dmfnclcd: Citi says traders are ramping up bets on stocks

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Dynamics Finance noted that the market continues to absorb the impact of this week's Fed policy decision. The S&P 500 has given up part of its latest rally after Chairman Jerome Powell suggested borrowing costs could reach higher levels than investors had previously expected.

The benchmark is still down 22.5% for the year. The Nasdaq 100 fell 35.2%.

If the stock has an anthem, it's "Heaven Knows I'm Miserable Now" by '80s indie pop star The Smiths. Loop.

According to Dynamics Finance, on the Fed Day traders bought a large number of put options on ETFs tracking indexes such as the S&P 500, Nasdaq 100 and Russell 2000, the largest of which will be in just two weeks from today maturity. Traders appeared to be betting that stocks would fall further.

However, this level of negativity can provide a contrarian bullish indicator. Eventually, even the pessimism ran out. Witness Peloton's share price plummeting nearly 20% to a new low after it reported results on Thursday, but ended the day up 8%.

So does that mean we're ripe to bounce back again? Don't bet on it, Citi said. The bank's global strategy team, led by Jamie Fahy, said investors should beware of another drop in stocks.

"Although there were some high-profile earnings in the quarter, overall U.S. third-quarter earnings were not bad. With a 4% EPS surprise and 3% growth, this wasn't much of a result from the previous quarter. That said, we would warn that the stock market is not doing well," Fache wrote in a note to clients.

There are three main reasons for his caution.

First, and this really shouldn't surprise anyone, the Fed is no longer a friend of the market, although some still cling to the previous era of super-easy doting.

Powell “has failed to appease the market’s pivot dream. Stocks are under threat of a re-trough as the Fed tops out to new highs. The net short position is much cleaner now than it was 4 weeks ago,” Fahy said .

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