Don’t look now, but fund manager cash levels are on the brink of triggering a contrarian “sell” signal.

As a rule, I don’t put a lot of (figurative or literal) stock in… well, in trading “rules.” That means I’d be a terrible algo. Which is fine. I was never good at being an automaton.

But if you’re the type who likes “thresholds” and signals, it’s worth noting that the average cash level among fund managers polled for this month’s installment of BofA’s Global Fund Manager survey was just 4.2% of AUM, down from 4.4% last month.

As the figure above shows, cash levels have retreated steadily from above 6% at the lows for stocks in October of 2022, and now sit precariously on the brink of a “red line.”

As BofA’s Michael Hartnett reminded investors on Tuesday, a breach of 4% triggers a sell signal for stocks, given the contrarian read-through of very low cash — i.e., pervasive bullishness.

Remember: Elevated cash levels during the Fed’s hiking cycle helped explain diminished demand for downside protection. Conceptually, 5%-yielding cash is a positive-carry, ATM put.

Demand for hedges picked up in recent weeks, as the VIX rose and previously pancaked skew steepened sharply from some of the flattest levels in decades.

Related: Skew Has A Story To Tell