Hedge fund sell-off accelerates: Read By Investing.com

Investing.com — Long managers increased their exposure last week, with the biggest additions to the Technology, Industrials and Financials sectors, Citi said in a report on Tuesday. On the other hand, they reduced their holdings in energy, healthcare and real estate.

“Energy is the only sector that has seen exits from long-term managers over the past 2 months, while financials, technology and consumer discretionary have seen the most inflows,” Citi strategists said.

Meanwhile, hedge fund flows remained biased toward selling during the week, with only a few sectors posting net inflows. Specifically, hedge funds increased their exposure to financials, healthcare and energy, while the largest net outflows occurred in consumer staples, technology and industrials.

Citi also highlighted changes in its flow-based relative value model, where technology has replaced real estate among the top three sectors. Utilities and materials now rank in the bottom three, replacing technology and communications.

According to Citi strategists, current market participants suggest that prices, as of last Friday, have moved away from the “Soft Landing” sector positioning. In particular, recent price action resembles a combination of an “early recession” with underperforming energy and technology and a “late recession” where cyclicals have outperformed defensive stocks.

More recently, strategists note that the “Soft Landing” correlation has declined, while the “Overheating” correlation has increased. They warn that in the past few years, when the “overheating” correlation has turned positive, it has “created problems for the S&P and is something investors should be on the lookout for.”

And they closed at record highs on Tuesday, riding out weak consumer confidence data as mining stocks rose in response to China’s announcement of a major stimulus package.

The Dow rose 0.20%, the S&P 500 gained 0.25% and climbed 0.56%.