Investing.com — Trend-following Commodity Trading Advisors (CTAs) are ending 2024 with modest gains, according to Bank of America Securities.
The benchmark CTA index rose 2.55% year-to-date through Dec. 26, recovering from a volatile year that saw it dip into negative territory in October before rebounding.
“Through April of this year, the index was up 12%, but falling stocks, the USD and volatility in bond markets caused trend followers to move back up, and then some with the index turning negative in October vs. year,” BofA analysts led by Chintan Kotech said in a note on Friday.
CTAs currently hold “stretched long USD, short bonds and long US large-cap stocks” positions. The recovery in recent months has been fueled by strong gains in the dollar and short bond prices, while long US stocks have remained intact but are not considered stretched. Increased stock volatility prevented the stock price trend from fully extending into the long range.
Meanwhile, the SPX gamma, which refers to the sensitivity of options traders’ hedging positions to changes in the underlying rate, was “highly volatile this week,” BofA noted.
For example, on Monday the SPX gamma was +$5.6 billion, but by Tuesday it had spiked to +$15.8 billion – an increase of almost $10 billion in one day. Analysts point out that this volatility was partly driven by an “excessive position” in SPX calls on December 31, 6055.
By Thursday, gamma had settled at +$13.9 billion, ranking in the 96th percentile year-to-date. However, with the Dec. 31 expiration approaching, “gamma could be quite sensitive to spot moves,” the analysts note, potentially falling to zero at the S&P 500 level of 5,940 or climbing to +$17 billion at 6,060.
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 different durations, although certain areas, such as Chinese futures, are long at a significant 96%.
On the commodity side, CTAs show a mixed outlook, with long positions maintained (35%), while , , and soybeans are significantly short.
Currency positioning is similarly polarized, with the euro () and pound () strongly short while also holding long positions.
BofA’s model also provides insight into potential market movements. For example, a current long position on the strength of the trend of 71% could be withdrawn if the index recorded a decline of 2.4%. Similarly, longs may face a trigger point with a 3.0% decline in price.
