• Trend-following CTAs are building significant short positions in US equities, with S&P 500 shorts at their highest since February 2016 and Nasdaq-100 shorts the most elevated since January 2023.
  • Market uncertainty grows as the April 2 tariff deadline approaches, with potential triggers for further downside in major indices.
  • European equities remain a long position for trend followers, but a sell trigger for the EURO STOXX 50 looms just 1.2% away.

Mounting Pressure on US Equities

Bank of America analysts are sounding the alarm as commodity trading advisers (CTAs) ramp up short positions in US equities ahead of a critical April 2 tariff deadline. According to BofA's models, CTAs currently hold short positions in both the S&P 500 and Nasdaq 100, with trend strength signals hovering around -50% for each index. Under median scenarios, these signals could deteriorate further to -75% for the S&P 500 and -76% for the Nasdaq 100 over the next five trading sessions.

The Russell 2000 has become one of the most extended short positions among trend followers, declining in four of the last five weeks. Meanwhile, European equities—previously a strong long position—have seen partial unwinds amid recent volatility. A potential sell trigger for the EURO STOXX 50 sits just 1.2% away from current levels.

Technical and Fundamental Headwinds

The S&P 500 and Nasdaq Composite have been trading below their 200-day moving averages since early March, a bearish technical signal that has likely contributed to the growing short bias. With one trading day left in March, the Dow has lost 5.1%, the S&P 500 is down 6.3%, and the Nasdaq has given up 8.1%.

Investors are grappling with multiple concerns, including hot inflation data and the impending implementation of wide-ranging reciprocal tariffs by the Trump administration. Dubbed "Liberation Day" by some market participants, the April 2 deadline could affect more than $1.4 trillion of imports once temporary exemptions for Canada and Mexico expire.

Market Reactions and Outlook

Geopolitical uncertainty and tariff concerns have already driven gold prices to a new all-time high of $3,083 per ounce, while copper prices hit record levels following reports of potential 25% tariffs on copper imports. BofA analysts are closely monitoring potential triggers that could force CTAs to reverse their positions, which may have outsized market impacts given the current positioning.

As the deadline approaches, market participants remain on edge. "The combination of technical breakdowns and fundamental uncertainty creates a perfect storm for trend followers to press their shorts," said one trader familiar with CTA strategies who asked not to be named. Without a resolution on tariffs or a technical rebound, the downward pressure on US equities could intensify in the coming sessions.