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Investing.com -- Trend-following commodity trading advisors (CTAs) staged a recovery last week as strong gains in the S&P 500 and Nasdaq 100 supported returns, according to Bank of America Securities’ new report.
Both indices hit record highs on Friday, with short-, medium- and long-term price trends at “near max levels.”
While that doesn’t yet translate into maximum CTA positioning due to elevated realized volatility, BofA analysts note that “positioning can increase further on declines in realized volatility,” though a sharp reversal could still prompt unwinds.
In other equity markets, Russell 2000 positioning remains more muted, with price trends closer to flat in medium and long-term measures.
In Europe, EURO STOXX 50 positioning is mixed, with shorter-term CTAs less long but longer-term models more positive, while Japan’s Nikkei 225 shows an elevated price trend.
In commodities, BofA said medium- to long-term CTAs were “likely stretched long Soybean oil futures” heading into the week, and recent declines may have triggered some stop-loss selling.
Gold positioning is stretched long across the CTA spectrum, while Soybean Meal remains heavily short.
Meanwhile, currency trends showed stretched CTA shorts in the U.S. dollar against the euro, sterling, Mexican peso, and Canadian dollar.
In fixed income, CTAs were net buyers of 10-year and 30-year U.S. Treasury futures, with long positions in 10-years building and 30-year shorts being covered. Bund positioning is short, while Chinese and Korean bonds are generally flat.
BofA also flagged that S&P 500 option gamma “has proven to be quite volatile,” jumping from $1.1 billion on Aug. 1 to $5.7 billion on Aug. 4, before dropping back to $0.8 billion by Thursday’s close.
Although gamma is currently minimal, the bank cautioned it “could be dynamic” given recent swings.