The market has been tough for all of us recently, but today, we have some good news from Goldman Sachs: 💵
You are invited to dedicate 3 minutes to fascinating information, open the attached chart and examine it carefully. ❗️
CTAs have gone short — and is this an opportunity for significant upside?
Goldman Sachs reports that algorithmic trading funds (CTAs) have gone net short (betting on declines) for the first time since 2023. 📉
This is a significant shift in direction — and they note that this creates potential asymmetry precisely in favor of upside. ♾
Go back to the chart, you can see that CTAs do not stay short for long, they buy aggressively very quickly. 🛒
Let's break this down:
ℹ️ When CTAs go short, that's right, they are essentially betting on declines.
- But if the market starts to rise contrary to their positions, they will be forced to cover their shorts — meaning, to buy stocks back. 🛒
Now stop for a moment and understand something important, algo funds do not "decide" to buy or sell, the algo operates at insane speed and simply acts in seconds.. 🚀
This can cause a violent rally upwards — what is called a "Short Squeeze". Goldman identifies an opportunity here, because in a situation of heavy short positions, any small rise can quickly intensify. 📞
Wait, that's not all! 🤌
Goldman reports that in any case, in the coming week, algo funds are expected to buy stocks in the US market 🛒
💥 Do you like it when the numbers speak?
Here are the figures, how much money will flow into the market? During the coming week: 💰
In a "flat tape" scenario (sideways market): CTAs will need to buy $14.76 billion in stocks, of which $2.82 billion in the US.✔️
In an upside scenario: purchases will jump to $19.96 billion (of which $8.87 billion in the US).✔️
In a continued downside scenario: purchases of $3.24 billion ($1.66 billion in the US).✔️
— Meaning even in the case of declines, they will still need to buy! 😌
During the coming month: - Flat tape: purchases of $21.47 billion ($3.93 billion in the US). + A huge jump in purchases to $111.36 billion ($69.83 billion in the US)! 🧲
- What will happen in the event of continued declines?: Sales of $71.24 billion ❌
— But note, only $0.69 billion of them in the US.✔️
🔎 What can be learned from this? Not only are algo funds expected to buy in any scenario in the coming week — Goldman's data shows that if the market starts to move up — even a little — CTAs could ignite a huge wave of purchases to cover shorts. 🚀
This is exactly what leads to a sharp and unexpected rally.
If we translate this into simple English:
The market is currently tense - like a spring.
Any positive sign can release it powerfully upwards.🔼
The big question:
Will the market start to move enough to trigger this "domino effect"? 🐎