the region is not that investors are heavily bearish, but that many investors who are betting on the market going up are holding on to losing positions, particularly in Germany's DAX.
That increases the likelihood of further selling if markets weaken. "With long exposure fully loss-making, the risk of continued position reduction remains elevated," said Chew. (Samuel Indyk) *** Earlier On Live Markets: Subdued Open Click Here Europe Before The Bell: Futures Steady After Nasdaq's 3% Jump Click Here Ai Trade Gets Its Muse Click Here