Overbought Alert Triggered: Bank of America Says Global Stock Markets Hit Sell Signal Threshold

Bank of America strategists warn that global equities are flashing overbought signals, with their moving average levels reaching the threshold historically associated with sell signals for risk assets.

The team of strategists led by Michael Harnett wrote in a report that as of the week ending January 28, approximately 89% of MSCI stock index prices traded above their 50-day and 200-day moving averages. This data surpasses the 88% threshold that the firm considers a sell signal.

Bank of America strategists stated that this excessive market positioning coincides with investors withdrawing $15.4 billion from equity funds during the week, highlighting the growing caution among investors as the stock market climbs higher. The MSCI World Index hit a record high on January 27 and is on track to deliver its strongest monthly performance since September last year.

Harnett pointed out that Bank of America’s bull-bear indicator still shows investor sentiment at an “extreme” bullish level, as the broad strength of global stock indices and the robust performance of credit markets have so far offset the impact of equity outflows.

Meanwhile, fund flows into US equity funds have turned positive again, attracting $9.2 billion in the week. The Bank of America team cited EPFR Global data, noting that European funds experienced their first outflow in seven weeks, totaling $400 million.

Harnett said that his top trade for 2026 is to go long on bonds, international stocks, and gold. His preference for international stocks, which has been evident since the end of 2024, has proven to be forward-looking, as US stock performance has lagged during this period.