According to a report by JPMorgan Chase, the drastic deleveraging has made the current market "cleaner," creating conditions for a tactical rebound in the short term. However, crowded long-term positions remain a potential structural risk.
1. The market experienced its most severe deleveraging since 2020 and 2022 in July, particularly with the massive sell-off over three consecutive days in late July. Despite proactive risk reduction, hedge funds' total leverage ratio remains at a 5-year high (96th percentile).
2. The US Tactical Position Monitor (TPM) fell below -1.5 standard deviations on July 23, triggering an "attractive" tactical setting, suggesting a potential market recovery. The momentum factor's long position relative to short position has reached its largest 20-year low, reflecting a clearing out of extremely crowded positions in the technology and semiconductor sectors.
3. While such extreme values typically indicate rebound potential, long-term position risks remain (the momentum factor is still above the 90th percentile).
