Tech stocks vulnerable to sharp selloff as investors’ positioning becomes dangerously stretched, Citi warns

by user


U.S. investors are so bullish on technology stocks that even a slight hiccup could send the tech-heavy Nasdaq-100 careening lower, according to a team of Citigroup equity strategists.

Positioning in Nasdaq-100 futures has become dangerously stretched to the upside, the strategists said. Short positions on the index futures have been “cleared completely,” the team warned their clients, and bullish positioning is currently sitting at the 97th percentile relative to history.

Many of these bullish investors are sitting on relatively small profits, making their positions even more vulnerable as it leaves the average trader with little buffer between modest gains and taking a loss on the trade.

“These longs only sit on an average profit of 2.8% and the large consensus positioning is a risk that could amplify a turn in the market,” said the team of analysts led by Chris Montagu.

To be sure, Montagu and his team noted that positioning in the Nasdaq had been even more extreme ahead of Friday’s January U.S. nonfarm payrolls report, although the decline in bullish bets was modest.

CITIGROUP

Positioning in S&P 500 index futures has followed a similar pattern, Montagu and his team said, with one notable difference: it’s not as extreme, as shorts for S&P 500 futures are offsetting the longs at a one to two ratio.

U.S. stocks looked set to open higher on Tuesday after a rough start to the week. Nasdaq-100 futures
NQ00,
+0.23%

pointed to a higher open for the Nasdaq Composite
COMP,
while S&P 500 futures
ES00,
+0.16%

pointed to a modestly higher open for the large-cap benchmark
SPX.

Meanwhile, futures on the Dow Jones Industrial Average
YM00,
+0.05%

looked poised to open little-changed
DJIA.



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