US equities have seen a washout in systematic positioning, with risk control exposure currently at 55%, the lowest level since the US introduced tariffs in April 2025. This is a compelling setup, as it combines washed-out systematic positioning and limited incremental systematic selling with resilient real-money demand, short squeeze risk, and potential CTA and Risk Control re-risking on the upside.

Historically, similar washout events have led to significant gains in the S&P, with the last two comparable washouts resulting in gains of 17% and 24% over the next four months. This suggests that the downside feedback loop has largely been removed, creating a more favorable environment for a rally.

Real-money investors are not selling, which is a positive sign for the market. This, combined with the limited incremental systematic selling and the potential for CTA and Risk Control re-risking, suggests that the upside potential is significant.

We can expect the S&P to grind higher in a lower-volatility rally, with at least 10% upside over the next three months. This is a strongest bullish setup this year, and investors should take advantage of the opportunity to position for a potential rebound in US equities.