U.S. investors are exhibiting a high level of confidence in technology stocks, leading to concerns that any minor setback could have a significant impact on the tech-heavy Nasdaq-100 index, according to Citigroup equity strategists.
The strategists are warning that positioning in Nasdaq-100 futures has become dangerously stretched towards the upside. They have observed that short positions on the index futures have been completely cleared, leaving bullish positioning at the 97th percentile when compared to historical data.
While many of these bullish investors have made small profits, this leaves them vulnerable to potential losses as there is little margin for error. On average, these long positions carry minimal gains of just 2.8%. The strategists led by Chris Montagu emphasize that the large consensus positioning presents a risk that could amplify any downturn in the market.
Montagu and his team note that positioning in the Nasdaq had been even more extreme prior to January’s U.S. nonfarm payrolls report, although the reduction in bullish bets was relatively modest.
The S&P 500 index futures have followed a similar pattern, but with one notable difference: it is not as extreme. This is because shorts for S&P 500 futures are offsetting the long positions at a ratio of one to two.
On Tuesday, U.S. stocks appeared poised for a higher open after a turbulent start to the week. Nasdaq-100 futures indicated a positive open for the Nasdaq Composite, while S&P 500 futures pointed to a modestly higher open for the large-cap benchmark. Dow Jones Industrial Average futures, on the other hand, suggested little change at the open.
