Recently, the U.S. stock market experienced heavy fluctuations due to weak economic data, unresolved inflation pressures, and tariff threats. The S&P 500 index has fallen below crucial support levels. Two days ago, it broke through both the 50-day and 100-day moving averages and neared the short-term CTA (Commodity Trading Advisor) trigger level of 6045 points, suggesting that CTAs, who were previously bullish, might begin substantial selling.
Overnight, the U.S. stock market suffered a significant blow with the announcement by President Trump threatening tariffs on European Union goods. The S&P 500 index closed down 1.6%, settling at 5861 points, falling below the crucial mid-term CTA trigger level of 5887 points. This move heightened market anxiety, making investors increasingly nervous.
Morgan Stanley's quantitative and derivatives strategy team pointed out that this decline indicates macro systemic strategies could sell more than $40 billion in stocks over the next week, with most sales coming from CTAs. Although the demand from pensions and asset allocators towards the month-end is expected to partially alleviate the sell-off, general market tension remains unabated.
Additionally, Morgan Stanley analyzed that the current long options Gamma positions held by traders have significantly decreased, meaning that bullish options positions have dropped substantially, reducing sensitivity to market volatility. However, if the market continues to fall, zero-day option positions may lead traders to increase hedging activities, thereby slowing the market downturn in the short term.
Nevertheless, selling pressure in the market has not been effectively relieved and even seems to be intensifying. Analysts note that unless there is a strong market reversal, institutional investors may follow the lead of retail investors and increase selling, perpetuating the market's downtrend.
