Bank of America analysts warn that equity markets must fall at least 3.5% from current levels before systematic trend-following funds begin to significantly unwind their long positions. Led by Chintan Kotecha, the firm notes that while positioning remains stretched across U.S., European, and Japanese equities, the immediate risk of forced selling is low as markets hover near all-time highs. Short-term models could adjust faster to price moves, but the bulk of CTA exposure relies on longer-horizon signals.

These funds are sensitive to volatility dynamics rather than daily fluctuations, reducing the chance of abrupt selling absent a sharper drawdown. BofA estimates a severe down-market scenario could trigger up to $86 billion in global equity sales over one week, with volatility-control strategies amplifying the pressure. Beyond equities, trend followers are buying oil and the U.S. dollar while selling soybeans.

In metals, they hold stretched long positions in gold, silver, and aluminum. In foreign exchange, they are long the dollar against the euro and Canadian dollar, and short the yen.