The stock market's 'buy' signal is dead as the monster rally surges closer to overbought levels, Bank of America warns

• The "buy" signal flashing in stocks is dead, according to Bank of America.
• The bank pointed to its Bull & Bear contrarian indicator, which is in neutral territory.

The "buy" signal flashing in the stock market is now dead, as investors climbing onto the latest rally are pushing the market closer to overbought levels, according to Bank of America.

The bank pointed to its Bull & Bear Indicator, a contrarian stock market gauge that flashes a buy signal when investors are too bearish on equities, and vice versa.

In October, the indicator turned bullish thanks to investors' "extreme bearish" positioning in equities. But it has since edged into neutral territory, according to BofA.

"Note BofA Bull & Bear contrarian 'buy' signal triggered October 19th ended last week," a team of strategists led by the bank's Michael Hartnett said in a note on Friday.

Though other areas of the market, such as US Treasurys, aren't overbought, stocks are "getting there," strategists warned, given that 62% of global stock indexes are over their 50-day and 200-day moving averages.

"If you caught it, no need to chase it," the note added.

That change comes amid a stunning rally in the US equity market, with the S&P 500 surging 9% last month as investors took in cooling inflation news and raised their expectations for Fed rate cuts.

Markets are now pricing in a 57% chance rates will be lower than their current level by the first quarter of next year.

But signs are building that equities may not be able to keep up their gains. Stocks, for instance, took in $2.6 billion in inflows over the last week, down from the $40 billion recorded in the prior two weeks, Hartnett's team previously said.

And according to Morgan Stanley, pockets of the economy are already showing signs of a slowdown, with pain in US companies and households being masked by strong GDP growth.

In fact, more than half of US states could already be in a recession, according to Philadelphia Fed data, given that the majority of them are already seeing their economies contract.

Bank of America, though, recently retracted its view that the economy could tip into a mild recession this year, given inflation's steady decline in 2023. The bank has also raised its bets on the stock market in 2024, predicting the S&P 500 could touch a fresh all-time high by the end of next year.