Potential for Short Squeeze is Increasing - Citi

August 2, 2022 7:07 AM EDT
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Citi strategist Chris Montagu says the ongoing rally in U.S. equities is being fueled by investors simply discounting rising recessionary risks.

Citi’s data shows investors continued to add new longs to S&P 500 and Nasdaq - albeit at a slower pace - to put the net notional US futures positioning at near neutral. As a result, “legacy short positions across most markets offside and deeply in loss after last week’s rally,” Montagu told clients in a note.

“Risk is now shifting to legacy short positions which have been established weeks before the recent rally. All short futures positions are now offside, and average losses are large, which could lead to a sizeable amount of forced unwinds provide further upside support for the US market,” the strategist added.

As far as Europe is concerned, EuroStoxx positioning is now net long given new inflows from last week.

“With average losses exceeding 6%, short futures positions across EuroStoxx are the largest at risk to forced unwinds,” Montagu concluded.

By Senad Karaahmetovic

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Citi, Standard & Poor's, Senad Karaahmetovic