BofA's Hartnett: Sell Signal Ends, Chip Prices Become the Next Key Anchor
nashnova research
BofA strategist Michael Hartnett declared the Bull & Bear Indicator's sell signal officially over after it dropped from 8.1 to 7.4 — but stressed this is not a buy signal. With extreme positioning still pinned at the ceiling, he points to chip prices as the next make-or-break anchor.
The sell signal ended — is it safe to buy?
The Bull & Bear Indicator — a composite gauge of whether market sentiment is overheated or overcooled — plunged from 8.1 to 7.4, breaching the 8.0 threshold and formally ending the sell signal triggered on May 26.
Hartnett was explicit: signal over ≠ buy signal. This means → the market has exited "overheat alert" mode but has not entered a safe zone.
His legacy version of the indicator fell in tandem, from 5.6 to 5.1. Both versions deliver the same message: the extreme-bull summer is done.
During this sell signal, who got hurt and who didn't?
The S&P 500 rose 3.0% (max drawdown −4.5%); the Nasdaq 100 fell 0.2% (max drawdown −11.3%); the MSCI World gained 1.1% (max drawdown −4.4%).
The junk-bond ETF (JNK) dropped 4.1% (max drawdown −4.7%) — credit took the hardest hit.
Hartnett called it a "split outcome." In plain terms = AI trades and credit markets absorbed the shock while broad indices barely moved — the damage was localized, not systemic.
Where is the money flowing — and where is it bleeding?
Annualized 2026 data: global equities $1.3 trillion, U.S. equities $636 billion, investment-grade bonds $480 billion, tech funds $196 billion, Korean equities $76 billion — all record highs.
The sole historic net outflow: consumer discretionary, bleeding $18 billion annualized. Hartnett calls it his current "fishing hole."
This means → allocators as a whole are still overweight risk assets. Tech-fund inflows are running at two and a half times the prior all-time record. Real de-risking has not happened.
How crowded is fund-manager positioning?
Fund-manager positioning (FMS positioning — a measure of how aggressively professional investors are allocated) sits at the 100th percentile, meaning "maximum bullish."
It is the only sub-component of the Bull & Bear Indicator still pinned to the ceiling.
This reflects a key contradiction: sentiment gauges have cooled, yet positioning hasn't budged. In plain terms = everyone says they're cautious, but no one has sold a single chip.
Why is Korea making Hartnett nervous?
KOSPI has fallen 30% from its June peak and entered bear-market territory this week. Yet for every $100 that flowed in year-to-date, only $7 has flowed out since the August high.
Hartnett sees two explanations: Korean retail investors have nerves of steel, or the real selling hasn't started — and foreign investors already fled this week.
This reflects a dangerous gap between price and positioning: the price has already collapsed, but the money hasn't left. If retail follows foreign sellers, a second leg down could follow.
Why are chip prices the next anchor to watch?
This week's core event: CoreWeave bonds fell into distressed territory; hedge funds dumped all AI exposure accumulated since January 2025; the Nasdaq 100 dropped nearly 6% in a single week — the worst since "Liberation Day."
The 10-year Treasury yield eased to around 5.09%; the probability of an October rate hike plunged from above 50% to 14%.
Hartnett pointed to chip prices as the next anchor. This means → if chip prices hold, real AI demand is intact and this sell-off is just de-leveraging; if chip prices break too, the problem runs deeper than positioning — it's fundamentals cracking.
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