Citi flags further US equity unwinding as Nasdaq shorts hit 1-month low

US equity index futures are undergoing a broad repositioning that may have further room to run, Citigroup strategists said, as the recent AI and technology selloff triggered a wave of de-risking across large-cap stock funds.

"Position liquidation still has scope to extend," David Chew and his team at Citigroup wrote in a note dated July 21.

The S&P 500's positioning adjustment has been dominated by long unwinding, while the Nasdaq has seen a more aggressive combination of long liquidation and fresh short positioning, pushing its net positioning to a one-month low. Fund flows across large-cap equities have turned broadly bearish, the strategists said.

The unwinding comes after a brutal week for global tech stocks. Taiwan's TAIEX suffered its worst single-day point drop in history on July 17, plunging 2,953 points to 42,671, while the Philadelphia Semiconductor Index fell 1.63 percent and the Dow dropped 406.55 points that same session. The selloff was amplified by leveraged ETF deleveraging in South Korea's market, where SK Hynix and Samsung saw excessive leveraged positions unwind.

Nasdaq Faces Dual Pressure

The Citi analysis suggests the Nasdaq faces the most acute pressure. The combination of long liquidation and new short selling has driven positioning to levels not seen in a month, creating a technical setup that could amplify any further downside in tech stocks. For the S&P 500, the unwind has been more one-sided — predominantly long liquidation without a corresponding build in shorts — which leaves the index less vulnerable to a short-squeeze reversal but still exposed to further selling if fund outflows persist.

The broader market backdrop remains fragile. Foreign investors dumped more than NT$310 billion ($9.6 billion) in Taiwan's market last week alone, while net short positions on TAIEX futures hit a record 86,000 contracts. In the US, 87 percent of S&P 500 companies that have reported earnings have beaten Wall Street estimates, suggesting the selloff is driven by positioning dynamics rather than deteriorating fundamentals.

What Comes Next

The Federal Open Market Committee meeting at the end of July remains a key variable. With Fed officials divided on the inflation outlook, any hawkish rhetoric could accelerate the deleveraging cycle. Citi's strategists said the key signal to watch is whether the Nasdaq's dual pressure of long unwinding and short building stabilizes — or deepens.

This article is for informational purposes only and does not constitute investment advice.