Investors have been adding to their long positions in the Russell 2000 following last week's first Federal Reserve rate cut in years, Citi noted in a new weekly report.
Remaining short positions in the small-cap index are facing an average loss of 5.7%, and "a short squeeze could support further upside near term," Citi strategists said.
The S&P 500 shows similar overextension, while investors appear mostly ambivalent toward the Nasdaq 100, where net positioning remains close to neutral.
“Last week was also volatile because of Triple Witching creating significant roll activity alongside the FOMC rate decision,” Citi strategists said.
Market volatility surged following the 50 basis point rate cut from the FOMC, but US futures markets soon began to rally overnight. This recovery was supported by exchange-traded fund (ETF) inflows and new long positions in US markets. Still, a noticeable split in investor risk appetite for US equities has persisted, as reflected in last week’s flows.
Outside of the US, Europe’s Eurostoxx positioning has stayed neutral with mixed flows over recent weeks. While ETF inflows have been steady, they remain modest, and there hasn't been a clear positive or negative trend in Eurostoxx flows during this period.
In Asia, relative positioning shifts in Europe, Australasia and the Far East (EAFE), and emerging market (EM) futures were unusually large, even considering it was a roll week. This led to EM futures moving from neutral to the third most extended long position, while EAFE futures shifted from mildly bullish to the second most extended short, according to Citi.
For China A50 Futures futures, net positioning remains heavily bearish (-2.2 normalized), but a bullish trend emerged last week as investors started adding new long positions to balance profitable shorts.
In contrast, most short positions in the Hang Seng had already been unwound, leaving the market largely long, with average long positions seeing a 4.2% profit.
