"The storm is not over yet"! Goldman Sachs: CTA has turned fully bearish, systemic selling pressure in the next week could reach the year's highest level

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Although Trump's signals of easing tensions in the Middle East briefly boosted risk appetite, the latest trading desk warnings from Goldman Sachs and JPMorgan show that deep structural problems in the market are far from resolved. The core contradiction of systemic selling pressure and positions not having been fully cleared is pushing the market into a new round of high-volatility territory.

The latest report from the Goldman Sachs trading desk warns that due to recent severe market fluctuations, CTA (Commodity Trading Advisor) strategy funds have been forced to trigger risk control mechanisms. Over the next week to month, regardless of the market's direction, CTAs will be net sellers of stocks. Goldman points out in particular that the scale of selling expected over the coming week will set a new all-time record, meaning algorithmic trading desks will become the main source of persistent market bleed.

Meanwhile, JPMorgan’s positioning intelligence team notes that even though the market has experienced sharp swings recently, there has not been a thorough “cleansing” deleveraging—i.e. investors panic selling regardless of cost and taking positions down to extremely underweighted levels.

The report states that data shows current investor positioning has only fallen back to neutral, far from historic clearing points. This structural risk means that the market lacks enough "ammunition" to absorb subsequent potential selling pressure. JPMorgan thus judges that the recent rebound is more due to short covering and sentiment recovery, rather than the start of a new allocation cycle.

Analysts believe that as passive systematic traders (like CTAs) act as pure selling forces and active managers have not yet completed position adjustments, the market still faces the pressure of a second bottom after this short-term stabilization.

Goldman: CTAs Are Sellers in All Scenarios

Goldman’s latest trading desk models issue multiple warning signals: the market is facing triple pressures of systemic selling, failing hedging mechanisms, and liquidity exhaustion.

First, CTA selling is at a record, critical levels are imminent. Goldman’s conditional CTA flow model shows that regardless of market direction, systematic funds will continue to be net sellers of stocks over the coming week to month. Goldman especially highlights that the currently estimated selling scale “is among the largest on record.” If the S&P 500 closes below its intermediate pivot support, it will trigger a new, more intense wave of systematic selling.

Second, market makers driving volatility, negative Gamma amplifies swings. Even more concerning, market-makers’ Gamma exposure is now at its most negative level this year. This means market-makers’ hedging not only fails to dampen volatility, but also amplifies price moves—regardless of rally or sell-off, the negative Gamma environment is expected to persist, significantly raising chances of a high volatility regime.

Furthermore, liquidity nears historical lows, market confidence at the brink. Liquidity is also flashing red. E-mini futures order book depth has dropped to levels seen during the “Liberation Day” rout and its aftermath. At the same time, Goldman’s volatility panic index is near historical extremes, and risk appetite indicators have returned to “Liberation Day” levels, indicating market participants’ pervasive lack of directional conviction.

JPMorgan: Positions Not Cleared, Limited Upside in Rebound

JPMorgan’s positioning intelligence team’s latest assessment echoes Goldman’s.

On one hand, technical rebound is possible, but deep structural issues persist. The team notes that cumulative position reductions over the past four weeks have triggered their tactical positioning model’s “attractive” signal, suggesting a technical rebound may occur within two to four weeks. However, this short-term signal cannot hide deeper worries—the market hasn’t seen extreme risk-off behavior; overall positions have only returned to neutral, corroborated by the directionless trend since the Iran situation erupted.

On the other hand, flow data reveals fragility. More granular data further undermines the rebound: hedged funds shifted from buying early in the week to selling midweek; retail flows on single stocks have turned from net buying on Monday to neutral.

Meanwhile, deleveraging has been limited (below 2 standard deviations), US hedge fund turnover is at normal levels, and recent ETF hedging demand has not shown a sustained uptick. JPMorgan summarizes that overall “stress” signals are still limited and the market lacks the momentum for a post-clearing rebound.

Of note, significant divergences have emerged in Europe. JPMorgan data show that over the past week, European hedge fund turnover soared to +2.4 standard deviations (Asia-Pacific at +1.7, North America only +0.6). The firm points out that the last time divergences of this scale occurred were after the US regional banking crisis in March 2023 and at the start of the Russia-Ukraine war in 2022. At the same time, Europe saw the strongest net selling (-2 standard deviations), and the premium of Europe’s V2X volatility index over VIX is at the 95th percentile of the past five years.

Under these circumstances, JPMorgan’s market intelligence team has shifted to a tactical bearish stance, expecting the S&P 500 to fall as much as 10% from its recent highs, targeting a low around 6270. The main risk factors listed include: persistent uncertainty in the Middle East, positions not fully cleared, and systemic selling pressure not yet fully released.

Combining the judgments from Goldman and JPMorgan, the core dilemma the market faces is potential geopolitical easing expectations coexisting with technical and positioning-related structural pressures. With CTAs fully switching to the short side, persistent negative Gamma, and insufficient liquidity depth, price swings in any direction may be amplified. Investors are urged to remain highly vigilant toward a high-volatility environment in the near term.

Risk Warning and DisclaimerMarkets are risky, investment should be cautious. This article does not constitute personalized investment advice and does not consider the special investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article suit their specific circumstances. Investing accordingly is at your own risk. ```