A recent Bank of America fund manager survey revealed that fund managers have lowered their cash allocations to 3.9%, the lowest since February 2021. This percentage continues to decline further below the 4% threshold, which often signals investors to sell the market. A bank employing this method states that when cash allocations drop to this level, it indicates that investors are buying lots of equities with little cash; otherwise, the market gives a contrarian signal, which has usually led to worse market returns in the past.

Data from previous signals reveals that global stocks generally have a drop of 2.5% in one month and 0.8% in three months after these warnings. Bank of America’s strategist Michael Hartnett said that such signals usually emerge when investor optimism surges, aligning with current trends as stocks trade near record highs.

Investors have clearly shown more optimism and trust, prompted by the possibility of the Federal Reserve cutting its interest rate on Chinese economic stimulus, as well as hopes of a smooth economic landing. The survey detected a massive leap in worldwide growth prospects, from -47% to -10%, which is one of the five most tremendous changes recorded since 1994.

Most institutional investors expect to witness a soft landing with a probability of 76%. Soft landing is a term indicating that the economy will move slowly without any negative sharp movements down, which typically would happen if it involved a hard landing of the economy. In the so-called investor sentiment up, the dwindling spot at the highs of the market can be a catalyst for the fast market retreats. This is because the markets stand on solid foundations for long-term growth.

BOA/USD 15 Minute Chart

Observing the recent chart specified for Bank of America (NYSE: BAC), it is clear that there has been a lot of volatility in the market over the last five days. On October 11, the stock unexpectedly jumped from just over $40 to more than $42 in a single day. Following that significant spike, the price of the stock has been in a tight trading range of “$42.50” and “$43“, with investors remaining cautious as they evaluate the prospects.

We observed that the stock peaked at $43.36 during the establishment of the consolidation decided but failed to sustain it, thus encountering resistance first. After the drawdown, the stock has been moving from $42.80 to $42.79, indicating that the market is not sure which side to bet on. The reduction of only 0.19% in the last session ensures that the investors are, so far, not affected too much. Maybe they are still sure about the decision once they get more updates.

The initial increase in the value of the company’s stock may be the result of a renewed belief in Bank of America. This could be to do with the great financial results of the bank or the positive outlook connected to the entire banking sector. Nevertheless, the stock’s inability to surpass the $43.36 resistance level may mean the end of the upward trend.

At this stage, we are closely monitoring to see if the stock is able to get beyond resistance or if it will drop down to test support levels around $42. Meanwhile, the sideways movement might display decisions made by traders and investors.

If you are paying close attention to Bank of America’s stock, you should at this time think about what to do next. Be prepared to take any direction given next!