Bank of America says CTAs could start trimming their longs in equities

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Bank of America says CTAs could start trimming their longs in equities
Credit: © Reuters.

Analysts at Bank of America said Monday they believe the decline in equity price trend could cause CTAs to trim their long positions.

The firm explained that since the end of October last year, the S&P 500 , NASDAQ-100, EURO STOXX 50 , and Nikkei 225 are each up more than 20%.

However, they note that for the S&P 500 and NASDAQ-100, the pace of increases has slowed in recent weeks, "which correspondingly could lead to a decrease in short-term price trend signals for trend followers."

"As a result, CTAs could start trimming their longs and according to our model, in bearish price paths next week selling could pick up in momentum," wrote the firm.

"Should declines reach 3% to 5%, depending on the index, then CTAs could see their stop loss triggers hit, which could amplify downside," they added.

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