Key insights
- Citi notes U.S. equity positioning is cleaner after last week's selloff, with S&P 500 and Nasdaq positioning moderating. However, extended Nasdaq longs and potential tech catalyst disappointments pose downside risks. European positioning is improving, transitioning from capitulation. Asia shows divergent profiles, with KOSPI highly exposed and China's A50 supported. Overall, the setup is improved but still vulnerable.
Investing.com -- U.S. equity positioning has improved following last week's market decline, though elevated exposures in key areas mean risks have not fully receded, according to Citi.
The bank said in a note on Tuesday that U.S. equity positioning has become "incrementally cleaner on a P&L basis following last week's selloff," with S&P 500 positioning moderating and Nasdaq long positioning profits compressing from elevated levels.
However, Citi cautioned that Nasdaq bullish positioning remains extended, leaving the overall setup "improved but still vulnerable to downside risks."
Citi flagged a bifurcated market, with aggressive short building alongside continued legacy longs. Despite some de-risking, most Nasdaq longs are said to remain in profit, keeping downside risks skewed, particularly ahead of upcoming tech catalysts, where disappointment could trigger meaningful long liquidation.
In Europe, Citi believes positioning is transitioning out of a capitulation phase, with EuroStoxx lifting off deeply bearish levels as shorts are covered and DAX, FTSE, and Euro Banks moving back toward neutral.
The bank noted that improving P&L dynamics have reduced pressure on existing positions, creating a "more constructive near-term backdrop."
In Asia, Citi identified the most divergent risk profiles. KOSPI stands out with elevated bullish positioning, leaving it "highly exposed to any negative shift in the AI narrative."
China's A50, while also extended, is supported by more moderate profit levels, reducing immediate selling pressure. Nikkei positioning was characterized as constructive, while the S&P/ASX 200 and Hang Seng "lag with persistent bearish positioning," Citi said.