Anticipating a Market Shift: S&P 500 on the Cusp of Bull Territory Amid Increased Short Bets

Published by MEXEM Technical Analysis

June 13, 2023 5:35 PM

Published - June 7th, 2023 @2:22 PM (CET)

S&P 500's Bullish Approach

As the S&P 500 teeters on the brink of a bull market, some traders are opting for a more conservative strategy, increasing their short positions on the index. As compiled by Bespoke, CFTC’s Commitments of Traders report reveals that S&P 500 futures are 17.4% short - a level unseen since September 2007.

Slow Bullish Climb

The S&P 500's trajectory towards a bull market, its longest journey since 1957-1958, has sparked divergent outlooks among market strategists. There's a growing concern over the depth of the rally, and some, like Morgan Stanley's Chief Investment Officer Mike Wilson, question the potential of individual stocks to significantly impact the overall cyclical earnings trend as cost pressures persist and top-line growth decelerates.

High Short Bets

Investor sentiment seems cautious too. The last time investors placed such heavy bets on an S&P 500 decline was in 2007. This caution stems from potential declining earnings due to stringent Fed policies. Nevertheless, there's a robust argument for bullish investors to stay the course through the end of 2023.

Bull Market Threshold

The S&P 500 needs to surge 20% from its October low to officially enter a bull market, hitting 4,292.44. Several strategists have upped their price targets recently, the latest being Brian Belski from BMO Capital Markets.

The first half of 2023 has shown the resilience of the stock market. Despite the uncertainty that marked the beginning of the year, the doom and gloom that many predicted has not materialized.

AI's Market Impact

A key driver of the recent stock market trend is Artificial Intelligence (AI). Tech giants like Nvidia, Microsoft, Google, and Meta have seen significant share price increases due to heightened AI demand. Even Tesla, known for its diverse reasons for stock price fluctuation, is considered an AI play by some.

Mixed Market Outlook

Despite the substantial run, Wall Street remains divided over the market's future. The AI-driven Tech sector's hype is real and is expected to fuel future growth in many stocks. This year, the sector's impressive performance suggests that the momentum is likely to persist, albeit at a potentially slower pace.

Predicting Momentum Market

Evercore ISI's Julian Emmanuel predicts a "momentum market" driven by the AI surge. This suggests a volatile future, possibly vindicating those currently betting against the S&P 500. However, Emmanuel remains optimistic, raising his full-year price target for the S&P 500 from 4,150 to 4,450.
As we approach this potential bull market, Emmanuel reminds us to 'check emotions at the door,' suggesting the journey ahead might be akin to a rollercoaster ride. He emphasizes that emotions can often be a significant obstacle to long-term investment returns.

The information on is for general informational purposes only. It should not be regarded as investment advice. Investing in stocks involves risk. A stock's past performance is not a reliable indicator of its future performance. Always consult a financial advisor or trusted sources before making any investment decisions. 


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