"Is it all over?" Morgan Stanley warns: If US stocks fall below key support levels, a $40 billion panic sell-off will come
Morgan Stanley warned that due to poor U.S. economic data and inflationary pressures, U.S. stocks have fallen below key support levels, potentially triggering a $40 billion panic sell-off. The S&P 500 index has fallen below the 50-day and 100-day moving averages, approaching short-term CTA trigger levels. Although pension demand may partially offset selling pressure, market sentiment remains tense. Traders' long option gamma positions have decreased, and market volatility sensitivity has declined. If the sell-off continues, institutional investors may join retail investors in selling
Due to factors such as U.S. economic data falling short of expectations and persistent inflationary pressures, U.S. stocks have fallen below key support levels, triggering a sell-off?
Just two days ago, the S&P 500 index had fallen below the 50-day moving average (and the 100-day moving average), and at one point approached the short-term CTA (Commodity Trading Advisor) trigger level of 6045 points, which means that the CTA, which was originally extremely bullish on stocks, will begin to sell.
With overnight U.S. stocks being severely impacted by tariff threats, the S&P 500 index closed down 1.6%, at 5861 points, falling below the more important mid-term CTA trigger level of 5887 points.
Morgan Stanley's quantitative and derivatives strategy team pointed out that this means macro systematic strategies will sell over $40 billion in stocks within the next week, most of which will come from CTAs. Although there may be demand from pension/asset allocators of $10 billion to $15 billion by the end of the month to partially offset the selling pressure, overall market sentiment remains tense.
Morgan Stanley also stated that traders' long option Gamma positions have been reduced to low single digits (calculated per 1% change), indicating a significant reduction in their call option holdings and a corresponding decrease in sensitivity to market volatility.
However, Morgan Stanley also added that due to the presence of zero-day option positions, if the market continues to sell off, traders will increase hedging operations, leading to a short-term increase in Gamma positions, thereby slowing the pace of the market decline.
After Morgan Stanley issued a warning email, the market sell-off did not slow down but rather accelerated. Some analysts pointed out that unless a strong reversal occurs, institutional investors may join retail investors in the sell-off, further exacerbating the market decline.
Risk Warning and Disclaimer
The market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk