An indicator with a perfect track record just sent a 'powerful' sell signal

CNBC ^ | 01/26/2018 | Jeff Cox

[Red Badger]

Investors poured $33.2 billion into stock-based funds last week, another indication that the market may be overheating. Bank of America Merrill Lynch's "Bull & Bear" indicator is sending a sell sign, which has been accurate 11 straight times since the firm started tracking it in 2002. The indicator points to a technical pullback for the S&P 500 to 2,686, which would be about a 6 percent drop from the current level.

The relentless gush of cash into the stock market is sending a powerful "sell" signal, according to a Bank of America Merrill Lynch gauge that has been a reliable indicator in the past.

Investors poured $33.2 billion into stock-based funds through the week ended Wednesday, BofAML said in a report. That's a record both for total flows and as well as for active funds, which alone pulled in $12.2 billion.

By comparison, equity funds across all classes took in a net $278 billion for all of 2017, according to Morningstar, meaning that last week alone equated to 12 percent of flows for the entire previous year.

The week continued a trend that has seen money rush into stocks as major averages climb to new records. The Dow Jones industrial average is up 7 percent year to date.

While the inflows have helped push the market higher, they also can be seen as a contrary indicator when they flash signs of excess. BofAML uses a proprietary "Bull & Bear" indicator that gauges when inflows or outflows point to investors moving too far to either side.

The current reading on the indicator of 7.9 is the most bullish since a reading above 8 in March 2013 — a sell signal. Michael Hartnett, BofAML's chief investment strategist, said the Bull & Bear indicator has shown 11 previous sell signals since the firm started tracking it in 2002 and has been correct each time.

In the near term, around February and March, that suggests a technical pullback for the S&P 500 to 2,686, which would represent a drop of close to 6 percent, Hartnett said.

The enthusiasm has not been unique to the U.S., whose equity markets brought in $7 billion of fresh cash.

Emerging markets attracted $8.1 billion in new flows, Europe brought in $4.6 billion and Japan saw $3.4 billion. That comes as 98 percent of global markets are trading above their 50- and 200-day moving averages, both classic signs of overbought markets.

[Red Badger]

It may have a perfect track record, but the underlying riles of the game have changed................

[jyo19]

Even if there was an S&P pullback, the fundamental business environment is still better because of executive deregulation by the Trump administration.

[Red Badger]

Exactly.

The Tax Laws have changed, The regulations are reduced and the old rules do not apply.................

[immadashell]

Hmm, 6%? With the market up 44% since the election does this amount to much?

[robroys woman]

I remember my brother, in 1981, saying Reagan was going to die in office because every president elected on a year with a zero at the end died in office.

Not no more...

[blam]

Doctor Copper

DEFINITION Of 'Doctor Copper'

Market lingo for the base metal that is reputed to have a Ph.D. in economics because of its ability to predict turning points in the global economy. Because of copper's widespread applications in most sectors of the economy - from homes and factories, to electronics and power generation and transmission - demand for copper is often viewed as a reliable leading indicator of economic health. This demand is reflected in the market price of copper. Generally, rising copper prices suggest strong copper demand and hence a growing global economy, while declining copper prices may indicate sluggish demand and an imminent economic slowdown.

Another good predicter is Caterpillar.

[jonno]

$33.2 billion doesn’t seem like a whole lot - in the scheme of things.

[robroys woman]

It may have a perfect track record, but the underlying riles of the game have changed................

---

I agree. This is why I’m not in the market. It’s always been sorta like gambling. But it seems to be a lot more like gambling today, unless you’re just in it for the long haul of course.

[rigelkentaurus]

A 6% pullback is very common and healthy. Would be happy to see it at this point.

[Daddaroo]

Gee, it sounds like CNBC is rooting for the market to take a big drop....I wonder why? sarc/

[SubMareener]

6 percent drop from the current level
- - - -
It has to be a 10 percent pull back to even be called a “correction” !!!

[Red Badger]

Yep.....................

[ProtectOurFreedom]

A projected 6% pullback? That is nothing. I’ve tried market timing before and gotten thoroughly screwed every time. All the research on market timing shows it is a fool’s errand.

Our new POTUS is speaking strongly today about investing in the US. Previous POTUS spoke about managing our decline.” Which one inspires confidence in the future? Our economy is about to be unleashed.

If there is a 6% pullback (as always happens), it’ll be recovered in no time at all. If you’ve got cash, that would be a good time to buy.

[entropy12]

Exactly. Why worry about 6% correction when market has gone up 44% since Hillary bit the dust.

[Red Badger]

Not when Apple has 350 Billion just laying around doing nothing...................

[Parley Baer]

“Even if there was an S&P pullback, the fundamental business environment is still better because of executive deregulation by the Trump administration.”

I agree. No doubt there will be a sell off at some point but the fundamental business environment will continue as you said.

[Teacher317]

Not surprising. The market has been growing rapidly for a year now, and people like to sock away their gains sometimes. It's normal. There will be a sell-off for a few weeks, and then the rise will continue.

(The Left, of course, will pretend is it a total economic meltdown, in their incessant quest to find 7 things per day to use to bash the President and keep the sheep bleating and uninformed.

[Sedona13]

Yup. I’ll buy more than.

[G Larry]

If you don’t have the stomach for a 6% pullback, you don’t belong in the market.

Many have 30% growth over the last 15 months.

If you can’t withstand a 6% pullback to be ready for the next 20% growth, invest elsewhere.

Not saying you shouldn’t examine your portfolio to see where you might take some profit off of the table, to have some cash ready for opportunities.

[Shane]

“old rules do not apply.”

So this time is different?