Fade S&P 500 at 4200, Short It at 4400

By Senad Karaahmetovic

The week to Wednesday marked the first inflow to bonds in 9 weeks, according to BofA’s Chief Investment Strategist Michael Hartnett.

Investors poured $1.2 billion into energy, which is the largest inflow in 7 weeks. Tech sector flows were net positive for the first time in 6 weeks while outflows from financials were $0.7 billion, marking the 10th consecutive week of outflows.

In the meantime, the BofA Bull & Bear Indicator is now at 0.4 from 0.6, which is an extremely bearish territory.

The 0.4 reading is the lowest BBI was since June 20 while the “Buy” signal was activated on May 23. Hartnett argues that such a low reading could spark a relief rally with the potentially reaching as high as 4400.

“June narrative of peak yields, peak dollar, peak oil when everyone bearish is bullish; but we would fade SPX >4200, would short SPX >4400,” Hartnett told clients in a note.

The analyst also argues that Microsoft’s disclosure is only a “tip of EPS iceberg” with more companies expected to cut profit outlook on macro headwinds.