It is up to US stocks to face a serious test, with last Friday's sell-off just beginning. Robots begin to "unload" their positions.
The forthcoming sale may be quite painful mostly for small caps in the US, with robots saying serious short positions against the Russell 2000 index. This concern is shared by Charlie McElligott of Nomura Securities.
For the moment, the losers are relatively small at the beginning of the new week, but this can seriously change with the intervention of algae that would spark additional sale, which we saw last Friday as well. Still, the reversal of the yield curve and the fear of global growth weigh on the sentiment of investors.
McElligott has previously warned that his CTA models show that the rally earlier this year could be interrupted in the second half of March because the so- "quants" - managers who use formulas to automate investment processes - jump from bullish to bearish positions.
In addition to the small caps, the "sellout trigger" is not far from the S & P500 too. Eventual fall of the index to 2777.31 (down 0.8% of current levels) could trigger short robots' orders.
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
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