Investing.com -- U.S. technology stocks may continue to outperform as traders caught on the wrong side of recent market moves scramble to cover positions, according to Citigroup (NYSE:C) strategists.
The team led by Chris Montagu said that positioning in the Nasdaq 100 was largely neutral ahead of the weekend’s positive U.S.-China trade developments.
However, the index faces “positioning risks” due to its sizable short exposure. Nasdaq short positions “had already been in loss for some time and covering could add a further tailwind to index outperformance,” Citi strategists led by Chris Montagu said in a note.
As of last Friday, positioning across major U.S. equity benchmarks was subdued. Citi’s models showed the S&P 500 and Nasdaq 100 with neutral scores of -0.5 and -0.3, respectively. “There was little to suggest enthusiasm for further risk-taking last week,” the strategists noted, despite a small rise in risk flows for the Nasdaq.
The lack of conviction ahead of the trade breakthrough leaves markets vulnerable to sharp moves, particularly in sectors with concentrated short interest. Citi said all three major U.S. indexes shared “a common setup with larger than average legacy short positions,” and losses on these shorts were already mounting.
Across Europe, market gains were not matched by significant positioning changes. The DAX saw continued bullish flows, while Euro Stoxx and FTSE remained neutral.
Exchange-traded fund (ETF) flows have shown greater resilience, with strong and extended bullish positioning in EuroStoxx, DAX, and European banks, consistent with Citi’s longer-term fund flow trends.
In Asia, investors favored domestic exposure, with a surge in bullish flows into the China A50 index, contrasting with weaker sentiment in Hang Seng futures.
“Despite the divergence in flows, net positioning in both indexes remains positive, with bullish positioning on the former (A50) robust. A similar uplift was seen across most other Asian markets,” the strategists said.