Investors and traders pondering the future of an equity market stuck in melt-up mode have developed an obsession with positioning.

Put as a question: Who’s in and for how much? Just as importantly: Who’s not in and when will they get tired of missing the rally?

The answer to that latter question will help determine the fate of what many still view as a “maybe bull.” We know cash levels remain elevated, and not just because some money managers are skeptical of the rally. Cash isn’t just viable as an asset class, it’s a must-own. Who doesn’t want a 5%-yielding de facto ATM put?

In the US, money market fund flows have turned choppy, but total assets remain near $5.5 trillion. Globally, that figure is nearly $8 trillion. That’s a lot of dry powder. At the same time, there’s been no real all-in capitulation to US equities on the flows side. Despite an inflection in late May, US equity-focused ETFs and mutual funds are still sitting with a net outflow for 2023.

At the same time, both discretionary and systematic investor cohorts have re-risked materially, and individual investor sentiment is very bullish.

“We’ve fielded an increasing amount of questions from clients on where various positioning measures are relative to history,” Morgan Stanley’s Mike Wilson said Monday, underscoring pervasive interest in the subject, and drawing the same 2019 parallel as Deutsche Bank.

We’re witnessing “a late- cycle, policy pivot-driven rally that was fueled almost entirely by multiple expansion,” Wilson wrote, on the way to enumerating the “key takeaways” from his survey of institutional and individual investor positioning and sentiment gauges as follows:

• CFTC net positioning data has gotten more constructive for both the S&P and the NDX; for the S&P, positioning sits below the Dec. 2021 level and the 2019 average; for the NDX, it sits just below where it was in Dec. 2021 and above the 2019 average.
• The NAAIM Exposure Index (active manager exposure) is also on the rise; it’s above Dec. 2021 and average 2019 levels.
• Morgan Stanley’s Global Risk Demand Index reached historically elevated levels in mid-June and has since come off those local highs.
• Individual investor orders as a percent of daily notional traded has risen recently to levels above the long-term median.
• Individual investor sentiment as measured by the AAII bull-bear spread is now at the highest level since April of 2021.
• Mutual fund cash levels (as a percent of total assets) are slightly below their 2019 average and above December 2021 levels.
• The put/call ratio is now notably below December 2021 and average 2019 levels.
• Long/short equity hedge fund net and gross leverage levels are now slightly above where they were on average in 2019 but they are still well off trailing five-year peak levels.
• Households’ allocation to equities is above the 2019 average and below the December 2021 peak; this measure has picked back up again recently.
• The S&P 500’s 30-day relative strength index has just come off the highest level since September of 2020.

I’d be inclined to say the jury is still out. The results are inconclusive. As Wilson himself put it, “Most measures appear elevated versus an 18-month look-back, but are not extreme in a more elongated historical context.”

Here are some additional bullet points from Deutsche’s Parag Thatte, editorializing around positioning as of July 21:

• Total net call volume (call minus put) rose sharply to its highest since Nov 2021 (97%ile), driven mainly [by] single stock options.
• Investor sentiment (bull minus bear spread) rose sharply this week to the top decile (91%ile, the highest since April 2021), while extending the current bullish trend to a seventh consecutive week.
• A basket of most shorted stocks has outperformed the broader market again, as did a basket with the highest net call volumes in the prior week.
• Vol control funds maintained their equity allocation above the 70% mark (69%ile), close to the historical maximum allocation.
• CTAs increased their overall equity allocation this week with increased longs in Europe and the US (S&P 500, Nasdaq 100 and Russell 2000) and a decreased short position in the FTSE. While they remain solidly long in the US and Europe, longs in EM could flip to shorts on a modest pull back.
• Risk parity funds in our reading trimmed their equity allocation further to somewhat below the longer-term median (42%ile).

There are an infinite number of measures, metrics and indicators one could conjure to assess positioning and sentiment. You can take “infinite” almost literally.

For those interested, find a collection of visuals from Deutsche Bank and Morgan Stanley below which may (or may not) give you a better idea of, as I put it here at the outset, who’s in for how much, and who’s not.