Investing.com — Trend-following Commodity Trading Advisors (CTAs) are ending 2024 with slight gains, according to Bank of America Securities.
The benchmark CTA index is up 2.55% year-to-date as of December 26, recovering from a volatile year that saw it slip into negative territory in October before rebounding.
“Through April this year the index saw gains of 12% but pull-backs in equities, USD, and choppiness in bond markets saw trend followers give back all the upside and then some with the index turning negative on the year in October,” BofA analysts led by Chintan Kotecha said in a Friday note.
CTAs currently hold “stretched long USD, short bonds, and long US large-cap equities” positions. The recovery in recent months was driven by strong USD gains and bond shorts, while equity longs in the US remain intact but are not considered stretched. Elevated equity volatility has kept the price trend for equities from fully extending into long territory.
Meanwhile, SPX gamma, which refers to the sensitivity of options dealers’ hedging positions to changes in the underlying S&P 500 index, has been “highly volatile this week,” BofA emphasizes.
For instance, on Monday, SPX gamma was +$5.6 billion but rose sharply to +$15.8 billion by Tuesday—an increase of nearly $10 billion in a single day. Analysts point out that this variability has been in part driven by an “outsized position” in the SPX Dec. 31 6055 calls.
By Thursday, gamma had settled at +$13.9 billion, ranking in the 96th percentile year-to-date. However, with the Dec. 31 expiry approaching, “gamma may be quite sensitive to spot moves,” analysts note, potentially falling to zero at an S&P 500 level of 5940 or climbing to +$17 billion at 6060.
In the fixed-income space, BofA’s CTA model reveals a 57% short position in 10-year Treasury futures. Bond positioning reflects a broader bearish stance across various durations, although certain areas, like China 10-year bond futures, are long at a significant 96%.
In commodities, CTAs exhibit a mixed outlook, with gold maintaining a long position (35%), while copper, soybean oil, and soybeans are significantly short.
Currency positioning is similarly polarized, with the euro (EUR/USD) and pound (GBP/USD) heavily short, while USD/JPY and USD/CAD hold long positions.
BofA’s model also provides insights into potential market shifts. For instance, the Nasdaq 100 current long position at 71% trend strength could unwind if the index sees a 2.4% decline. Similarly, USD/MXN longs may face a trigger point with a 3.0% price drop.
