No matter which way markets go, Goldman Sachs Group Inc. says some traders are modeled to sell stocks over the next week.
Cullen Morgan, an equity derivatives and flows specialist at the bank, expects that commodity trading advisers, or CTAs that surf the momentum of asset prices through long and short bets in the futures market, could be forced to sell after building $129 billion in long positions.
The trend-following cohort are modeled to sell $10 billion in a rising market, and up to $42 billion if stocks decline, over the next week. On a longer time frame of one month, CTAs are likely to buy $42 billion in a rising market versus $226 billion to sell should markets start to trend lower again.
Source: Goldman Sachs FICC & Equities Division Futures Strats Group
Global stocks have been rising this year, with the S&P 500 Index setting record highs powered by large cap technology stocks like Nvidia Corp. and Microsoft Corp.
Nasdaq 100 futures positioning is near the highest in three years, with investors appearing to favor growth stocks, into the earnings season, a Citigroup Inc. team led by Chris Montagu wrote in a note. Positioning is now considerably extended long and one-sided, rising a further $3.4 billion last week to roughly $25 billion.
“Profit levels, in particular for Nasdaq are the growing concern, with positioning and profits extended,” Montagu said. “The average long position is near 5% in profit, elevating the risk of profit taking unwinds and creating a potential headwind for a continued rally in the near term.”
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