It has been so long, we forgot what it’s like for the “smart money” (hedge funds, private clients and institutional clients) to put money to work into the market instead of rushing to unload their exposure to corporations buying back their stock (in near record amounts).
Just last week, when we looked at the most recent Bank of America data, we said that “this is unprecedented” because as BofA revealed, insiders had sold stocks for 2 straight months, or 8 consecutive weeks, essentially confirming that the recent market rebound was nothing more than a central bank-goosed bear market rally, and that those who could take advantage of it, did so… by selling.
Earlier today we got the latest weekly client flow update from BofA’s Jill Hall, and drumroll, not only has nothing changed but we can now tack on one more week of selling: the selling has now continued for a whopping nine consecutive weeks.
Here are the details from BofA:
Last week, during which the S&P 500 fell 0.7%, BofAML clients were net sellers of US stocks for the ninth consecutive week, in the amount of $1.2bn. As we noted last week, this is the longest selling streak in five years, with cumulative net sales of $11bn over the last nine weeks. Clients may doubt the sustainability of this rally, given the lack of fundamental support (S&P 500 profits remain in a recession and revision trends remain negative). For the fifth week in a row, all three client groups (institutional clients, hedge funds and private clients) were net sellers, led by institutional clients. Institutional clients have also been the biggest net sellers of US stocks in 1Q16 (year-to-date). Large, mid and small caps all saw net sales last week; but year-to-date cumulative flows into small and mid caps are still in the black. Buybacks by our corporate clients slowed last week to a five-week low, but the multi-week average remains healthy. Year-to-date, cumulative buybacks of $12bn are tracking 40% above the $9bn we saw in 1Q of last year, though below the record $18bn we saw in 1Q of 2014.
Which, together with the latest data from Credit Suisse, lets us summarize the four key reasons why no investors believe this rally is for real.
- The “smart money” have been net sellers of US stocks for the ninth consecutive week. This is the longest selling streak in five years. “Clients may doubt the sustainability of this rally, given the lack of fundamental support: S&P 500 profits remain in a recession and revision trends remain negative.”
- Investors are positioning for a market reversal based on leveraged positions in volatility funds. As the WSJ noted yesterday citing Morningstar data, assets in the ProShares Trust Ultra VIX Short-Term Futures ETF, and the VelocityShares Daily 2x VIX Short-Term ETN, have both more than doubled to almost $1.5B from the beginning of March through Thursday, something we highlighted as well.
- Oil bulls never jumped on board the latest rally. As crude has soared more than 50 percent since Feb. 11, the number of bets on increased prices has barely budged. Instead, the upward pressure on prices came from traders covering bearish positions at a record pace. The liquidation of short positions during the last seven weeks covered by data from the U.S. Commodity Futures Trading Commission was the largest on record.
- The CS Fear Barometer remains elevated – The skew being elevated is really a function of the upside calls being sold broadly in the market
And while we now know this “rally” was one which nobody actually believed in, it remains an open question what will catalyze the market resuming its sell off, and sliding back to that all important 1812 level in the S&P500 at which the Fed clearly brings out the artillery and says (if not does)everything in its power to prevent further selling.
via Zero Hedge http://ift.tt/1RNwdYZ Tyler Durden