The Buy Signal
BofAML Global Breadth Rule triggers a contrarian “buy” signal...on average global equities rally 6.5% following 12 weeks...Bull-Bear index close to "buy"...in absence of a systemic shock, we recommend adding risk post Greek denouement Sunday.
Good versus Bad
China market cap loss = India GDP (Chart 1)...China/Greece event risk high...but no disorder/contagion in fixed income = reduced risk of a meltdown.
Trades
Add some risk, stay long the US dollar, rotate back into “high yield” and position for China via rates. For hard-core contrarians most oversold stocks are: Brazilian & Turkish banks, Canadian resources, Eurozone energy & HK consumer
discretionary.
>>> BofAML convictions
- Our core conviction: the cyclical highs in the US dollar & stocks have yet to be reached; the lows in volatility, yields and commodities have already been seen.
- Our asset allocation: long dollar, long volatility, long stocks, short bonds and credit, opportunistic in EM/commodities.
- Our base case: a “regime change” from Max Liquidity-Minimal Growth to Higher Growth-Higher Rates means lower, more volatile, but still positive asset returns.
- Our tactical case: our sentiment signals are flashing “Buy”; we are buyers of risk post Sunday’s Greek denouement; a sustained rally requires stronger macro data.