Bank of America (BofA) analysts predict that momentum traders, or trend followers, will persist in adding to their equity long positions across major global markets, including the US, Europe, and Japan.
This trend is anticipated despite long positions not yet reaching the highs observed earlier this year, as shorter-term price trends are still in recovery mode following an April dip.
In their recent note, BofA stated, "Long positions are not yet back to highs we saw earlier this year as shorter-term price trends are still recovering from the April dip."
However, they caution about the situation in China, highlighting that long positioning is "stretched with unwind HSI and HSCEI unwind triggers less than 1% away."
BofA's analysis also points to developments in the SPX options market. They reported that the SPX option gamma ended Friday at +$7.6 billion, placing it in the 97th percentile.
Although this is a slight decrease from the prior week's remarkable levels of around $9.5 billion, the impact on volatility remains notable. "Our estimates suggest that the reduction in 1-month S&P realized volatility due to gamma has likewise increased in magnitude and is now ~1.25pts (10%)," BofA noted.