Commodity Trading Advisors (CTAs) have been trimming long equity positions as U.S. stock prices slid, according to an analysis from Bank of America. While many trend-following strategies pulled back bullish exposure after the recent dip, CTAs overall remain net long across major U.S. benchmarks.
BofA's examination of positioning indicates that more aggressive stop-loss rules likely drove reductions in S&P 500 longs. On the Nasdaq 100, models with medium-level stop thresholds also cut exposure further, leaving the remaining long exposure concentrated among less risk-sensitive algorithms.
CTA positioning across U.S. indexes
The bank's analysts note that within the Nasdaq 100 (NDX) the residual long base appears to be held primarily by the least risk-sensitive CTAs. By contrast, S&P 500 positioning continues to be a mix of medium- and low-sensitivity long exposures, according to the note.
After equities recovered on Thursday, the SG CTA Index moved into positive territory, which BofA says aligns with CTAs maintaining some long exposure to major U.S. equity benchmarks. Nevertheless, the analysts caution that market moves could rapidly change that stance.
Trigger levels for additional systematic selling
Accounting for the bounce that followed Friday's move, BofA's models suggest that another approximately 3% drop in the S&P 500 and an approximately 5% decline in the NASDAQ-100 could prompt further systematic selling from trend-following programs. The warning underscores the potential for stop-loss frameworks to accelerate outflows if headline indices weaken again.
Regional and sector positioning
CTA exposure remains elevated in the Russell 2000 and the Nikkei, where price trends have strengthened and positioning is large by comparison. BofA notes that as price trends firm up, Europe is likely to see incremental buying from trend followers as well.
Futures duration and Treasury positioning
Most CTA exposure is concentrated in shorter-duration futures contracts, the bank's analysis shows. In U.S. Treasury futures specifically, CTA positioning is net short. This week declining yields pushed some buy-to-cover levels closer, and BofA says a trend-follower short covering event could still occur if yields fall further - a move that might be prompted by a dovish policy signal next week.
Commodities: oil and gold under pressure
Oil has fallen in three of the past four weeks, testing CTA long positions according to BofA's model. The most risk-averse trend followers may have already stopped out, and further declines would likely force additional exits. Gold trends are also weakening; while the fastest trend followers have been short gold in recent months, medium- and long-term trend followers are experiencing lower trends that may lead to further selling as long positions are stopped out.
Options flows and SPX gamma
Following the volatility shock on June 5, SPX option gamma is more muted but still exhibits long exposure. Before the June 11 normalization, SPX option gamma had reached the 99th percentile. Since June 11, it has normalized to roughly $1 billion, which BofA places at the 28th percentile level since 2014.
Looking ahead, most expiries across the next month are contributing positive SPX gamma at current spot levels. Longer-dated options remain a largely offsetting source of short gamma, and the analysts say SPX gamma could remain positive in a 7320-7625 spot range unless new flows arrive next week.
Bottom line
BofA's analysis paints a picture of CTAs that have de-risked after recent weakness but still carry net long exposure. The bank warns that specific index-level declines could trigger renewed systematic selling, while elevated positioning in smaller-cap U.S. equities and Japan and short exposure in Treasury futures create a set of cross-market sensitivities that investors should watch.