A key corner of Wall Street is making its most bearish bet against stocks ever

• Wall Street traders have taken on the biggest short position in US stocks on record.
• Trend-following CTAs are short $47 billion of US equities, according to data from Goldman Sachs.
• The extreme short positioning could ultimately fuel buying pressure for stocks if the bet is unwound.

Professional traders in one corner of Wall Street have taken on their biggest bet ever against US stocks, according to data from Goldman Sachs.

The bank said in a Monday note that trend-following traders on Wall Street, also known as commodity trading advisers (CTAs), are short a record $47 billion of US stocks. The extreme positioning comes after they sold $88 billion worth of stocks over the past 15 trading sessions.

"This is the largest US short position for this cohort on record," Goldman Sachs' Cullen Morgan said.\

CTAs typically utilize futures, options, and commodity contracts to express their bearish or bullish position in the market. They tend to rely solely on trend-following momentum trading strategies to dictate what, and when, they buy and sell.

They're a closely watched group on Wall Street because as trends in certain assets reverse and extend, CTAs have a tendency to quickly flip their positioning and pile into the trending assets. That can have a big impact on stocks in a short period of time, given that they manage about $350 billion in assets. That's enough buying or selling pressure to move stock prices.

The extreme short positioning among CTA funds is happening as the stock market is attempting to mark a technical bottom after the S&P 500's 8% decline from its late-July high.

"The S&P 500 defended 4,200 area support on last week's probe down to 4,216, keeping the rising 40-week moving average and the June breakout point at 4,195 intact as support," Bank of America technical analyst Stephen Suttmeier said in a Monday note.

This wouldn't be the first time the stock market has bottomed right around the same time trend-following CTAs were net bearish on stocks. Similar extremes of short positioning among CTAs also occurred during the March 2020 stock market bottom during COVID-19, and in late 2018, when the market went on to stage a strong rally throughout 2019.

And the CTAs could in fact become a big source of buying pressure for stocks if the S&P 500 continues to show evidence of bottoming and moving higher.

"The CTAs are now buyers of S&P 500 in every scenario over the next month," Morgan said, citing an internal bank model.