U.S. stocks could be in for some more pain following Friday’s rout as trend-following quants unload their holdings.
The selling may be particularly painful for U.S. small caps as commodity trading advisers, or CTAs, are set to “flip short” on the Russell 2000 Index by the end of the day, according to Charlie McElligott, a cross-asset strategist at Nomura Securities. As it stands, money managers that follow quantitative strategies are still 50 percent long entering Monday’s trading session, but that should vanish by the day’s end, his models show.
Usually towards the end of the business cycle, rising interest rates hurt smaller companies the most because they have a higher debt to earnings ratio and lower free cash flow relative to much larger companies. Also, smaller companies are more volatile and tend to react and respond to changes in economic conditions and changes in investor sentiment first.
So lets go to the charts to see if my levels line up with the quant strategies levels.
I guess I wouldn’t make a great quant trader. However, the chart suggests if price breaches the daily demand at $1475, there will be further downside risks.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.