According to Bank of America Securities, trend-following Commodity Trading Advisors (CTAs) are ending 2024 with modest gains.
The benchmark CTA index rose by 2.55% year-to-date as of December 26, recovering from a volatile year that saw it dip into negative territory in October before rebounding.
“During April this year, the index gained 12%, but declines in equities and the U.S. dollar, combined with volatility in bond markets, erased those gains and more, sending the index into negative territory for the year in October,” wrote Bank of America analysts led by Chintan Kotecha in a Friday note.
Currently, exchange-traded funds held by CTAs maintain “long positions in the U.S. dollar, short positions in bonds, and large-cap U.S. equities.” The recent recovery has been driven by strong gains in the U.S. dollar and short positions in bonds, while long positions in U.S. equities remain intact but not overextended. Elevated stock volatility has prevented a full price trend extension into buy territory for equities.
Meanwhile, the SPX gamma index—a measure of option traders’ hedging sensitivity to changes in the S&P 500—was described as "highly volatile this week" by Bank of America.
For example, on Monday, the SPX gamma value stood at $5.6 billion, sharply rising to +$15.8 billion by Tuesday—a nearly $10 billion increase in just one day. Analysts attribute this swing partly to a "massive position" in December 31 SPX 6055 call options.
By Thursday, gamma settled at +$13.9 billion, ranking in the 96th percentile year-to-date. However, as the December 31 expiration approaches, "gamma could become highly sensitive to spot moves," analysts noted, potentially dropping to zero at the 5940 level on the S&P 500 or rising to +$17 billion at 6060.
Fixed Income and Commodity Positions
In fixed income, Bank of America’s CTA model reveals a 57% short position in 10-year Treasury futures. Bond positioning reflects a broader bearish stance across maturities, although some areas, such as Chinese 10-year Treasury futures, hold a 96% long position.
In commodities, futures reflect mixed expectations. CTAs maintain long positions in gold (35%), while copper and soybean futures face significant short positions.
Currency positions are similarly polarized, with the euro (EUR/USD) and the pound sterling (GBP/USD) seeing large short positions, while USD/JPY and USD/CAD hold strong long positions.
Potential Market Shifts
Bank of America’s model also provides insights into potential market shifts. For instance, the current Nasdaq 100 long positions, supported by a 71% trend strength, could unwind if the index falls by 2.4%. Similarly, USD/MXN long positions may face a threshold with a 3.0% price drop.
This outlook highlights the tactical positioning of CTAs heading into 2025, with a cautious approach across asset classes and the potential for significant shifts based on market movements.
