Equity Markets Positioning Model
Global Positioning Shifts Toward Europe as US Short Flows Rise
Global positioning reflected a rotation away from growth exposures. Europe stood out as the primary beneficiary last week, attracting new long inflows while maintaining positioning levels that are constructive but not yet extended. In contrast, the US saw renewed shorts building, particularly across Nasdaq and Russell 2000, where bearish positioning has become increasingly concentrated. Asia remains the weakest region, with KOSPI and Nikkei continuing to see increased short activity against already depressed positioning levels.
US – Nasdaq Flows Deteriorate While Small Cap Shorts Approach Extremes — US positioning deteriorated materially as investors sought to reduce growth exposure through long liquidation and aggressive new short positioning. Nasdaq experienced the largest unwind across indices tracked, but overall positioning remains net long. Russell 2000 positioning remains pinned at the bottom of its historical distribution following another week of uninterrupted short accumulation. Elevated profitability among Russell shorts increases vulnerability to any catalyst capable of initiating forced cover activity.
Europe – Constructive Flows Sustain Positioning Leadership - Europe remained the primary beneficiary of the rotation away from growth, attracting broad-based inflows across major indices. FTSE gains were driven by fresh long accumulation, while DAX improved largely through short covering. EuroStoxx remains the most bullish market in our universe, yet positioning is not extended, suggesting scope for further inflows. European Banks are stabilizing, although the recovery remains driven by reduced bearish exposure rather than new long conviction.
Asia –– Bearish Momentum Builds, Squeeze Risks Increase – Asia experienced the weakest positioning dynamics globally, with new short accumulation continuing for both Nikkei and KOSPI. The absence of meaningful long participation remains notable, suggesting bearish sentiment has yet to stabilize. KOSPI now represents the most crowded short within the region with much of the short base sitting profitably in-the-money. While positioning momentum remains decisively negative, increasingly crowded short exposure raises the risk of an outsized short-covering response should sentiment improve.
Current Themes
Global equity markets ended the week amid a notable rotation away from growth- oriented exposures, as investors reduced exposure in high-multiple AI-related names and rotated into value, defensive, and energy sectors. While the catalyst was multifaceted, the move coincided with renewed investor preference for value, defensive and energy exposures, while growth-oriented segments experienced notable positioning unwinds.
Positioning flows were notably one-sided, driven primarily by a renewed build-up of short exposure across US indices. The Nasdaq recorded the sharpest deterioration in positioning, while trends in the Russell 2000 remained largely unchanged, with continued net short accumulation leaving bearish positioning extended and profit levels elevated. Although the S&P 500 saw modest new long flows during the week, it was insufficient to offset new short activity and long unwinds.
The Nasdaq experienced the largest positioning unwind, registering net outflows of $12.5bn as investors simultaneously added $6.9bn of new shorts and exited $5.6bn of existing longs. As a result, our equity-implied positioning score fell to +0.9 from a recent peak of approximately +2.2 in early October. Meanwhile, Russell 2000 positioning reached the lower bound of our normalized positioning distribution (-5.0) after another week of uninterrupted short building and virtually no offsetting long demand, underscoring the continued vulnerability of small-cap equities in a structurally higher-rate environment.
Long positioning across US indices is broadly in loss, with average unrealized losses ranging from -1% for the S&P 500 to -3% for the Russell 2000. However, the more significant positioning risk remains the highly profitable Russell 2000 short base, where profitability levels are near historical extremes. While no immediate catalyst is evident, positioning risk remains elevated given the concentration of profitable short exposure.
