Long Tech Position in Futures, Borrow & Options

Author:

S3 Research Team

August 19, 2024

Our research highlights a rising long position in technology stocks across futures, borrow, and options markets, signaling a bullish market sentiment.

There is growing discussion in the market about a long position in technology. This trend is evident in several areas.

One indicator is the long position in NDX futures, as reported daily by the CFTC. These reports reflect the positions of both outright traders and hedgers and the longs outright have increased.

Another indicator is the short positions in the "Magnificent 7" stocks. Recently, all these stocks have seen a reduction in short positions, which aligns with a longer position stance, with the exception of Nvidia (NVDA).

The shift in NVDA’s short position corresponds with its decline as a market leader year-to-date.

The accompanying graph depicts the NDX level in blue and the average short percentage of float for the Magnificent 7 in brown. The graph illustrates that these metrics track together as they decline but not when the market recovers the short position is constant.

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This indicates that investors are covering their short positions rather than re-establishing them as the market declined.

When the NDX recovers, the short positions are not being re-established, suggesting that the market is currently more bullish compared to the past.

Currently, the short position in Nvidia (NVDA) is increasing alongside a rising market, which contrasts with the other stocks in the Magnificent 7, where short positions are declining.

This divergence suggests that NVDA is following its own distinct pattern.

The average line resembles the S&P 500 in that it is uniformly downward-sloping.

This preference for a long strategy is also evident in the open interest of calls versus puts for these seven stocks and the QQQs. Currently, calls are more prevalent, whereas puts usually dominate.

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