Episode summary
DD 8 10 26
Summary
Dylan Grice argues that the latest Bank of America bull-bear indicator is flashing a warning sign for stocks, with the gauge at 9.7 after a sharp swing back toward bullishness. He says that jump in sentiment came alongside Friday’s weaker-than-expected jobs report, which showed the U.S. economy unexpectedly lost 23,000 jobs in July and raised the odds of easier Fed policy.
He says Bank of America treats readings near 10 as a contrarian sell signal and cites its history: since 2002, the indicator has reached that level 17 times, with stocks falling by an average of 2% to 3% over the next two to three months and the signal working about 60% of the time. Maximum drawdowns in those episodes reportedly ranged from 15% to 20%.
Grice pushes back on the idea that investors should simply retreat into safety. He says his own approach is to buy assets for less than they are worth, sell when something is above value, and rely on disciplined risk management rather than chase euphoria. He says that method has produced a roughly 74% success rate and about 40% average gains on trades, while also protecting the retirees who make up many of the firm’s customers.
Key takeaways
- Grice says Bank of America’s bull-bear indicator at 9.7 is historically a sell signal, not a reason to chase stocks higher.
- He says the weaker July jobs report, with 23,000 jobs lost, could support markets by making the Fed less likely to tighten and even more likely to ease.
- Bank of America’s history on this signal is mixed but useful: Grice says it has worked about 60% of the time and has been followed by 2% to 3% average declines.
- Grice argues his own discipline is to buy assets below estimated value and sell when they become expensive, even if that means leaving upside on the table.
- He says the firm’s process has produced about a 74% success rate and around 40% average gains on trades.
- Grice says protecting customers, many of whom are retirees, matters more than maximizing the last bit of upside in a winning stock.
Notable quotes
“It's at 9.7, which means people have gotten very, very bullish again in the past couple weeks”
“The US economy unexpectedly lost 23,000 jobs in July, which sent the market up or has a kind of a bias to send the market up”
“every time it hits this kind of level this kind of 9.7 level right close to 10 it's a sell indicator”
“since 200 2002 this sell signal it's hit this high level 17 times”
“If you have a 70 some odd percent win rate and around 40% average gains on your trades, you do really well over time”
How the episode opens
Good morning. This is Dylan Jven with Behind the Markets. Happy Monday.
Today is Monday, August 10th. I cannot believe we're making it into the month. I can't believe September is a few weeks away.
Anyway, today I'd like to talk about a new note out from Bank of America that I have here where they track what they call their bull bear indicator. It's at 9.7, which means people have gotten very, very bullish again in the past couple weeks. You saw it was very very bullish earlier in the summer.
Then it got kind of really bearish with the chip stocks selling off in the past month and now we're looking bullish again which is kind of crazy. And you know a lot of that is going to be helped by Friday's print on the jobs market. Basically the US jobs market was a lot weaker than expected.
The US economy unexpectedly lost 23,000 jobs in July, which sent the market up or has a kind of a bias to send the market up because what it means is the Fed is less likely to raise interest rates. And heck, if it's this soft, the Fed might even lower interest rates. So, Bank of America's note saying that people are bullish again.
Bank of America also in their note says they argue that this bull indicator so high basically at 9.7 which is one of the highest basically as I said since December 2020 one of the highest of all time they've been tracking this for 24 years as they said they said that every time it hits this kind of level this kind of 9.7 level right close to 10 it's a sell indicator and it says since 200 2002 this sell signal it's hit this high level 17 times.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bull bear indicator
- jobs report
- fed rate expectations
- chip stocks selloff
- market sentiment
Companies and tickers mentioned
- BAC
- Bank of America
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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