Bank of America (NYSE:BAC) analysts say US trend followers, also known as CTAs (Commodity Trading Advisors), are holding "very elevated levels" of long positions in equities, particularly the S&P 500 and NASDAQ-100.
BofA's "Systematic Flows Monitor" notes these longs benefitted from recent market gains and lower volatility.
While BofA's model anticipates these stretched positions can withstand a moderate decline, a sharp drop could trigger stop-loss orders - 2.7% lower for the S&P 500 and 3.8% lower for the NASDAQ-100, based on Friday's close.
BofA sees more potential for CTA action in Japan, where the Nikkei 225 trend follower long hasn't reached Q1's highs. They expect buying in Nikkei 225 futures as price trends are forecast to rise.
The bank's note also suggests CTAs might add long positions to 10-year US Treasury futures (UST) next week, anticipating lower yields after recent data indicating a moderating labor market.
Overall, the report highlights CTAs chasing trends across asset classes. BofA expects continued oil buying and a weaker US dollar while anticipating gold longs to hold and aluminum longs to decrease. In FX, BofA's model suggests CTAs will cover short positions in EUR, MXN, and CAD while adding to AUD longs.