BofA Sounds The Alarm: "Biggest Sell Signal In 5 Years Was Just Triggered"

One week ago, Bank of America's Michael Hartnett showed  that as a result of the ongoing stock market euphoria, the 4-week inflow into stocks had hit the highest ever, although he suggested that we were "not quite there" yet when it comes to euphoria becoming a "selling" trigger.

So fast forward one week, when according to BofA's latest weekly flow show, we finally made one-week history as investors poured the most money on record into equity funds, and warning that with the Bull & Bear indicator surging to 7.9 "the highest since last sell signal >8 triggered Mar’13", a tactical pullback in sky-high markets in February and March is now "very likely".

Overall, as part of what Hartnett calls a "non-stop euphoria cabaret" markets saw a record $33.2bn inflow to equity funds this week, record $12.2bn inflow to active funds, $1.5bn into gold (50-week high), as well as record inflows to tech & TIPS.

And while we all know how overbought the market is, here are two stunning statistics:

  • 98% of global equity markets trading above 50 & 200 day moving averages
  • AUM of SPY ETF now = GDP of Denmark.


Some further details on the historic inflows by region and product:

  • broken by region, it was more of the same as U.S. equities saw $7bn of inflows, Europe $4.6bn, Japan $3.4bn; while EM funds had the 2nd best week of inflows on record at $8.1bn.
  • On the credit IG bond funds gain $2b in 57th straight week of inflows, HY bond funds see outflows of $2.5b, EM debt inflows $1.6b

And while the rotation from debt to equity has not yet happened, a subset of debt - junk bonds - is clearly throwing in the towel, as shown in the chart below, which shows that equity flows relative to credit flows at all-time high (Chart 1 – HY redemptions 11/13 past weeks & slowing IG inflows); here Hartnett reminds us that "credit leads equities (except in bubbles)."

Looking at FX flows, BofA writes that as a result of the "tainted dollar", EM debt & equity inflows close to May’13 peak, which helps explain recent surge in EM currencies:

d

A little more euphoria and it will be time to sell emerging markets: "EM Equity Flow Trading Rule…$5bn into EM equities next week triggers 1st sell signal since Aug’14"

So going back to the BofA "sell signal" that was just triggered, Hartnett explains that the BofAML Bull & Bear indicator just surged to 7.9, highest since last sell signal >8 triggered Mar’13.

From here, inflows into HY/EM debt/equity funds would flip “soft sell” for risk assets to “hard sell”.

Euphoria charted: BofAML GWIM private client equity exposure rising at fastest pace in 10 years...

... and cash allocation at record low (10%).

Should one trust the BofA Bull and Bear indicator? Well, yes: "BofAML Bull & Bear indicator has given 11 sell signals since 2002; hit ratio = 11/11; "

What happens next? Well, once hit, the average equity peak-to-trough drop following 3 months = 12% (backtested, Table 1); note the last Bull & Bear indicator flashed was a buy signal of 0 on Feb 11th 2016.

Putting it all together, BofA warns that a "tactical S&P500 pullback to 2686 in Feb/Mar now very likely."

And here is what can spark it:

"The Art of Falling Apart: US dollar key catalyst; note US-Europe FX spat sparked ’87 crash; higher US$ “pain trade” = risk-off coming weeks; we reiterate 2018 calls: Big Long = Vol, Big Short = Credit, Big Risk = Equity Bubble (driven by $10.3tn of negatively yielding debt), Big Rotation from Davos Man to Joe-Six Pack portfolio"

Will this time finally be the charm for BofA's recurring warnings of an imminent market plunge? The next 2 months will reveal if - this time - it was finally right...

Comments

adr Fri, 01/26/2018 - 09:36 Permalink

It is impossible for retail investors to pump that much cash into the system, so that only leaves Central Banks as the culprits.

Printing cash like a Crypto conjuring tokens out of thin air and buying assets with it.

Kind of like Tethers. The money is supposed to be backed by something, but it's not. But since the manipulators control the printers, nobody can stop them.

Francis Marx Fri, 01/26/2018 - 09:39 Permalink

BoFA is always wrong. But Armstrongs computer is calling for a lot of volatility in feb. He also said March is a turning point but didnt know what direction.

Eman Laer Fri, 01/26/2018 - 10:10 Permalink

"a record $33.2bn inflow to equity funds this week, record $12.2bn inflow to active funds, $1.5bn into gold (50-week high), as well as record inflows to tech & TIPS."

 

One of these things is not like the other, one of these things just doesn't belong....

Kat Daddy Fri, 01/26/2018 - 10:37 Permalink

Will the damning Nunes Memo outlining collusion at the highest level of government tank the market?  What do you think?  How about the indictments later this year; HRC, Obama?  What about Pedophilia and Child Sacrifice?  Nah, Dow 30,000!

LawsofPhysics Fri, 01/26/2018 - 10:38 Permalink

LOL!!!  Hotel California?

I think this has more to do with the fact that there is no mechanism for true price discovery, thanks to BofA and other primary dealer banks... (proxy for The Fed)!!!!

jtmo3 Fri, 01/26/2018 - 10:45 Permalink

If I had a dollar for every time I heard the world was ending, I could fucking retire. Do you all ever get tired of being wrong here?

falconflight Fri, 01/26/2018 - 11:39 Permalink

So now there's no such thing as a market correction.  Any downward movement is a prelude to catastrophe.  I cringe every time Pres. Trump cites the market for success.  They'll make him eat his words.

Alexander De Large Fri, 01/26/2018 - 13:13 Permalink

And we saw the biggest sell off in five years also, right?  Because not only would algos catch this signal, but trained brokers and investors would catch this also, right?

BULLSHIT.  SHUT THE FUCK UP TRYING TO LIE TO IDIOTIC PERMABEAR MUPPETS.

RETIRED MARINE CORPS COLONEL DONALD J. TRUMP IS PRESIDENT, EVERYTHING IS GREAT, STOCKS HAVE NEVER BEEN BETTER, MORE LAZY ILLITERATE NIGGERS IN THE GHETTO HAVE JOBS THAN EVER BEFORE, AND BEANERS ARE GETTING ROUSTED OUT OF A DRUNKEN SLUMBER AND PUNTED BACK OVER THE BORDER SO FAST WHITE PEOPLE HAVE BEGUN FORCING THEIR GROWN MILLENNIAL CHILDREN TO LEARN HOW TO OPERATE GARDEN HOSES AND TAPE MEASURES LIKE BACK IN THE 1950'S.

#MAGA

taketheredpill Fri, 01/26/2018 - 15:53 Permalink

Confused here.  Last SELL signal was 8.0 in March 2013?  So what happened after that?  HIGHER until 2015.

 

Just....confused, unless the last SELL was in March 2015...