MORGAN STANLEY: PREPARE FOR A SELL-OFF
It wasn’t easy to find in this sea of bulls, but there is actually a bank out there that is not full-blown bullish following the huge rally of the last month. Morgan Stanley says investors should prepare for a sell-off in the coming weeks as the market has gotten ahead of itself. Their equity analysts say the risks have risen in the near-term as sentiment swings wildly positive (see here) and risk assets run ahead of themselves.
Morgan Stanley says these two risks could overshadow the market in the coming weeks as investors adjust their portfolios to account for the large discrepancy between bulls/bears and risk assets versus lower risk assets. According to Morgan Stanley the put/call ratio represents overly bullish sentiment levels that are historically followed by sell-offs. In addition, the sign of excessive risk can be best seen in the run-up in the small cap vs. large cap ratio. Risk assets, represented by the Russell here, have surged to their highest ratio in terms of large caps in the last 12 months:
Source: Morgan Stanley
Disclosure: Short Russell 2,000
Chris Watling of Longview Economics, in London, was on CNBC Europe on Monday saying that his “sell-off indicator” had flashed a strong sell signal on risk assets. The indicator has a 80% to 85% strike rate. He reckons a 5% to 15% correction lasting 4 to 6 weeks. The indicator called the January correction but was 7 days early.
http://www.longvieweconomics.co.uk/our_latest_views.php
simonsays, that would be the second hockey stick down, third one’s the kicker.
good link,also
For what it’s worth, Charles Nenner…the technical analyst based in Amsterdam (I think?) said something broadly similar…big sell-off in April.