“My interpretation of financial markets differs from the prevailing paradigm in many ways. I emphasize the role of misunderstandings and misconceptions in shaping the course of history. And I treat bubbles as largely unpredictable. The direction and its eventual reversal are predictable; the magnitude and direction of the various phases is not. ” ~ George Soros

Good morning!

In this week’s Dirty Dozen [CHART PACK] we go through all the danger signals suggesting its odds on we soon see a 1-2 month pullback/consolidation range. We follow that up with the reasons why this isn’t the market top but rather a normal pullback in a broader uptrend. After that, we dive into the reasons why the reflation trade is about to take a bit of a breather and end with biotech long breaking out of long-term consolidation.

Let’s dive in.

***click charts to enlarge***

1. Sentiment & positioning is one of those things that doesn’t matter until it really does. Here’s the breakdown of the current “euphoric” environment via BofA:

• A record net 19% FMS investors assuming higher than normal risk
• FMS cash level of 3.9% have triggered a ‘sell signal’
• Global Risk-Love indicator is in the 97th percentile of history going back to 1987
• EU Risk Appetite indicator is in overbought territory
• Asia ex-Japan and Emerging Market Risk-Love Indicators are signaling euphoria for the first time since 2015
• The Sell-Side Indicator is at its closest level to a ‘sell signal’ since the GFC

2. BofA points out that vaccine optimism and the US elections have “led to a surge in equity flows, with two-month flows into DM and EM equity funds the highest since [Oct 2000]. November alone saw the highest monthly inflow into global equity funds on record. Also over a three-month horizon, we’ve now seen the highest inflows into equity funds on record.”