Bank of America Securities says commodity trading advisers have largely unwound their exposure to the Nasdaq-100, according to its latest weekly Systematic Flows Monitor. The data show a marked divergence between the tech-heavy benchmark and broader equity benchmarks: Nasdaq-100 short-term trend strength sits at 13%, versus 53% for the S&P 500.
That contrast, BofA argues, indicates the CTA de-risking of the Nasdaq has mostly finished after the index endured three straight sessions of pressure followed by a sharp selloff on Wednesday. The broker’s equity derivatives team warned that the change in positioning makes systematic flow risk more two-sided than it has been in recent weeks.
While the Nasdaq has been trimmed back, positioning in other equity benchmarks remains largely intact and still skewed long. BofA highlights the S&P 500, Russell 2000 and Euro Stoxx 50 as still stretched on the long side - a state that sustains the possibility of spillover to broader equity markets if sentiment weakens.
The note explains how a continued market recovery could prompt CTAs to re-enter markets, with near-term buying likely to be concentrated in Asian indices. Advisers might also partially re-accumulate Nasdaq-100 exposure, which could amplify any rebound in technology-heavy stocks.
Markets showed some stabilization on Thursday, but the subsequent rally lost steam on Friday as Apple’s earnings weighed on index performance. Simultaneously, the second Federal Reserve meeting presided over by Chair Warsh pushed yields higher, prompting trend followers to extend short positions at the long end of the Treasury curve - a posture BofA expects could persist into the following week.
Front-end positioning appears to be near maximum short exposure, the bank said, rendering that segment more sensitive to volatility shifts. Outside the United States, CTAs may also be increasing short positions in Bund futures.
In foreign exchange markets, the U.S. dollar logged its largest weekly loss since January. BofA’s models suggest some advisers were stopped out of yen short positions amid possible intervention by Japanese authorities on Thursday. Short euro and Canadian dollar positions remain intact, though the bank notes short-covering risk for these positions is elevated.
Commodities positioning showed mixed signals. Oil futures snapped a three-week run of gains after the United States paused strikes on Iran. Trend follower exposure in oil depends on model speed - the fastest moving strategies are short, while slower-moving models remain long. BofA projects that, barring a 9% price decline, longs would likely persist into the following week while shorts continue to cover.
In metals, gold shorts remain elevated, and the bank indicates CTAs could be buying copper. Realized volatility increased across the week and S&P 500 hedger gamma encountered negative pressure ahead of the Fed’s Wednesday policy decision, as clients opened large intraday downside positions.
Gamma finished July 30 positive at $1.8 billion, placing it in the 29th percentile over the past year. With hedgers now net short roughly 6,600 contracts near spot between 7,350 and 7,600, BofA notes gamma could decline into the start of the next week as the July 31 weekly expiry positions unwind.
Implications for market participants
- Systematic flow dynamics have shifted from one-sided to more balanced, particularly after CTAs trimmed Nasdaq-100 exposure.
- Stretched long positions in major equity indices mean broader markets remain susceptible to contagion if momentum reverses.
- Fixed income and FX positioning adjustments - including extended Treasury curve shorts and potential yen intervention impacts - create cross-asset sensitivity to volatility.