Europe
European equities emerged as the primary beneficiary of the week's rotation away from growth, with all indices in the region attracting aggregate net inflows. This marked a notable consensus accumulation of bullish flows into European markets, contrasting sharply with the concurrent outflows and bearish positioning observed across US markets. FTSE 100 recorded $1.7bn of net notional inflows, driven predominantly by new long additions, lifting equity-implied positioning further into bullish territory. While the Euro Stoxx 50 (+2.2) also saw positive flows, the impact on normalized positioning was more modest. In contrast, the DAX experienced a more meaningful improvement in positioning, driven largely by short covering rather than fresh long conviction. European Banks (-0.9) remain in net bearish territory but showed early signs of stabilization, with $0.9bn of short-covering activity. However, the lack of meaningful new long participation suggests the improvement reflects a reduction in bearish exposure rather than a broader constructive re-rating.
Despite recent inflows, both EuroStoxx (-1.2%) and DAX (-0.7%) continue to show modest unrealized average positioning losses, reflecting legacy long positions established at higher entry levels. Recent buying has improved positioning sentiment but has not yet been sufficient to offset losses embedded in existing long exposure. With positioning broadly balanced and levels not extended, directional positioning risks appear limited and less clearly defined.
Asia/EM
Flows in Asia continued to reflect acute deterioration over the week, as bearish activity remained dominant across most indices in the region. Both KOSPI (-2.2) and Nikkei (-2.7) saw asymmetric new short risk flows continue to drive a decline in net positioning. Net positioning is moderately bearish across both indices, but more concerning has been the absence of any evidence of an equilibrium being reached or any early indication of a change in positioning sentiment. Across the other indices tracked, there was limited change for Hang Seng (-4), marginally improving but still extended short, while China A50 (-2.4) declined.
KOSPI presents the most extreme short-side concentration in our APAC universe, with positioning almost exclusively net short and 77% of the short book currently in profit. Current positioning levels (-2.2) reflect a deeply embedded bearish consensus anchored in the global semiconductor capex scrutiny narrative. With positioning heavily skewed toward shorts and limited offsetting long exposure, any positive catalyst could trigger an outsized short-covering response. The 1-week change in change (-0.84) represents the largest single-week deterioration in the APAC complex, confirming that bearish momentum is still accelerating — but also that the short trade is increasingly consensual and therefore increasingly vulnerable to a reversal shock.
How Has Positioning Changed?
Equity Markets Positioning Charts
Equity Markets Positioning Charts
S&P 500
NASDAQ 100
Russell 2000
EuroStoxx 50
DAX
FTSE 100
European Banks (SX7E)
S&P ASX 200
Nikkei 225
MSCI EAFE
MSCI EM
KOSPI 200
Hang Seng
China A50
The Equity Markets Positioning Model - Methodology
The aim of the Equity Markets Positioning Model (EMP) is to provide information on current equity market positioning and how this might influence subsequent price action. It allows readers to ‘visualize’ the investor exposures in equity futures across multiple markets in order to:
- Quantify the current market positioning and profitability;
- Identify extreme market positions;
- Categorize periods in which price action will be dominated by positioning;
The model calculates a ‘headline’ positioning score between -5 to 5 and provides a visualization of the current and past market.
How does the model work?
At a micro scale, price action is dominated by the size, level and speed at which investors choose to execute trades with other financial intermediaries. Buy/sell orders can clearly drive prices higher or lower and the EMP attempts to quantify these flows in order to understand the market direction and motivation.
This is a grand ambition, since there is no one market participant who holds a complete view of all market flows and we are only analyzing and aggregating futures trading to extrapolate the positioning across the whole market (i.e., including all cash trading). Based on this information, we estimate:
- Market positioning: What is the outstanding market positioning (i.e., has there been net buying or selling recent history)? At what price and size were these trades executed?
- Market P&L: What is the unrealized profit or loss within the market (given the current outstanding market positioning)? When is this a motivation for investors to risk manage their positions?
We recognize that there are limits to this analysis – incomplete trade visibility, opaque instruments and unknown investor trading strategies create uncertainty in the ‘true’ picture of high-level equity market positioning.
The EMP model calculates the historical equity market positioning (over the last 3mths) and the associated unrealized P&L for the main markets around the world. A breakdown of the assets and contracts used in the EMP are presented in Figure 29 and calculation methodologies are outlined below.
