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Citi: Extended positioning could amplify pullback in US stocks

A large volume of long positions in US stocks already experiencing losses could lead to increased market pressure, Citigroup strategists said in a weekly note.

The strategists noted in their analysis that there are long positions worth $52 billion on the S&P 500, with 88% of them currently in the red, posing a risk to the market.

“Long unwinds on the S&P have mainly been profit-taking transactions, but the remaining longs now are on average 0.8% in loss,” they wrote.

“Should the market turn negative the move could be faster and larger due to the large, long positions already in the red,” added analysts.

In Europe, the positioning in the Euro Stoxx 50 is deteriorating more gradually compared to the US, but the trend is not optimistic, as the recent activity has largely involved establishing new short positions and closing long positions. Meanwhile, exchange-traded fund (ETF) inflows remained strong.

In China, the market sentiment is similarly bearish, with significant negative flows in A-shares and many existing long positions incurring losses, suggesting that bearish momentum could intensify moving forward.

“There's been little to no directional flows in Hang Seng in the past 3 weeks and net positioning has gradually faded to neutral, but Kospi has had a few recent profit-taking sessions, where investors are also adding new short risk and this means the moderately long net positioning is quickly fading and sentiment in April is clearly more bearish,” said the team.

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