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- Bank of America said one of its contrarian indicators is close to flashing a sell signal.
- The bank’s Bull & Bear Indicator is hovering just under an “extreme bullish” reading.
- The indicator recently flashed a sell signal in October, before the November sell-off.
A contrarian signal is close to flashing red, pointing to another potential sell-off looming for stocks.
Bank of America’s Bull & Bear Indicator, which measures investor positioning and takes into account factors like market technicals, flashes a “buy” signal when investors are extremely bearish, and vice-versa.
In a note to clients on Friday, analysts at the bank said they had recently revamped the indicator to better reflect factors like market structure, investor liquidity, and the risk preferences of investors.
The gauge is now hovering just below a sell signal.
BofA Global Research
The last time the updated Bull & Bear Indicator flashed a sell signal was on October 1, when the gauge was in “Extreme Bullish” territory and peaked around 8.9, analysts said.
That signal — which has a one to three month duration, the bank said — preceded a rough November for stocks, with the S&P 500 shedding as much as 4% and ending the month at a slight loss.
“The BofA Bull & Bear Indicator remains our best measure of investor positioning,” analysts wrote. “B&B Indicator has and we believe will continue to provide actionable contrarian trading signals,” they added.
It’s been a volatile year for stocks, which have been rocked by tariffs, concerns about the AI trade, and fear that the US economy could weaken into a recession. While the market has held relatively steady so far in December, mega-cap tech and chip stocks are still flashing signs of weakness, a possible sign that investors have taken stock of the market’s enormous gains in recent years and are looking to take profits.
