Caution! S&P positioning has become 'stretched'
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CAUTION! S&P POSITIONING HAS BECOME 'STRETCHED'
US elections are fast approaching and Wall Street is heading into the Nov. 5 vote just a handful of points below the latest record peak set this month, following a 22% surge this year.
Beneath the surface of buoyant markets, however, there are signs that suggest some caution. Citi sees risks emerging as positioning on the S&P 500 .SPX has now become "stretched".
"Net long position for the SPX is at levels not seen since mid-last year... The last time market positioning was this stretched, the SPX pulled back by a little over 10% for the subsequent 2-3 months," say strategists at the US bank.
"We're not suggesting investors should start to reduce exposure, but the positioning risks do rise when markets get extended like this," they add in a note.
That being said, Citi says that unrealised profits are "by no means" stretched. This suggest "less capital at risk and therefore less motivation to cover if markets pull-back".
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