By Senad Karaahmetovic
A Citi strategist took note of a moderate addition of bearish positioning after another red-hot US CPI print.
New “painful” longs have been added, which could see an accelerated market selloff after FOMC, the strategist warns.
“There are signs that investors got caught with recent new longs as the market declined again last week. The large new longs were added to the December contracts with no matching offset from expiring contracts. These painful longs may still be in play and at risk if the market drops further on the FOMC meeting,” the strategist said in a client note.
The CPI selloff has pushed new longs to an average loss of 4% for the S&P 500 and over 5% for Nasdaq 100, the strategist adds.
“If the market drops further these positions may be forced to unwind and create a short-term downward bias on markets.”
As far as Europe is concerned, the strategist notes that net short positioning is “not as bearish as it seems.”
“It materialized as a result of closing offsetting longs and recent weeks have seen only small new shorts and no ETF outflows. The FTSE 100 is the most extended long positioning following strong local currency performance, but ETF outflows tell of a more cautious medium turn outlook,” the strategist added.