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Potential for Short Squeeze is Increasing - Citi

Stock Markets Aug 02, 2022 07:22AM ET
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© Reuters. Potential for Short Squeeze is Increasing - Citi

By Senad Karaahmetovic

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.

 
Potential for Short Squeeze is Increasing - Citi
 

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Comments (1)
FMGK Blue
FMGK Blue Aug 02, 2022 7:28AM ET
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Investors are discounting recessionary risks because there is no recession when unemployment is at 3.6% and wages up 5% a year. Consumer is doing strongly and does spend. Retail sales are strong so are durable goods orders. It's analysts at Citibank who are not doing their jobs properly.
FMGK Blue
FMGK Blue Aug 02, 2022 7:28AM ET
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It's a slight slowdown after a strong run up post Covid but certainly not a recession.
jason xx
jason xx Aug 02, 2022 7:28AM ET
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And it's a year or more away if it happens
Neven Vidakovic
Neven Vidakovic Aug 02, 2022 7:28AM ET
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finally a normal person with a normal comment. please report to WWF since you are endangered species
The Writer
The Writer Aug 02, 2022 7:28AM ET
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Recessionary effects ARE present. Employment is a lagging indicator. So not a good measure right now. The real question is : how deep will we fall over the next 6-9 months. I dont think that deep given current economic matrixs. What investors are discounting is the recessionary depth and its effects. Higher rates WILL slow things down a bit. Clearly not your typical recession given global economic resiliency and strength.
 
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