Institutional Insights: BofA Systematic Flows Monitor 'CTA Selling Still Spans Equities & Bonds'
SPX Gamma Short Position: The market is currently facing a significant net short position of $3.9 billion in SPX gamma, with $3.5 billion in non-expiring options and $200 million in ODTs. This scenario is likely to amplify volatility during intraday hedging activities.
Delta-Hedging Volatility Surge: Between 15:45 and 16:00, delta-hedging activities have been known to cause a remarkable spike in S&P 500 e-mini realised volatility, surging by 1.3 points or 8% on a monthly basis.
Systematic Equity Flow Trends: In down markets, there's been a notable aggressive selling trend amounting to $51 billion, compared to just $33 billion in buying during market upswings. This bearish flow bias is crucial for understanding current market positioning.
Defensive Positioning Insights: Current systematic global equity positioning is below the five-year median, which limits potential upside in rising market conditions.
SPX Gamma Concentration Risks: Significant gamma spikes are expected around key expiry dates (e.g., April 10 and April 24), increasing the risk of market impact.
S&P 500 Trend Analysis: Short-term indicators are signaling a bearish outlook at -93%, with medium-term also leaning bearish at -51%. However, long-term trends show a bullish sentiment at +22%, with a buy trigger identified at 6683.
UST Short Position Intensification: Trend followers are increasing their short positions in UST (front curve), while USD buying remains strong despite a slight dip in value.
Gold's Strong Performance Signal: Gold is exhibiting a robust bullish trend across all time frames, contrasting sharply with the bearish outlook for 10-year Treasuries in both the short and medium terms (-54%/-74%).
CTA Stop-Out Levels: The USD/MXN currency pair is seeing the highest stop-out levels among models, with both USD/MXN and CAD surpassing the stress threshold of four models.
Critical Unwind Indicators: Key unwind levels to watch include SPX at 6683 (buy) and 6849 (sell), soybean meal at 1,150, and USD/MXN between 17.33 and 18.01.
FX Volatility Trends: The EUR/USD pair is showing extreme short-term bearishness at -93%, while AUD/USD is bullish at +69%. Conversely, USD/MXN is reflecting a bearish sentiment at -70%.
ETF Liquidity Dynamics: Leveraged and inverse ETFs in the US are significantly impacting trading volumes, with $861 million for S&P 500 and $2 billion for NASDAQ-100 per 1% index movement.
NVDA ETF Influence: NVIDIA dominates with $5.198 billion in assets under management (AUM) within leveraged and inverse ETFs, experiencing a rebalance of $114.2 million for every 1% price change.
TSLA/NVDA Flow Adjustments: There has been a notable shift in ETF rebalance volumes, with TSLA decreasing from $114 million to $8 million and NVDA increasing from $124 million to $6 million.
Commodity Market Divergence: While gold remains bullish, copper (HGT) is showing bearish trends at -26% in the short term, with long unwinding near the 11,100 mark.
Fixed Income Unwinding Risks: Long positions in 10-year Treasuries (TY) are peaking just before December 23, indicating a potential unwind near the 107-113 range.
Soybean Meal Upside Potential: There’s a growing interest in long positions for soybean meal, but caution is advised as unwind risks loom near the 1,150 level.
Copper Unwind Triggers: Watch for potential long unwinding in copper (HG) around the 547 level as it approaches its median point.
USD/MXN Market Fundamentals: This currency pair is heavily influenced by oil prices and US-Mexico relations, posing a high risk of stop-outs.
NASDAQ-100 ETF Scale Insights: The AUM for NASDAQ-100 leveraged and inverse ETFs stands at approximately $38 billion, significantly outpacing the S&P 500’s $18 billion.
Single-Stock Amplification Effects: The combined AUM for Tesla and NVIDIA ETFs ($5.1 billion and $5.2 billion respectively) is amplifying index movements through their rebalancing activities.
China Bond Unwind Concerns: The strong long positioning in China’s 10-year bond futures suggests an impending bearish unwind as triggers loom closer.
Cross-Asset Divergence Observations: There’s a noticeable bearish momentum in US Treasuries and Bunds compared to Korean bonds (KTB), which are expected to maintain their long bias until late February.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!