Citi Sees Risk to US Stock Rally After Investors Lock In Profits

The S&P 500’s best week in a year was driven by investors locking in profits on bearish bets, suggesting little room for further gains, according to Citigroup Inc. strategists.

Flows in contracts tracking the benchmark index last week were dominated by short covering — where traders buy shares to close out open short positions, strategist Chris Montagu said, adding that overall positioning remains “moderately bearish.”

“In short, profit taking has led to cleaner, less skewed positioning and with that a reduction in overall positioning risks,” Montagu wrote in a note dated Nov. 6. “Market gains on the back of further short covering appear less likely in the near term.”

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