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Citi warns of profit taking as futures positioning is 'extended and one-sided'

Futures positioning is currently extended and one-sided after a massive rally in stocks since late October. With profit levels accumulating, there is a potential for short-term profit-taking and headwinds, Citi strategists write.

Nasdaq 100 futures observed $14 billion in new long flows last week, while S&P 500 futures had less pronounced changes in positioning. S&P 500 ETF flows continue to trend, reaching highs last seen two years ago.

“Positioning momentum continues to reflect a strong bullish precedent and bolstered from recent supportive signalling from the FED,” the strategists said.

“The likelihood of profit taking is, we think, significant with positioning now completely one-sided and an average profit margin over 4.5% (top quartile profits now are in excess of 7.7%).”

Bullish flows for Germany's DAX and the Euro Stoxx 50 have been robust, leading to extended long positions and elevated profit-taking risks. The FTSE 100 and Euro Banks positioning saw less change, with sentiment remaining bearish for the UK index.

The FTSE China A50 has one-sided bearish and extended positioning due to recent weakness, while Japan's positioning remains mildly bullish. The S&P/ASX 200 and MSCI EM show a rising bullish tilt.

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