Quantifiers may be forced to sell $30 billion in stock futures as the market tumbles
(Bloomberg) — Thursday’s sell-off in equities sent the S&P 500 to levels that are likely to drive certain types of rules-based investors into selling on credit.
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Charlie McElligott, cross-asset strategist at Nomura Securities International, said commodity trading advisors, who are macro bets on futures markets, are likely to turn short when the S&P 500 falls as much as 2 .6% down to 3,892. His model shows that big money managers could be forced to abandon their previous bullish position and short as much as 83% if the benchmark closes below 3,933.
According to McElligott’s estimates, in a scenario where the major stock benchmarks drop 2%, these system funds could need to sell $30 billion in global stock futures, for about $11 billion. la comes from contracts related to the S&P 500.
“This suggests we are getting close to some pretty important potential ‘sell/sell’ triggers,” the strategist wrote in a note to clients.
Stocks fell for a second session amid a wave of monetary tightening from central banks around the world. The European Central Bank raised interest rates a day after the Federal Reserve, with both warning of more difficulties to come.
The S&P 500 risks closing below its 100-day moving average for the first time in more than a month. The trend line, located near 3,931, has provided support twice in December.
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