Investing.com – A rally in the S&P 500 has had many chasing the market higher, pushing futures positions in the index to extremely bullish levels and potentially limiting market gains in the coming weeks, Citi analysts said in a recent note.
“The S&P 500 position is very one-sided, bullish, with hypothetical levels at extreme levels,” Citi analysts said. The recent influx of investors into growth-chasing stocks suggests “it is difficult to describe investors as currently ‘underinvested’ in the S&P 500, which could limit the market’s upside in the coming weeks,” the analysts added.
futures positioning is “currently in the 100th percentile and effectively has one-sided net long,” the analysts said, creating “a more asymmetric risk profile where developing such large positions could increase market volatility.”
Investors felt this volatility last week. Analysts say the S&P 500’s recent pullback has left it about a “third-place loser.” The extreme upward trends observed in the S&P 500 were also observed in the iShares ETF (NYSE:), which is the second most developed market after the S&P 500.
The position, however, appears to be more neutral, with long position size at the 90th percentile and brief position size at a 3-year high. Analysts warn that this positioning setup “poses pullback risks in both directions, which could amplify near-term market moves” for the Nasdaq.
“If markets sell off a large group of long investors, they could continue to absorb losses and extend the sell-off in the near future, but similarly short action could strengthen and rally further,” they added.
