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Investors to Keep Buying Dips Until Key Technical Levels Break, BofA Says
Summary
Bank of America's Michael Hartnett says investors will likely continue buying risk assets rather than retreating, as long as key support levels for the Magnificent Seven ETF and the AUD/JPY currency pair hold.
Investors are unlikely to abandon risk assets, instead opting to "buy the dip" as long as two key technical levels in technology stocks and currency markets hold, according to a recent note from Bank of America.
Strategist Michael Hartnett argues that until these specific thresholds are breached, market participants will likely "reload longs or bullishly rotate rather than retreat from risk assets."
Key Levels Underpinning Sentiment
In his weekly "Flow Show" report, Hartnett identified two critical support levels that are underpinning bullish sentiment. The first is the 200-day moving average for the Roundhill Magnificent Seven ETF (ticker: MAGS), which is currently near $65. The second is the 110 support level for the Australian dollar/Japanese yen (AUD/JPY) currency pair, a key barometer of global risk appetite.
Hartnett frames recent market action, such as a 36% drop in Korean small-cap tech stocks, as a rotation rather than a broad retreat. This is driven by what he calls a "no consensus" environment where investors see no immediate catalyst for a major downturn, such as an economic hard landing, a Federal Reserve rate hike, or a cut in AI-related capital expenditures.
Fund Flows Show Strong Inflows
Recent data shows significant capital continuing to enter the market, reinforcing the bullish positioning. According to the BofA report, the past week saw substantial inflows across asset classes:
Ad- Stocks: Inflows of $56.4 billion, the fourth-largest weekly amount of the year.
- Cash: Inflows of $39.5 billion, pushing total money market fund assets to a new record of $7.9 trillion.
- Bonds: Inflows of $31.3 billion.
- Technology: Inflows of $18.8 billion, putting the sector on pace for a record $183 billion in 2026.
Despite the heavy inflows, BofA's proprietary Bull & Bear Indicator remains at 9.5, an "extreme-bullish" reading that the bank considers a contrarian "sell signal."
Historical Warnings and Political Risk
Hartnett also flagged a rare historical occurrence: the U.S. Consumer Price Index (4.2%) is nearly identical to the unemployment rate (4.2%). He noted this has historically preceded difficult Federal Reserve tightening cycles.
Looking ahead, the note identifies the upcoming U.S. midterm elections as "the most binary Wall Street event" for the second half of the year. This is particularly relevant as the current presidential term is on track to be just the fourth since 1873 to see four consecutive years of stock market gains.