The Selling Returns With A Vengeance: The "Smart Money" Dumps Most Stocks Since mid-April

Last week, when we reported that after a record, 19-consecutive-week long stretch of selling by BofA's smart money - hedge fund, institutional and private client - clients, this group had finally bought stocks for the first time since January, we said "with the smart money having sold for the duration of the short squeeze and the rally from February, is their flipping and resumption of buying at the highs, an indication that the top has finally been reached?" So far, with the market peaking last week at 2016 highs and since sliding lower on Brexit, central bank policy failure, global recession fears, the answer appears to be yes.

Demonstrating just how fast sentiment on Wall Street flips, BofA reports that last week, during which the S&P 500 was down 0.2%, BofAML "clients returned to selling US stocks, following a week of net buying. Previously, clients had sold stocks for 19 consecutive weeks, the longest selling streak in our data history. Net sales of $3.8bn last week were the largest since mid-April, with selling led by institutional clients (the biggest sellers during the majority of the selling streak—see Chart 3). Private clients were also net sellers; this group has sold stocks for the last eighteen consecutive weeks, though in lesser magnitude vs. institutional clients. Meanwhile, hedge funds were net buyers last week after selling stocks in the prior two weeks. Small, mid and large caps all saw outflows. Buybacks by our corporate clients picked up slightly last week, but still remain weak, with the four-week average tracking its lowest since January 2015."


Flows by sector:

Selling last week was broad-based, as single stocks across all ten sectors saw net sales. Only ETFs saw net buying, as they have for the past five weeks. Net sales were the most sizeable in Health Care—which has seen among the largest and most consistent sales this year amid uncertainty over the US election and a positioning unwind—and Financials, which was the worst-performing sector last week as expectations for the next rate hike were further pushed out. Year-to-date, clients have been cumulative net sellers of single stocks in all sectors except Telecom.

Institutional clients were the biggest net buyers last week, consistent with trends for most of this year. Private clients were also net sellers, while hedge funds were small net buyers. All three size segments saw outflows. Corporate buybacks accelerated slightly, but remain weak.

Rolling four-week average trends by sector

  • Net buying: Telecom since late April; ETFs since late May.
  • Net selling: Tech since late Jan.; Industrials since mid-Feb.; Materials and Health Care since mid-March; Consumer Discretionary since late March, Utilities since early April; Energy since mid-May; Financials since late May.
  • Notable changes in trends: Consumer Staples saw a reversal to net buying after having seen net selling since early Feb

Finally, the rolling four-week average trends by client type

  • Hedge funds are now net buyers of US stocks on a 4-week average basis, after having been net sellers since early Feb.
  • Institutional clients have been net sellers on a 4-week average basis since early Feb.
  • Private clients have been net sellers of US stocks on a 4-week average basis since early January.
  • The four-week average trend for buybacks by corporate clients suggests a bigger slowdown in buybacks than what we have seen the last few years at this time (Chart 24).

What is the conclusion from all of this, and what does it suggest about the market's next move? We have no idea, but what is clear is that even the "smart money" is nothing more than a glorified Dennis Gartman, flip-flopping each and every day depending on what the last tick in the S&P500 was.