BofA Securities U.S. equity and quant strategist Savita Subramanian has developed a list of ten ‘triggers’, or signs that market rallies are set to conclude. The strategist also provides a short list of poplar risk indicators that actually haven’t provided effective guidance for investors.
BofA’s sell side indicator, a contrarian indicator based on equity allocations recommended by Wall Street strategists, is trigger number three. The sell side indicator is in neutral territory, so not indicative of a market top. Trigger six involves inflation and price to earnings ratios that have had a consistent inverse relationship through market history. When the sum of the consumer price index and S&P 500 PE ratio climbs on standard deviation above the ten-year average total, this has historically preceded market tops. Currently, the sum is 0.9 standard deviations above the average, very close to target.