Goldman Sachs equity derivatives specialist Cullen Morgan recently shared a cautionary note that may cause unease among those participating in the current market rally. His analysis indicates that while net market returns appear positive, the reality of trading activity reveals a larger proportion of sellers than what is apparent on the surface.
Morgan serves as a Vice President and is an expert in equity derivatives and client flows at Goldman Sachs. In a note released on August 3, he underscored that recent gains in the market might misrepresent underlying weaknesses in trading flows.
He has established a strong reputation for tracking derivatives positions and the movements of clients. His prior assessments have included the analysis of Commodity Trading Advisor (CTA) positioning, which involves systematized funds using algorithms to follow momentum and market trends across various asset classes.
In previous communications stretching back to 2024 through 2026, Morgan highlighted that CTA long equity exposure reached the 94th percentile. He projected that potential CTA sales could range significantly from $1.2 billion to $32 billion, depending on different market scenarios.
#What is the difference between gross and net flows?
Understanding the difference between gross and net flows is crucial for investors. Net flows summarize all buying and selling into one figure. For instance, if institutions purchase $10 billion while selling $9 billion, the net flow appears positive at $1 billion. However, the gross selling of $9 billion indicates a substantial level of distribution occurring below the surface.
Morgan's insights suggest that there is significant activity from large sellers, yet this is being overshadowed by enough buying to keep net figures looking optimistic. In particular, he pointed out unusual trends affecting the S&P 500. His client communications have consistently underlined the disparity between the market's headline performance and the inherent risks involved in underlying positions.
#Why is this relevant to the crypto markets?
While Morgan did not mention cryptocurrency directly, the implications of his note are highly relevant to crypto markets. Over recent years, Bitcoin and the broader digital asset market have become increasingly connected to equity risk sentiment. Systematic funds operating cross-asset momentum strategies do not differentiate; they tend to liquidate whatever is liquid when market signals deteriorate.
The range of potential CTA sales that Morgan modeled aligns with the type of systematic sell-off that has historically affected crypto markets. For crypto traders, the breadth and quality of flows in traditional equities can serve as an indicator for potential volatility in digital assets. When insights from Goldman Sachs’ derivatives desk indicate that the flow scenario may not be as positive as it seems, this should not be ignored. It acts as an important signal to watch.