Bright and early on Monday morning, we showed you a series of charts which together suggest that equities are overbought pretty much across the board.
Specifically, the 14-day relative strength index for the S&P 500, MSCI Asia Pac, MSCI World, Nikkei 225, and MSCI EM Index are all in overbought territory. Equity euphoria, we wrote, is on world tour. Here’s a fun postcard you can print out and send to any of your friends who might have missed the rally:
Well given our characterization of the current state of affairs as “equi-phoria“, you can imagine how pleased we were to learn that BofAML is out with an update on their “risk-love” indicators which aim to measure risk asset “euphoria.”
If you read the post linked above or if you’ve just generally been following along for the last 12 months, it probably wont surprise you to learn that sentiment for global equities is in the 98th percentile of its history since 1987.
As BofAML dryly puts it, “clearly investors are feeling good.”
Yes, “clearly”:
There are some caveats. Specifically, BofAML reminds you that “this euphoria is mainly the result of super low volatility across asset classes and regions, and humans responding bullishly to surveys.”
The volatility point is duly noted, but we’re not entirely sure why they needed to specify “humans” in the survey bit. I mean, they’re surveys so yes, it’s assumed that humans are the respondents. Anyway, here’s the breakdown by component:
There you go. We suppose the takeaway here is that as long as vol. remains suppressed and “humans” continue to respond positively when someone asks them how they’re feeling, BofAML’s risk-love indicator is going to stay in “euphoric” territory.
“humans” as opposed to the majority of traders: High Frequency Trading bots. It’s the opinion of the bots that’s important, now.