Investors are holding the most cash since November 2001, which should be interpreted as an "unambiguous buy" signal, according to Bank of America Merrill Lynch in its February global fund managers survey.
In a note to clients on Tuesday, the firm said its survey showed cash at 5.6 percent. When the average cash balance rises above 4.5 percent, a contrarian buy signal is generated while a fall in the cash balance below 3.5 percent generates a contrarian sell signal.
The 1,800 level on the S&P is viewed as a floor which should hold and could entice investors to buy and push stocks back up to the 1,950 level, which is seen as a ceiling according to the survey.However, it does not indicate a great entry point for stocks as investors in the past had gone "underweight" on equities before such points materialized.
The survey also shows investors want capital preservation, as evidenced by the rotation into cash, bonds and defensive stock sectors such as bonds and telecoms, while reducing positions in the financial sector and equities.
Investors have reset expectations for the macro and market environment lower, according to the survey, and now see recession as a risk instead of a reality, with 16 percent of investors now expecting a weaker economy over the next 12 months.
On expectations for the Fed's interest rate path, 23 percent expect no hike by the central bank in 2016, while 33 percent expect one hike and 34 percent see two hikes.