What's happening behind the scenes of the market right now?
Following the geopolitical situation assessment - an analysis of the current market situation.
As of now, the S&P 500 index has risen over 8% from its recent low and is currently less than 2% away from its peak.
Despite the entire situation, the index is currently down only 0.5% year-to-date.
But according to data we received from Goldman Sachs' trading desk, large institutions are not rushing to buy positions and are not participating in these rallies.
What is pushing the market up is mainly short covering and technical money being pushed into the market.
What do we mean when we say 'technical money'?
Let's take you back to the last day of March - the market's 'reversal day'.
On that day, billions of dollars flowed into the market from pension fund rebalances. Algo funds joined these funds and injected billions of dollars. (They went from a short position of about $80 billion to only $35 billion!)
On the same day, the index also closed above the lower bound of JPMorgan's collar, and market maker intervention cannot be ruled out - this is also technical money!
This rally continues to be supported by technical money - hedge funds covering short positions by buying back assets, and entities that bought put options covering their shorts and being forced to buy futures contracts on the indices to cover those positions.
The question, of course, is what happens next.
And here we bring you very interesting data from behind the scenes of algo funds.
According to estimates from major banks, algo funds are currently still in a short position of about $35 billion.
Therefore, major banks estimate that as long as current market conditions persist (meaning, we don't see a shift to sharp declines), these funds are expected to buy tens of billions of dollars in US stocks.
Bank estimates vary and range between $35 billion and $45 billion just in the S&P 500!
To illustrate, this is the second-largest buying estimate in the history of these funds.
As long as there is no bad news from the Middle East, technical money is still flowing in and could contribute to a short-term rally.
But, and here is the big and very important 'but'!
Everything depends on the Iranian front,
The situation there is very sensitive.
If we see a severe escalation in the Middle East, conditions will change, and estimates will likely change as well.
Currently, the United States claims that negotiations are over, and uncertainty is returning to the general atmosphere.
But this could change very quickly.
And remember, according to Goldman Sachs, technical money still wants to enter under the right market conditions.
Meanwhile, it seems the market is not overly excited.