BofA-ML strategists still 'sellers'

Strategists at Bank of America-Merrill Lynch continue to be "sellers" in shares, arguing that US central bank policy tightening cycles "always" end with a "financial event", although markets may perhaps attempt a bounce over the coming week.

In a research report sent to clients, the strategists said that there was a "price keeping operation" under way in the US stockmarket "via manipulation of & pressure on oil/US dollar/Fed to ease financial conditions."

Describing the current unwinding in the technology space and credit markets as "vicious", BofA-ML pointed out how being 'long' volatility was now the "consensus" call.

Together with speeches from the Federal Reserve's chairman and vice-president ahead over the coming week, alongside the G-20 summit in Buenos Aires, the investment bank said markets might try and "bounce" with the S&P 500 attempting to claw its way back towards 2,750.

Nonetheless, a peak in volatility and a trough in returns would require a "capitulation" by the US monetary authority, driven by a "financial event" and recession fears.

Triggers for a possible "big" policy panic were still forming, they said, including a drop in the S&P 500 Spider ETF below $250, a fall in the ISM survey's subindex of new orders below 50 points, a "credit event" at General Electric and contagion or capitulation by either China's central bank or the US President.

Such events might lead to a capitulation by the Fed over the next one to three months, they said.

"We see no positioning or policy capitulation yet; institutional positioning not bearish enough to signal Big Low."