Stocks are making an early attempt to recover from six straight days of steep declines.
According to strategists at Bank of America Merrill Lynch, it may not be time yet to buy the dip.
In a note to clients, they shared two sectors that would indicate whether bond yields have peaked, and seven ways investors can sell the rally.

Stocks are in the early stages of a comeback after six days of relentless selling.

In the week through Thursday, the S&P 500 shed 6% in its longest streak of losses since the days leading up to the November 2016 election. The tech-heavy Nasdaq lost the most with a 7% drop.

It’s still anyone’s guess whether the worst of the selling is over for now. Over at Bank of America Merrill Lynch, Michael Hartnett, the chief investment strategist, isn’t advising clients to rush all-in and buy the dip.

One reason is the bank’s Bull & Bear indicator. It’s a contrarian indicator, meaning that it triggers a buy signal when it swings into “extreme bearish” territory. When stocks surged at the beginning of 2018, the indicator veered into “extreme bullish” territory, triggering a sell signal that foretold the correction.

The indicator fell to 3.3 this week, in bearish but not the “extreme bearish” territory that would be a buy signal.

“Hedge fund/CTA capitulation in risk assets needed to stab Bull & Bear indicator below 2.0 i.e. into buy risk assets for next 3 months zone,” Hartnett said.

To that end, he remained “fundamentally bearish” on two factors that have been touted as the drivers of this sell-off: peaking earnings growth and monetary policy tightening from the Federal Reserve.

“Watch homebuilders (the “tell” in recent months)/REITS/utilities for signs of peak yields,” Hartnett said. “We respect technicals and seasonality but will sell …read more

Source:: Business Insider


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