Bears unwinding positions leaves rallying stocks exposed

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The extreme pessimism that’s gripped American stock investors for much of the year is starting to dissipate. That might be reason for caution. Moneyweb Stocks Equities

The extreme pessimism that’s gripped American stock investors for much of the year is starting to dissipate. That might be reason for caution. Stock bulls betting the whiff of recession means the worst of the Federal Reserve’s rate-hike medicine has been administered drove the S&P 500 to a second day of gains and the highest level in almost two months.

“This implies that if, because of some negative news such as a strong US payroll report that triggers significant repricing of the Fed, momentum turns negative again, there is plenty of room for CTAs to start building up short positions again.” The observation is echoed by Charlie McElligott, a cross-asset strategist at Nomura Holdings who estimated that momentum traders snapped up $4.

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