Monday, January 28 09:54:36
European shares edged back from two-year highs early today and a number of indicators suggested a bullish run for markets at the start of this year could be reaching its peak.
By 0904 GMT, the FTSEurofirst 300 shed 1.55 points, or 0.1 percent, to 1,173.26. That compared to a near two-year high of 1,174.81 reached on Friday.
Equity funds outgained bond funds for the seventh straight week last week but the pace of inflows slowed, EPFR Global data showed and several major investment banks said there were signs the market may be reaching a natural top.
"Our global indicator now stands at +1.39 standard deviations, signaling the most bullish sentiment from equity mutual fund investors since January 2009," strategists at Nomura said in a note.
"All of our proprietary regional mutual flow indicators, with the exception of Japan, are also at very bullish levels and along with elevated readings from another of our systematic sentiment indicators, the composite sentiment indicator has prompted our Global Quantitative Strategy Team to issue a short-term tactical neutral position on the market," Nomura said.
The Citigroup U.S. Economic Surprise Indicator has turned negative, and bullish sentiment, as measured by the AAII Investor Sentiment Survey, is now in the top 5 percent of the observed readings.
JP Morgan said in a note historical data for each of these readings shows they are normally followed by lacklustre equity returns, while downgrading its weighting in cyclicals versus defensives.
Technical analysts say the FTSEurofirst 300 and the more broader Stoxx 600 are in overbought territory according to 14-day relative strength indexes which measure the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions. ( C) Reuters