You have to hand it to the global fund managers. They're a great bunch to play against.
Every month, Bank of America Merrill Lynch conducts a survey of roughly 200 global fund managers. What the trading community wants to know is how long or short they are certain key segments of the market?
Why? Because these are often contrarian indicators.
This month is no exception. For nearly three months, the market has been in an uptrend, but fund managers have turned defensive. They are long cash, REITs, utilities, health care, and emerging markets.
They are short equities in general (allocation to stocks dropped to the lowest since September 2016.), industrials specifically, and the UK and the Eurozone.
If you use this as a contrarian signal, it's pretty clear: high cash levels is a buy signal for equities.
Even the authors of the report, which include Chief Investment Strategist Michael Hartnett, admit the value of its use as a contrarian signal: "contrarians would be long stocks vs. cash; long EU vs. EM stocks, long industrials vs. REITs."
What's all this mean? It means the "pain trade" for stocks is still up, as the report admits. That is, the market trend that would cause the most pain to the most participants is a continuing rise in the markets.