As the markets gear up for the coming week, the landscape is characterized by a pronounced skew towards potential downsides. With systematic models signaling that Commodity Trading Advisor (CTA) equity selling could pick up pace, investors are treading cautiously.

CTA equity long positions in both the US and Europe are on the cusp of hitting their stop loss triggers, especially in the US. Last week’s close of the S&P 500 was perilously near these levels, which could prompt an uptick in selling pressures if trends continue. European equity longs are not far behind, and market sentiment seems to be souring, with equity trend strength showing signs of wear.

Friday’s marked decline in the S&P 500 is of particular interest. The drop has brought the index within a mere 0.9% of the CTA model’s stop trigger level. If this trend holds, we may witness an acceleration of selling strategies that could strain the market further. Even the traditionally stabilizing SPX option gamma levels have dipped, indicating that the usual hedging mechanisms might not provide their typical counterbalance in the upcoming sessions.

The week also saw short positions in U.S. Treasury (UST) futures grow with the influx of high inflation data. The resulting rise in yields has pushed these short positions to their first-rate cut expectation since December. Despite some sectors straining under these conditions, CTAs are expected to continue this selling trend.

In the commodities realm, trend followers are projected to maintain their bullish stance on oil and the U.S. dollar. Although gold and copper buying has moderated slightly, it remains on trend followers’ radar. In the currency market, the U.S. dollar enjoyed its highest weekly gain since late September, and the momentum is expected to be sustained.

The S&P 500’s decline has muted the SPX gamma footprint, now at its lowest since mid-January. This reduced gamma is often seen as a destabilizing factor, suggesting that if the downward pressure persists into the early part of the week, we could see an exacerbated move to sub-5000 levels on the S&P. Over the last month, the S&P E-mini 1-month realized volatility has been clipped by 1.1pts (9%), signifying a quieter volatility landscape than usual.

Investors are bracing for the possibility that without fresh highs to invigorate confidence, there might be a waning in the resolve to buy the dip, traditionally a popular market strategy. The focus will undoubtedly remain on key financial indicators and systematic flows as the market prepares for another week of potentially asymmetric risk.