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Investing.com -- UBS expects trend-following commodity trading advisors (CTAs) to markedly increase their equity exposure in the coming two weeks, citing strong technical signals and market momentum.
“With 1) resistance levels out of the picture and most indices printing new all-time highs, 2) retails starting to buy again, and 3) institutionals still underweight, technicals have turned very bullish equities,” UBS strategists led by Nicolas Le Roux said in a note.
“CTAs have no other option than to buy, and in size,” the team added, estimating that they could add $40-50 billion to their equity positions unless the S&P 500 drops to 5,900—a scenario UBS assigns just an 11% probability over the near term.
The model suggests CTAs will be net buyers “in almost all scenarios,” with equity signals positive across most major indices outside of U.S. small and mid caps and Asia ex-China, where positioning remains neutral or bearish.
In the foreign exchange (FX) space, UBS highlights continued weakness in the dollar (USD). “No respite in sight for the USD, CTAs are about to increase their shorts,” the report says.
Even though overall short positioning is already elevated at 86% of the model’s maximum, UBS expects further additions, particularly favoring commodity-linked and high-yielding emerging market currencies.
In rates, CTAs appear close to neutral. UBS forecasts rotational activity, with flows likely to shift toward North American and Korean bonds while reducing exposure to European and Japanese government debt.
The report also notes that CTAs are slowly re-engaging in credit markets and show a mixed picture in commodities.
“CTAs just took the saloon door in Energy. Getting back to neutral on the cohort as a result,” the strategists said.
“They are slowly but surely adding to their longs in industrials and to their shorts in agriculturals. They are still very long precious but cutting gold,” they added.