CTA equity longs remain stretched on SPX/NDX amid dip buying- BoFA

Investing.com-- Bank of America analysts said that Commodity Trading Advisors (CTA) maintained stretched long positions on equities as a brief pullback on hot inflation readings triggered more dip buying over the past week.

BoFA analysts had expected some pullback in long positions after hotter-than-expected U.S. inflation data last week. But with both the S&P 500 and Nasdaq 100 remaining near record highs, stop loss/unwind triggers moved relatively farther away, allowing for more long positioning on U.S. equities.

“Our model’s triggers were at least another 2% away and with both the S&P 500 and NASDAQ-100 rallying back to new all-time highs by Thursday, CTA equity longs likely remained mostly unchanged on the week.” BoFA analysts said in a note dated February 16. 

“At some point, these positions will likely unwind, either gradually or acutely but for the latter scenario, it could take a consecutive series of fundamentally driven declines that can then overwhelm any subsequent dip-buying.” 

BoFA analysts also noted that CTA positioning turned more short on U.S. Treasuries. While short positions are expected to be the largest on later-dated bonds, analysts said they expected selling to increase in the front-end of the yield curve. 

Wall Street indexes closed lower on Friday after hotter-than-expected U.S. producer price index inflation brewed more concerns over higher-for-longer interest rates. Stock futures fell in Asian trade on Tuesday.