Technology sectors in the Asia-Pacific region and the US staged a robust recovery on Tuesday, but Citigroup cautions that the process of resetting positions in US equities is not yet complete, and investors should not let their guard down too soon.

A team of strategists led by David Chew at Citigroup points out that the recent sharp sell-off in artificial intelligence and tech stocks has triggered broad de-risking activity. Fund flows for US large-cap stocks are overwhelmingly bearish, with overall positioning having deteriorated significantly. Notably, all long positions in the Nasdaq 100 index are currently underwater, and the positioning level remains elevated, constituting a potential downside risk.

This warning comes as the market experiences a noticeable sentiment repair.

Memory chip stocks were broadly higher in pre-market US trading on Tuesday, with SanDisk up around 7%, SK Hynix up about 6%, and Micron Technology, Western Digital, and Seagate Technology all gaining approximately 5%. Asia-Pacific markets moved higher across the board, ending a four-session losing streak. South Korea's KOSPI index saw its gains widen to as much as 4% at one point, prompting the Korea Exchange to trigger its 'Sidecar' mechanism due to the sharp rally, temporarily halting programmatic buying for the KOSPI.

Citigroup's View on Nasdaq Positioning Risks

Despite the market rebound, according to Bloomberg, the Citigroup strategist team maintains a cautious assessment of US equity positioning structures.

The report indicates that the adjustment in S&P 500 index positioning has been primarily achieved through the unwinding of long positions. In contrast, the de-risking for the Nasdaq has been more aggressive, involving a combination of long liquidations and the addition of new short positions, pushing overall positioning to near one-month lows.

Citigroup specifically highlights the risk in the Nasdaq 100: all current long positions are deeply in the red, while the overall positioning level remains in a high range. This suggests that pressure for further unwinding has not been fully released.

European DAX Turns Bearish, Asian KOSPI Deemed Most Vulnerable

Regarding the European market, Citigroup states that European investors have continued to reduce their risk exposure through profit-taking and adding new short positions, pushing the DAX index into bearish territory.

However, the strategists also note that the DAX holds significant potential for short-covering should market sentiment improve.

In Asia, Citigroup believes South Korea's KOSPI is currently the market most vulnerable to further deleveraging shocks. Although the index has retreated recently, its positioning level remains high, leaving it with greater downside exposure if the market faces renewed pressure.