The past week has not been encouraging for investors, with many asset classes haemorrhaging funds at increased speed.
The week before that, on January 30, the Bank of America Merrill Lynch’s Bull/Bear indicator triggered a sell signal for the first time in five years, and markets sold off.
What a week last week was for stock markets, and especially for one particular indicator. The Bank of America Bull/Bear indicator, which the week before last came within a whisker of the Sell signal, last week went above it, for the first time in five years.
The Bank of America Merrill Lynch Bull/Bear indicator last week hit the highest level since its last sell signal, just as U.S. President Donald Trump took credit, once again, for the surge in the stock market.
Sentiment was getting even closer to triggering a “sell” signal in the stock markets last week, as investors’ enthusiasm climbed even more.
It’s hard to find a more bullish start to a year than this one. There were “blockbuster” inflows of capital into stocks, as well as corporate and emerging markets bonds, according to the latest analysis by Bank of America Merrill Lynch.
Investors’ optimism remained at very high levels, despite the beginning of tapering of quantitative easing by the European Central Bank (ECB), tensions with North Korea and the Catalan crisis.
The recent risk rally still has legs — at least that’s the case judging by the Bull & Bear indicator compiled by Bank of America Merrill Lynch.
After the carnage in the stock markets — it was the worst start of the year ever for U.S. stock markets — a look at capital flows can give some clues on where the markets might be headed next.
Bearishness increased for the short term (a one to two weeks horizon) while intermediate-term bullishness on US stock markets has tempered, flows data around the first interest rate raise by the Federal Reserve in nearly a decade show.
Investors are extremely bearish for the short term, just before a crucial decision by the Federal Reserve on whether it would raise interest rates or not later this week.