LIVE MARKETS-Equity positioning weakening, short-covering risk increasing - Citi
SPY•Europe less bearish, but still weakening
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 .GDAXI.
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.
Citi sees weaker global equity positioning
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.
Bearish bets leave markets vulnerable to a squeeze
But Citi notes that the growing build-up of bearish bets leaves markets vulnerable to a short-covering rally, particularly in the Nikkei .N225, Kospi .KS11 and S&P 500 .SPX.
"Increasingly stretched bearish positioning leaves the indices vulnerable to sharp counter-trend rallies on improving sentiment," Citi's David Chew said.
