Referring to what has become our favorite chart of 2018, in his latest Flow Show report, BofA's Michael Hartnett reminds his readers that Fed tightening cycles always end with financial "event" observing that much as peak liquidity in Q1 coincided with peak returns & trough volatility, "peak volatility & trough returns will coincide with Fed capitulation driven by "event" and recession fear."

Looking ahead, Hartnett notes that triggers for a "Big Fed Panic" are still forming: specifically, in the next 1-3 months Fed capitulation would come via:

SPY <$250, HYG <$80,

<50 ISM new orders,

GE credit event & contagion;

Meanwhile, over in China, BofA expects PBoC capitulation via negative China export growth, while BofA also anticipates "Trump capitulation" once US payrolls post a sub-50K print and/or weekly unemployment claims of more than 50K.

That said, the US stock market is currently undergoing a "PKO" (price keeping operation) via what Hartnett sees as "manipulation of & pressure on oil/US dollar/Fed to ease financial conditions; vicious tech & credit unwind + consensus now "long volatility" + Clarida/Powell/G20 next week." As a result, markets may try to bounce toward SPX 2750 & CCMP 7500.

Even so, Bank of America remains "still a seller" as it sees no positioning or policy capitulation yet; Specifically, institutional positioning not bearish enough to signal Big Low, while the BofAML Bull & Bear Indicator is at 2.8 (2.0 needed for "buy"), and the  BofAML Breadth Rule @ 76% of global markets oversold (88% needed for technical "buy").

Next, looking at the latest fund flow data from EPFR, BofA notes that in the latest week, the fund flows were as follows:

$0.3bn out of gold

0.9bn out of equities ($9.6bn ETF inflows, $10.5bn mutual fund outflows)

$7.3bn out of bonds (outflows 8 of past 9 weeks)

On a regional breakdown, we see the following:

US: small outflows ($1.0bn)

Japan: tiny inflows ($0.6bn)

Europe: outflows 36 of past 37 weeks ($1.9bn)

EM: 6th week of inflows ($1.0bn)

By style: inflows to US large cap ($2.4bn); outflows US small cap ($0.5bn), US growth ($0.9bn), US value ($1.4bn)

By sector: inflows healthcare ($0.4bn), consumer ($0.1bn); outflows utilities ($45mn), materials ($0.2bn), energy ($0.3bn), real estate ($0.3bn), financials ($0.5bn), tech ($1.5bn)

Looking at the above, Hartnett summarizes the flows as "defensive, but not panicked."

Looking at specific sectors flow, the biggest Tech redemptions since Feb'15 ($1.5bn) as well as accelerating IG+HY outflows ($6.8bn)...