Buy signals close to being triggered

We have seen the largest outflow from bond funds since June 2014 ($13bn), but outflows from equities have been more orderly, according to Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch Global Research, who thinks it may soon be time to buy back into equities and risk assets.

In fact, Hartnett notes that his ‘Global Flow Trading Rule’ is “tantalizingly close to a contrarian “buy” signal for risk assets.” The 4-week global asset outflows is at 0.9% of AUM (just shy of the 1.0% threshold of his rule), mostly driven by $9bn redemptions from high yield funds over the past two weeks. See Chart 1.

His ‘Global Breadth Rule’ is also close to triggering a contrarian “buy” signal, but this time for equities, as a net 80% of global equity markets are trading below their 200 day and 50 day moving averages (see Chart 2).

See Chart 1 and Chart 2.