The warning light is flashing on this closely watched Wall Street indicator

Good morning. Monday was the best day for stocks in the past nine months with all 11 S&P 500 sectors finishing in the green. Today, alas, is a different story.

U.S. futures have been down much of the morning, but are beginning to edge higher, following European shares higher. An outlier is Zoom, which is soaring after yesterday’s blockbuster results after the close. Bitcoin bulls too are out in force.

In today’s essay, we take a look at a much-watched sell-side indicator that’s flashing the caution light for the months to come. I’ll explain what that might mean for your portfolio.

But first, let’s see what else is moving markets.

Markets update

Asia

• The major Asia indexes are lower in afternoon trading, with the Shanghai Composite off 1.2%.
• The Hang Seng has been on a decent roll this year; why mess with success? Alas, Hong Kong’s benchmark exchange is in for a major revamp. Here are the stock winners and losers of that overhaul.
• China‘s top banking regulator is warning of bubbles ahead in financial markets and in property markets, and that downbeat observation helped send Asian shares lower on Tuesday.

Europe

• The European bourses were moderately lower with the Stoxx Europe 600 down 0.2% at the open, before climbing.
• Sorry, we don’t want your business. German banks have begun to slap ever bigger charges on savers as the spiral of negative rates is doing a job on their bottom line.
• Staying with banking… The number of finance jobs in the U.K. lost to Brexit is up, but less than feared, according to a new EY survey.

U.S.

• U.S. futures have been in the red throughout the morning. That’s after all three major indexes surged higher on Monday, with the  S&P 500 recording its best single-day performance since June.
• Shares in Zoom Video Communications are up 8.4% in pre-market trading after the video-conferencing giant posted knockout results and a better than expected forecast.
• In the “better-late-than-never” category: The American Petroleum Institute, Big Oil‘s top lobbying firm, is warming to the prospect of a carbon-pricing scheme, the Wall Street Journal reports in a big scoop this morning.

Elsewhere

• Gold is falling, trading below $1,720/ounce.
• The dollar is up.
• Crude is down with Brent trading around $63/barrel.
• Bitcoin surpassed $50,000 over night, but has since drifted lower.

***

Flashing red

Before Monday’s opening bell, I got a decidedly downbeat piece of research from BofA Securities, its latest “Sell Side Indicator” report. The SSI is a contrarian measure of Wall Street bullishness on stocks. When the indicator rises to a certain level it’s a sign investor sentiment is overheating, and that it could in fact be time to sell.

The last time I wrote about this indicator was in the beginning of August, and back then the SSI was flashing go-go-go green.

“Historically, when the Sell-Side Indicator has been this low or lower, total returns over the subsequent 12 months have been positive 94% of the time, with median 12-month returns of +20%,” the BofA analysts wrote at the time.

How’d they do on their +20% forecast? It was fairly spot-on. The S&P is up 19.3% since that report.

Alas, the latest SSI is saying the opposite today. After consecutive months of steep upticks in bullishness, it’s nearly flashing red on the equities trade.

The recommended equity allocation, BofA writes, is at “almost a 10 year high and just 1.1 ppt shy of a ‘Sell’ signal. The last time the indicator was this close to ‘Sell’ was June 2007 after which we generally saw 12-month returns of -13%. We’ve found Wall Street bullishness to be a reliable contrarian indicator.”

Here’s what the BofA chart looks like: 

There are plenty of buy and sell indicators out there, of course. And BofA itself cautions about reading too much into this latest measure as the 2021 stock market is a far different beast than the 2007 version.

To wit, they’re not changing their outlook on stocks. They say we are in “the early innings” of the great rotation trade, away from last year’s growth-stock leaders and into cyclicals and value stocks.

However, there is reason to believe the rally will be slowing down. The current indicator points to a 12-month of 7%, “a much weaker outlook compared to an average 12m forecast of 16% since the end of the Global Financial Crisis.”

However, they add, “past performance is not an indication of future results.”

***

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

Today's reads

The big crypto short. Michael Burry, he of The Big Short fame, is not buying the bitcoin hype. In a now-deleted Tweet, he wrote "$BTC is a speculative bubble that poses more risk than opportunity despite most of the proponents being correct in their arguments for why it is relevant at this point in history." His warning is eerily similar to the one we posted here yesterday by UBS economist Paul Donovan.

Buying a new home? We've talked a bit here about the soaring price of lumber, and its impact on the construction of new homes. According to recent data, the current lumber prices are adding $24,000 to the price tag of a typical newly constructed single-family home. 

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Market candy

Quiz time

By now, you all know which S&P 500 sector has been the best performer for January and February, two months running. (Hint: it rhymes with schmenergy.) Which sector was the worst performer in February?

• A. Utilities
• B. Info Tech
• C. Consumer Staples
• D. Real Estate.

The answer is A., Utilities, which fell 6.1% last month and was, prior to yesterday, down 7% for the year.