Positioning Calculations
The model identifies an objective subset of positions entered into (or closed) on a given day and classify these as being the relevant marginal long or short positions that determined (being the ‘aggressor’) the price move that day. In the report and in our analysis, we will simply refer to these positions as longs, shorts, and net position, but they will always be a reference to this concept of a marginal positioning. This presumption then is that this subset of marginal positions are the most price sensitive, i.e., more likely to generate new flows (e.g., profit taking or squeezes) in response to future price moves.
In practice, the model uses public trade activity data on the exchange traded futures contracts, which is available daily. Naturally, net positioning is always zero for s, since the exchange matches buyers and sellers and creates and cancels contracts as necessary. However, by tracking the daily changes in overall open interest (the number of contracts after the exchange create or cancels contracts) and combining that measure with the change in price we can make a classification for the marginal positioning change on that day, as set out in Figure 30.
The change in open interest is taken to be the relevant marginal subset of positions that day and together with the change in price, we determine whether to consider it a change in long or short positions.
Performing this analysis on a day-by-day basis creates a ‘trade activity’ history over a three-month period which can be converted into a snapshot of cumulative positioning and unrealized P&L. To illustrate the methodology, it is useful to look at a worked example. In Figure 31, we present these calculations for S&P 500 futures in early March 2020.
In this period, open interest increased and prices fell, suggesting an increase in the short investor base. The model shoes numerous days where new short positions have been opened and relatively few where longs positions have been established, in addition to covering for some long and short positions. At the end of the period the cumulative uncovered positions and P&L is a simple the sum of the outstanding positions/P&L (see “total” in Figure 31 – cumulative positions equate to -459,041 contracts and 868mln of unrealized P&L).
This positioning can be visualized as a horizontal bar graph ordered by price (see Figure 32). It can be clearly seen that the shorts were centered around 2740-2750 and the positions were significantly in the money. This contrasts with the big long position at 2696, which with a falling market, was losing position. This snapshot of positioning can be summarized by the cumulative position unrealized P&L levels.
In EMP, the daily volume weighted average price (VWAP) is used in the calculations (rather than closing prices), since it creates more robust results. In addition, the EMP model chooses to cover trades that have the maximum economic impact (i.e., trades with the largest gains or losses are closed out first). However, in every other aspect, the methodology is identical to the one presented above.
Finally, the reported numbers in the EMP model are normalised into a range from -5 to +5 (representing large shorts/losses to large longs/profits) in order to compare across asset/instruments.
What output is generated by EMP?
The EMP model provides a snapshot of the current positioning (see Figure 33 to Figure 35). These tables summarize the outstanding exposure and unrealized P&L (for a 3mth period in both futures and ETFs).
Typical output is shown in Figure 33 for cross equity market positioning in futures. In this illustration, investors are currently neutral to net short Eurostoxx 50 contracts, which has decreased from a net long position of the past 3 months. This is in contrast to MSCI EM futures where investors are sitting on profitable positions.
In addition, we further break down market positioning by analyzing both long and short positions, the average entry price and the position relative to trading over the past three months (Figure 34).
Lastly, a complete visualization of the positioning is presented in Figure 35. This shows the current positioning ordered by VWAP prices over a 3-month period. The bars in the chart illustrate the level at which trades were executed (red = short positions and blue = long positions). The lighter bars imply older trade activity. When a trade is covered the bar is hashed with XXX and the color of the shading represents if it was covered at a gain or loss (yellow=loss, green=gain). The horizontal red and blue dotted lines show the respective average entry price of contracts over the past three months.
What it means for Cash Equities
Although traditionally used as a hedge, futures are also used by investors for taking an outright view on markets. This becomes increasingly relevant when futures positioning is extended. We explore this content in greater detail in Regime Modelling using Futures Positioning: Futures vs. Cash – A Distant but Meaningful Relationship, which explores the interplay between futures positioning and behavior seen in underlying cash markets.