Will History Repeat? BofA Bull & Bear Indicator Flashes SELL Signal

The stock market has seen a significant increase. New highs have been made by the major indices. Optimism continues to grow due to economic growth, technological advancements, and the easing of inflation. According to the Bank of America BofA Bull and Bear Indicator, there are new concerns. The BofA Bull and Bear Indicator has increased to the “hyper-bull” level. 

This means a sell warning to the market. The tool shows a greater risk of a market correction due to a large majority of investors ducking for cover. However, in history, does it support this view? Here, we look at the performance of the indicator to the present date to assess its impact on the market in 2026.

Understanding the BofA Bull & Bear Indicator

BofA Bull and Bear Indicator is based on the monthly surveys from the Bank of America Global Fund Manager Survey. From the survey, the BofA takes a survey of hundreds of institutional investors. The BofA manages a total of trillions of dollars of assets. 

The BofA tracks all the data regarding the investors' positioning, levels of cash, level of inflows, technical and market sentiment levels to come up with the score. The final score will be in a range of 0 to 10. 10 means the market is extremely bullish and 0 means the market is extremely bearish.

This is a contrarian tool. Extreme bullish readings (above 8) are identified as risk overcrowding in the assets. If everyone is “all in”, there is no room for more upside. Extreme bearish levels (below 2) indicate capitulation, which is a lot of the time a bottom. An 8 and above reading gives a contrarian sell signal in the market. This means becoming more cautious or hedging. 

The indicator is great because of the magnitude of its breadth. This includes hedge fund bets, equity bond inflows, and credit techs. When everything is in exuberance, it has been a stock market warning for reversals in the past.

 

 

Current Reading: Hyper-Bull Territory in Early 2026

The BofA Bull and Bear Indicatoras of January 2026 is 9.2-9.4. This is a surge in “hyper-bull” and is one of the highest records in history. This is a significant surge and the most bullish since 2021.

Fund managers show more equities and cash is at a record low (about 3.2%). Correction hedging is also at a low since 2018, and stock inflows are at a high for multiple years. Geopolitical remains a high tail risk, but optimism prevails.

One of the analysts at Bank of America describes a contrarian scenario for a market that has become too bullish too quickly, creating a tactical sell signal. Investors should add to hedges and move into safe havens like bonds, gold, or the international markets.

Historical Performance: Does the Sell Signal Predict Corrections?

Beginning in 2002, the BofA Bull and Bear Indicator has exhibited sell signals at 8 or above 16 times. The outcome of these events has been varied. The S&P 500 has been known to pull back from these signals and then retreat 1.4% in the next 30 days, but the outcomes of those events over a longer time period have varied even more.

Some of the more interesting examples have been:

- In September of 2025, the BofA Bull and Bear Indicator put out a sell signal in October and the S&P 500 dropped 4% in November.

- There have also been examples of sell signals in 2018 and 2021 in the BofA Bull and Bear Indicator, where the S&P 500 exhibited sell signal volatility.

Even in those examples, there have been instances of positive momentum and those sales were more to the tactical side of forecasting. What the analysts at Bank of America are trying to point out is that when too much is baked into the pie, there is a chance that any negative catalyst on the horizon from the Fed, earnings, or international affairs can lead to a market correction.

The indicator is not perfect by any means. In strong bull runs, sell signals can be incorrect or premature. However, combined with other factors, like record inflows or low hedging, its history as a stock market warning gets better.

Reasons to be concerned about a possible market correction

Why the concern in the first place? Several factors strengthen the sell signal market.

- Overcrowded Trades: Extreme equity overweight with a lack of downside protection means the markets can tip over.

- Low Cash Buffers: With cash levels at record lows, there is not enough dry powder to buy the dips.

- Geopolitical Tail Risks: Worries over conflicts are number one, which could disrupt supply chains or energy prices.

- Valuation Worries: Certain sectors are trading at very high multiples, reminiscent of earlier phases in the euphoria cycle.

Market correction is really just a euphemism for a 10% or greater drop in the markets. It doesn’t require a recession. A drop can happen just due to a change in sentiment. According to Bank of America, investors are “dangerously unprepared” for the volatility headed towards us in 2026.

 

 

Wider Market Outlook for 2026

There is still some good news in the market outlook, which isn’t all black clouds. The positive factors are strong, sustained growth, improvements in productivity driven by AI, and the potential for supportive policies. Rapidly positive sentiment reflects strong fundamentals in many areas.

The BofA Bull and Bear Indicator suggests that the upside on potential gains is limited and downside risk is possible due to positioning; a mild market correction could reset sentiment and create healthier opportunities for buying.

Investors might consider tactical adjustments such as reducing risk for the time being. Adding hedges, or rotating to defensive assets, while staying invested in quality long-term assets might be useful.

Will History Repeat?

Historically, signals such as the BofA Bull and Bear Indicator Sell signals are bearish for the market and point to overly optimistic periods that typically lead to pullbacks or corrections. While history may not repeat, it has a way of managing expectations: extreme bullishness is a signal for complacency, and complacency leads to volatility in the market.

The potential 2026 market correction or pause shifts with the fundamentals. The indicator gives a smoke signal for the stock market, not a prediction of doom, but a reminder of the extreme sentiment. In times like these, managing risk and staying diversified is key. With the BofA survey, keep a close eye on the Bull and Bear Indicator, as it could change the conditions present.

 

 

Conclusion

The hyper-bull sell signal displayed by the BofA Bull & Bear Indicator in 2026 indicates growing market complacency and elevated correction risk. Extreme optimism frequently results in volatility and pullbacks, but it does not forecast a crash. Instead of chasing momentum at market highs, investors should concentrate on risk management, diversification, and tactical positioning.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.