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Market positioning suggests more pain for equities despite rout


© Reuters. FILEPHOTO: Trader at New York Stock Exchange’s floor, October 15, 2014 as he watches his screen. REUTERS/Lucas Jackson/File Photo

By Saikat Chatterjee

LONDON, (Reuters) – A BofA Securities market trend indicator fell to zero in the wake of financial crisis in 2020. This signalled extreme bearishness by investors who poured into crypto and credit.

Although U.S. stock prices confirmed a bearish trend this week, while European stocks are currently down 20% or more from their peak in January of this year, there’s still a lot to do. Investors should be aware that equity positioning is heavy and indicates more volatility.

The U.S. Investment Bank published a weekly report on the investment flows of different asset classes. It stated that for each $100 inflow since January 2020 there have been 35 outflows to debt and zero to stocks. This indicates more trouble ahead for equities.

BofA Securities analysts Michael Hartnett wrote in a note, “Capitulations have been in credit and cryptocurrency, not stocks.” “This is the reason we are concerned that equity lows (are not) yet in.”

Numerous technical indicators of the stock exchange suggest deeper losses are possible.

According to the U.S. Investment Bank, this 200-week-old moving average of U.S. equity measures overseas-listed shares, bond ETFs, and domestic stocks. A close below it would cause it to drop to its four-year lowest.

The high-flying index trades at the 200-week moving median, levels that it hasn’t traded below since 2008’s global financial crises.

Due to the aggressive tightening of central banks to reduce inflation, world stocks are experiencing one of most turbulent weeks in financial history. The MSCI benchmark has fallen 5.7% so far this week, the highest weekly percentage decline in over two years.

Market capitalization has dropped $20 trillion this year in world stocks

, which is the most well-known and largest cryptocurrency in the world, lost over half its value since March 28, when it hit $48,234 and was trading at around $21,000.

BofA’s EPFR analysis revealed that equity funds attracted $16.6 Billion while bond funds saw $18.5 Billion in outflows over the week to Wednesday.

U.S. equity funds experienced inflows over the last six weeks. Japan, on the other hand, saw outflows over four weeks. Europe experienced outflows over the last 18 weeks.

GRAPHIC: Global stocks (