Bullish tech bets are at the highest in 3 years as market looks 'increasingly one-sided,' Citi says

• Recent futures positioning points to "increasingly one-sided" bets on more gains for tech stocks, Citi said.
• Long positioning in Nasdaq 100 futures is the highest in three years

Tech bullishness has soared, with bets on further gains for the sector at the highest level in three years, according to analysts at Citigroup.

In a note to clients on Monday, Citi's Chris Montagu said the recent futures positioning points to a market that's looking "increasingly one-sided" as long positioning in Nasdaq 100 futures picked up following last week's personal consumption expenditures report, which showed inflation in line with expectations in January.

"Our model signaled some profit taking pre PCE release before risk flows returned. Weekly ETF flows were more constructive, with levels rising, and both futures and ETFs now indicating extended levels of bullish positioning," Montagu said in the note.

Highlighting Nasdaq, Montagu also noted S&P 500's net notional at $55 billion, hitting the 86th percentile over a 3-year average. ETF positioning soared for both indexes in the past week.

In global markets, though European equities appear less stretched compared to the US, the closing of the remaining short positions in EuroStoxx has also created an "asymmetrical setup," with an extended long positioning adding significant hurdles to further gains. In Asian markets, the Citi researchers note that Japan's stock market rally continued into a fourth straight week, but investor bullishness was more muted.

The risk in such overextension of bullish bets is that investors could decide to suddenly take profits, sparking an abrupt pullback for the market.

The stellar performance of US equities fueled by the artificial intelligence frenzy has flashed an "overbought" signal for months, though Bank of America analysts argued in a note on Tuesday that could be the key to an extended rally in 2024.

Investors are placing bets on the timing of rate cuts in 2024, and on Wednesday they will hear from Federal Reserve Chair Jerome Powell in a two-day testimony to Congress. Any hint at rate cuts on the horizon has the potential to push investor bullishness higher, market watchers say, further extending the one-sided market narrative the Citi analysts highlight.