The writing is on the wall as Bank of America sounds ominous warning.
From Zero Hedge
It is not only BofA’s “smart money” clients who have been selling the rally non-stop (and at an accelerating pace) for the past 10 weeks: so has the bank’s chief investment strategist, Michael Hartnett, whose reluctance to embrace the mania has been duly documented on these pages.Below we lay out the reasons why he “remains a seller of risk.”
From his latest summary note:
Positioning…Sell Signal: our Global Flows Trading Rule triggered “sell” almost 4 weeks ago; note BofAML Bull & Bear Index now at 4.1 = 9-month high = most bullish sentiment since Jun’15;
Watch Cash level in next Tuesday’s April BofAML Fund Manager Survey (Feb = 5.6% “unambiguous buy signal”, March = 5.1%, April < 4.8% (3yr avg) would be risk-negative).
Positioning…US$ Bull Unwind: Fed-induced pullback in US$ continues to cause unwind of 2015 inflows into “strong-dollar” markets…Japan equity redemptions have lagged European equity redemptions (Charts 5 & 6).
a. Fed policy makers as fickle “as a feather in a storm” but key US domestic demand indicator, small business confidence trending decisively lower (Chart 4)
b. Quantitative Failure writ large across Japan/European macro
c. global bank stocks (note correlation between Japanese yen & relative performance of US financials past 12 months…both recently reflecting renewed risk aversion – Chart 3)
Profits…Upside Required: both 2016 GDP & EPS estimates continue to be revised lower (Charts 8 & 9) despite monetary policy inducing $9.1 trillion of negatively-yielding global government bonds (25% of outstanding).
We remain a seller of risk!