One week ago we were surprised to learn that no matter what the market was doing, whether it was going up, down or sideways, Bank of America's "smart money" (institutional, private and hedge funds) clients, simply refused to buy anything, and in fact had continued to sell stocks for a near-record 12 consecutive weeks. In fact, the selling continued despite what we said, namely that "at this point it was about time for the selling to stock, if purely statistically, otherwise said "smart money" would be sending the clearest signal yet that the market rally from the February lows is nothing but a huge gift to sell into."
One week later we were absolutely convinced that finally the selling would end. It has not.
As BofA reported overnight when looking at the latest trading activity by its smart money clients, "BofAML clients were net sellers of US stocks for the thirteenth consecutive week last week—making it the longest uninterrupted selling streak in our data history (since 2008) as clients continued to doubt the market rally."
According to BofA, "net sales were $3.8bn, the biggest in three weeks but the sixth-largest in our data history (since ’08), with sales from hedge funds, private clients and institutional clients alike. This follows a week of net buying by hedge funds the prior week; institutional and private clients have both been consistent net sellers since February. Clients sold stocks in all three size segments, and year-to-date only small caps have seen cumulative inflows."
While clearly this confirms that the so-called smart money not only refused to buy into the rally and merely looked to sell into the market move higher, it does not explain why the forced selling pressure that has been relentless for three months in a row; perhaps it is redemption requests, perhaps it is merely pervasive bearishness and lack of faith that central planners have regained control; one thing is certain: the "smart money" is once again drastically underperforming the market, which will accelerate the vicious cycle loop of even more redemptions, even more selling, until finally the corporate buyback bid is exhausted and is unable to offset the accelerating and relentless liquidations by "smart money" accounts.
So what did BofA's clients sell (or buy)?
Clients sold stocks in nine of the ten sectors last week, led by Tech and Industrials; clients also sold ETFs. Only Energy stocks saw net buying, as oil prices continued to rebound—this was the first time clients were buyers of Energy stocks in seven weeks, entirely due to institutional clients’ flows. Cyclical sectors continued to see larger sales than defensive sectors—though we note that Health Care—which has been hurt by a positioning unwind and political uncertainty in an election year—continues to have the longest net selling streak of any sector at eight consecutive weeks. Year-to-date, only Telecom and Materials have seen cumulative inflows (with Telecom buying led by private clients, and Materials buying chiefly due to corporate buybacks).
Worth noting that among the net buying were ETFs, which smart money clients have been buying since early April. Meanwhile, in the Net selling category: Tech since late Jan.; Staples since early Feb.; Industrials since mid-Feb.; Energy and Financials since late Feb; Telecom, Materials and Health Care since mid- March; Consumer Discretionary since late March, Utilities since early April.
So with everyone once again selling, who bought? " Buybacks by corporate clients picked up last week, but were still below-trend (as buybacks are seasonally light in April)"