When we last looked at what Nomura's increasingly bearish quant, Masanari Takada, deemed were the key underlying market technicals on Monday, he said that with CTAs now shorting the Russell 2000, and "it was only a matter of time before they turned short on the S&P500" although judging by today's aggressive short squeeze, that day is probably not today.

Nevertheless, in his latest daily note sent to clients overnight, Takada writes that "it is clear that economic growth momentum in the US is slowing, and the index result was not favorable enough to allay the concerns of market participants." More importantly, most speculators, while cautious, have not yet pivoted to proactively selling off US stocks; they seem to be waiting to see what happens next.

However, today's action notwithstanding, Takada picks up where he left off last night, and warns that trend-following CTAs "may have started tentatively shorting S&P 500 futures" even if as he admits, he still "does not have enough evidence at the moment to say whether these CTAs have swung to shorting to a significant degree, but we think that the short strategies of systematic traders in the S&P 500 should become clear over the next two or three trading days." As a result, "the S&P 500 could end up coming under selling pressure, and conditions look ripe for volatility to be high."