Bank of America models indicate a marked slowdown in equity accumulation by trend-following funds, with commodity trading advisors (CTAs) adding roughly $2 billion of new equity longs over the most recent week, according to the bank's note. That pace represents a sharp deceleration from earlier weeks and, combined with the state of trend signals, raises the prospect of downside-driven liquidations if prices move lower.
Short- and medium-term indicators are currently positioned at maximum long on trend, the note said, though the same signals are not at extremes on volatility. By contrast, longer-duration trend metrics are still recovering from a March drawdown and prior mean-reverting price action. That mix - strong shorter-horizon trend readings but incomplete longer-term recovery - is central to BofA's assessment that the flow backdrop has shifted.
"Across price paths, scope for incremental buying looks limited, with a growing risk of unwinds," the analysts led by Chintan Kotecha wrote. They point out that while unwind triggers generally sit below current spot prices, the levels differ materially by region.
Estimated trigger thresholds are approximately 3% below current levels for the S&P 500 and about 5% lower for the Russell 2000. Europe and Japan require larger declines - roughly 10% - before model-based unwind triggers would be reached. The strategists noted that Nasdaq triggers are unlikely to be hit over the coming week.
Should those downside thresholds be breached, BofA estimates CTA selling could total about $100 billion on a global basis. The bank's regional breakdown of that potential liquidation is near $50 billion in the U.S., $35 billion in Europe, and about $15 billion in Asia.
Fixed income positioning among trend followers has been profitable amid this week's rise in yields, the note said. CTAs hold meaningful short exposures in U.S. Treasury futures, with shorts in 2-year and 5-year contracts approaching capacity limits. By contrast, shorts in 10-year and 30-year futures still have room to expand, although future moves depend heavily on volatility dynamics.
Outside the U.S., CTAs may be adding to short stances in German Bunds, Korean Treasury bonds, and U.K. Gilts, according to the bank. The strategists emphasized that a reduction in volatility could permit further expansion of short positions, while an uptick in volatility would likely force some pullback.
In foreign exchange, BofA's team says the dollar has reversed a two-week losing streak. They expect some additional dollar buying next week against the euro, sterling, and the Canadian dollar.
For commodities, the bank's models show continued pressure on gold following recent price declines. The nearest risk-management trigger for gold sits approximately 2.6% below Friday's levels, and the pace of selling could accelerate if that level is breached. At the same time, CTAs remain significantly long oil, aluminum, and soybean oil, and the models suggest they could add to soybean meal longs in the coming week.
BofA's note underscores a broader point about systematic flows: with short- and medium-term trend signals saturated on the long side but limited scope for fresh buying given current prices, the portfolio adjustments that follow a meaningful price move lower could be sizeable. The bank's scenario work quantifies that potential in dollar terms and highlights distinct regional sensitivities to price moves.
Contextual details:
- Last week's CTA net new equity longs: roughly $2 billion.
- Short- and medium-term trend signals: at maximum long on trend, not at extreme on volatility.
- Unwind trigger estimates: -3% for S&P 500, -5% for Russell 2000, ~-10% for Europe and Japan; Nasdaq triggers unlikely this week.
- Potential CTA selling if triggers hit: ~ $100 billion global - $50 billion U.S., $35 billion Europe, $15 billion Asia.
- Fixed income: significant shorts in U.S. Treasury futures with 2y and 5y shorts near capacity; 10y and 30y shorts have more room.
- FX: dollar snapped a two-week loss; expected further buys vs euro, sterling, and CAD next week.
- Commodities: model signals point to continued gold selling and large CTA-long positions in oil, aluminum, and soybean oil.
This assessment frames a market environment in which trend-following funds are no longer adding to equity longs with the same conviction as in prior weeks, while risk-management triggers and capacity constraints in certain fixed-income contracts shape where and how further positioning may evolve.