Sentiment More Bullish Than 99% Of All Prior Readings

Tyler Durden's picture

Movements in equity prices are driven by many factors, such as the economy, government policy, earnings, interest rates and valuation. But we think tactical moves (<3 months) are often better explained by sentiment, positioning and technicals. While macro, policy and valuations matter, sentiment has worked well in recent years as a contrarian tool to identify short-term inflection points in asset prices. According to BofAML's new Bull & Bear Index investor sentiment toward risk assets is at a more bullish level today than 99% of all readings since 2002. The current reading of 9.6 (out of 10) is close to max bullish and thus triggers a contrarian "sell" signal for risk assets. In their view, the relative risk-reward of owning equities is unfavorable at this juncture. Since 2002 a "sell" signal of 8.0+ was on average followed by a 12% peak-to-trough correction in global equities within three months.

Via BofAML,

We believe risk is the permanent impairment of capital and that reducing risk when sentiment is bullish is fundamental to effective risk management.

The current level is extreme by any measure...


with a very clear divergence between sentiment and economic data...

Chart 4 below shows periods (grey bars) when B&B was in EXTREME BULL territory (8.0 or above). During these periods, we believe risk should have been taken off the table.

The red lines in the chart show the maximum drawdowns for global equities that occurred within three months. The drawdown, defined as the peak-to-trough decline in MSCI ACWI within three months of a “sell” signal, would have been 12%. The forgone upside, defined as the upside return from the initial trigger to the subsequent market peak, would have been 3.0%...



1. Flows: investor risk appetite as indicated by flows to EM equity funds, EM debt funds and high-yield bond funds

2. Positioning: investor risk exposure as measured by long-only fund manager cash levels, equity vs bond allocation, cyclical vs defensive sector allocation and futures positioning across fixed income, commodities, FX and equities

3. Price action: market technicals as implied by global equity market breadth and relative performance of global credit markets to US treasuries


Source: BofAML

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VonManstein's picture

SPX retard levels could last a few months i feel, so ye "within three months" sounds about right

rahbii's picture

Up to FED pumping and fucking

markmotive's picture

Even if the economy does start improving it will only drive oil prices up to the point that we slow down again. We've entered a new boom bust cycle and most don't realize it.

The next 40 years won't be as easy as the past 40.

Say What Again's picture

We're not yet at 100% Bullish, so there is plenty of room to run

Buy, Buy, and then Buy some moar!!!!

lasvegaspersona's picture

We did not have Ben in 2002. Markets cannot go down...can they?

Sudden Debt's picture


Freddie's picture

I really like Tyler/Tylers but he/she still thinks there is a real stock market.  It is O/The Bernank's casino not a real market.  It is beecoming a real Dorner.   The "market" has gone full retard like the LA PD.

mickeyman's picture

But it's still not the most bullish it's ever been.

CH1's picture

Which means we should be bullish!!!!


Seriously, this stopped being a market a long time ago. It's a rigged casino, and it can keep going up for a long time if Bennie's bosses tell him to keep printing and injecting.

Go Tribe's picture

It's a dick tease market.

Renewable Life's picture

All "historical " data is bullshit at this point, its apples and oranges, there has never been this warped of a centrally planned attack on the market, as what Bernanke has waged this time, nothing even close!

As the dollar collapses, the stock market could go to 25,000, but as the dollar goes, so goes the society! Inflation will outpace even the stock market and the required social spending payoff needed to sedate 200 million+ people, will become unsustainable, its already unsustainable! They now this, its why they have to round up the guns, track every person wikth a gun or ammo or with any means to survive outside the system, and stock up on guns, ammo, and equipment themselves (which they are doing)! 

Not to mention, considering this entire stock market run has been on government funded QE and not organic growth, how bad will the loses be, when this bitch falls THIS time!!! There wont be a bailout big enough to calm shit this time!!

fonzannoon's picture

can't you see I am trying to eat my steak over here?

AldoHux_IV's picture

money managment advice 101: sell more risk premium in a pomo primed/QE forever market to readers that despise all centrally planned activities such as manipulated markets that are chomping at the bit to short such outlandish and self serving policy tools

busted by the bailout's picture

Maybe they're right this time. 

After all, free money can do wonders!

fonzannoon's picture

We are going to break through new highs and keep climbing. That is when it gets fun. Once we hit uncharted territories they will march out the dow 20k club avery half hour. They will pound the table that shorts better cover because they could possibly suffer unimaginable losses. How far can they push the psychology this time? Will people scramble to throw some money on the table or regret missing the greatest stock market run in history? They are going all in with it this time.

A Lunatic's picture

Looks like the final consolidation eh? Speaking of which, I see the Destroyer in Chief is going to label his work on the economy as "an unfinished task" (wink wink) during his 'what's left to ruin in the State of this Union' speech.

fonzannoon's picture

He is going to pause during his speech and rip a loud fart that will sound like "keystone pipeline" and that will be good for 20 ES points tomorrow.

I put a 2% probability that I just got junked by the pres himself.

Being Free's picture

+1 Fonz ... fuck the president.

SumSUN's picture

Didn't one of the Rothschilds say: "Sell when the trumpets are playing and sell when there's blood in the streets."?

Bought some DOG at 14000. 

SumSUN's picture

Haha maybe that was a Freudian slip.  

