Investors should be on the lookout for this "contrarian" sell signal that could be hinting that the stock market is close to hitting a wall.
That's according to a team of strategists at Bank of America led by Michael Hartnett who say there has been a shift toward the bank's so-called global breadth rule.
That guideline stipulates that a contrarian sell signal is triggered when a net 88% of equity indexes in the MSCI All Country World Index ACWI, which tracks 3,000 stocks in 47 developed and emerging market countries, are trading above their 200-day and 50-day moving averages. That percentage stands at 71.1% currently, Hartnett and his team said in a note to clients on Friday.
Moving averages are useful in indicating the likely direction for an asset and possible resistance and support levels. The 200-day average gives the average closing price over that period, which is the same for the 50-day.
If global breadth is rising, it means that the stock rally that has largely been dominated by tech is broadening out.
Stocks stalled on Thursday, with the Dow industrials DJIA suffering the biggest one-day percentage decline since March. The index is up 3.6% so far this year, while the S&P 500 SPX is up 10% and the Nasdaq Composite COMP is up 11%.
Hartnett and his team noted that outside of the "Magnificent Seven" tech stocks - Nvidia Corp. $(NVDA)$, Microsoft Corp. $(MSFT)$, Apple Inc. $(AAPL)$, Meta Platforms Inc. (META), Alphabet Inc. $(GOOGL)$, Amazon.com Inc. $(AMZN)$ and Tesla Inc. $(TSLA)$ - the biggest winners this year have been cryptocurrencies, China and commodities (GC00) (SI00). The 30-year Treasury BX:TMUBMUSD30Y has been the biggest loser.
Commodities are on course to be the best-performing asset class in three of the past years the analysts noted.