A contrarian bullish signal is flashing for the stock market as institutional investors continue to sell equities and raise cash, according to Fundstrat’s Tom Lee.
In a note on Sunday, Lee highlighted that since December, institutions have been net sellers of stocks and now have their highest cash balances since June of last year. Institutions raised their cash levels by $128 billion, “which we see as a contrarian positive indicator,” Lee said.
While institutions have been raising cash, retail investors have been deploying it, with their cash balances falling by $25 billion since December. “Overall cash balances have been rising over the past three months,” according to Lee.
Rising cash balances should be viewed as a source of firepower for the future buying of stocks, “hence, cash on the sidelines could fuel further upside,” Lee said.
Besides rising cash balances, Lee expects bearish positioning by institutional investors because stocks have been consistently falling in the final hour of trading. Typically, according to Lee, institutional investors execute the bulk of their trades during the final hour of the day.