Lewshine's picture

"The current reading of 9.6 (out of 10) is close to max bullish and thus triggers a contrarian "sell" signal for risk assets.'

I'm no bull when it comes to playing in a corrupt casino - But the "Contrarian sell signal" point is the most ridiculous thing I've ever read.

So in english, it must means this; Everybody who has had the balls and inside info betting on this market parabol, driven by Fed intervention, will eventually make more money, until the Fed stops raising equity value through QE. BWHAHAHAHAHAHAHAHAHAHAHA!!! Because contrairians didn't get the memo that Ben is buying the market!!! BWAHAHAHAHAHAHAHAHA!!! 


yogibear's picture

There certainly is market euphoria. The Fed equates printing and an ever higher market with the wealth feeling.

Ask the people in Zimbabwe how wealthy the felt when their stock market hit record highs.


joego1's picture

Wow! 99% high on this sentiment stuff? Maybe I should ditch my meds and get some of that!

medium giraffe's picture

FED500? Mmmmm....  roast lamb....

mrfreeman's picture

Everyone is soooo childish on here.  I presume you all gave up trying to trade this lunacy some time ago?  But anyway, if anyone is seriously trying to trade still, is it appropriate to note that the commercials have gone heavily long on treasury bonds, and short risk assets (S+P, copper, silver etc.)?  So would that *usually* mean risk off approaching?   Or doesn't that have ANY relevance anymore? 

fonzannoon's picture

"Everyone is soooo childish on here. I presume you all gave up trying to trade this lunacy some time ago? But anyway, if anyone is seriously trying to trade still......"

listen to yourself....and you are throwing stones? Head over to seeking alpha. Everyone on here mailed it in a long time ago.

medium giraffe's picture

obvious bull trap is obvious.

still playing on half-life?

Freddie's picture

LOL! Med Giraffe and Fonz!  Half life.  

Hey Fonz Seeking Alpha is so effing lame.  Old guys and kids writing articles on how great Apple is and What Buffett Would Do?

davidsmith's picture

In a controlled economy such as we now have, it makes no sense to talk about "bullish" sentiment.  The market is simply under the control of the United States government.  It will go up or down as the government wants it to.  History is no guide to what is happening now.  All the U.S. government is doing is looking to the decline in the society itself, to tell it what level the stock market should be.  It has nothing whatsoever to do with investor sentiment.

optimator's picture

Fed puts in 1.5 million in the market in a day and DOW drops  40+ points.

Fed puts in 3.5 million in the market in a day and DOW rises 40+ points.


Totentänzerlied's picture

Let's slaughter us some bulls. I hope Cramer will make another "they're dyin' in the streets" speech.

Michelle's picture

When anyone on CNBC is asked if they would be buying stocks at this level, the canned answer is "if you're a long term investor...yes" Got the message loud and clear.

5 seconds before the closing bell today CNBC interviewed a veteran TRADER, asked about the SOTU address and whether he'd be buying, he said he'd sell his positions and buy back later. Got the message loud and clear.

Karlus's picture

That trader was "winning the future?" or maybe winning futures....or would win in the future....not sure anymore

Freddie's picture

TV and Hollywood are for retards like Dorner.  Keep watching and keep supporting it.

orangegeek's picture

More hopium please.

q99x2's picture

3 more months. That's not long compared to the 4 years of waiting so far.

chump666's picture

Great post ZH, thanks

Greed is usually punished in an euphoria all in market.  The old school way of get the f*ck out of a overbought death trap was getting stock tips from Hookers and Cab drivers.  But average humans don't trade stocks anymore, it's the Wall Street greed wagon about to crash and burn. 



ytraderx's picture

Japan's economic minister recently announced that the government wants to push the Nikkei at 13,000. It looks like Japan is set for some heavy duty monetary easing! Check it out:

Herkimer Jerkimer's picture





I've seen Chart 4 all over lately.


Where can I get a hold of that sucker as an on-demand thing, 'cause it looks like a nice one to have around. I'd kind of like to see it when it looks like the bottom is comin' around again.



jim249's picture

Is bullishness the next bubble to pop? Stay tuned!

Joe moneybags's picture

A 12% correction within 3 months? Not quite an epic crash...just another dip to buy.

The BofAML indicator is just another overbought oversold indicator that matches everybody else's sentiment.  I note that their indicator was essentially neutral in late 2008, and failed to predict the major part of the crash.

jonjon831983's picture

Well... Japan is doing well.  Thanks to the cold weather!

"Cold Weather Probably Snapped Japan Out of Recession: Economy"

collon88's picture

This time is different.

ebworthen's picture

Deja vu 2007 all over again.

mrfreeman's picture

Still playing half-life? Lol, you know what, I would MUCH rather play half-life and video games than watch these pathetic 'markets' and all the idiotic manipulation which masquerades as fundamentals.  At least you get some enjoyment out of the games. 

The reason I posted about the commercials is because their positioning matters.  There is a definite correlation between their long/short positions and market movements.  But nobody here seems bothered about that.  But I agree that the stock market only seems to go up nowadays, and I wonder if Ben has been so keen to pump it up, why would the commercials smack it down again?  Only if they can make money out of the sheep/hedge funds in the process! (With a little help from the Bernank and Draghula).