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recent price action for individual assets. However, the fact that we have had multiple signals across a range of sectors and macro prices is typically a warning that markets have moved too far too fast in a more general sense. The last comparable episode was in early July in the wake of the Brexit sell-off. At that point Defensives were hitting record over bought signals with Financials and Cyclicals seeing the opposite. Against the backdrop of heightened uncertainty over the effects of Brexit the models provided a great signal to fade the violent rotation. With these signals in mind we look for a period of consolidation in the rotation trade. The models are short term in nature and are not intended to identify strategic turning points — although like in the case of Brexit they do tend to emphasize when a crescendo is reached. While we would look for another potential leg in some of the reflation trades over the coming months we would prefer to wait for a pull back. The Basic Resources sector provides a useful example in how to use the models tactically. Three times this year prior to the current instance the sector has hit overbought levels on its relative CT| indicator. Previous pullbacks lasted 4-8 weeks and averaged -11% in relative performance terms. Table 5: Composite Technical Indicators for sector relative returns Table 6: Bollinger scores —bond proxies 2.5-3.5SD oversold (+100 max overbought; -100 max oversold) 52-week Z-Score Since Oct 27 Recent 1m extreme Latest [Sector Latest MIN MAX Utiity 38 26 Healthcare 5 -98 at Real Estate 34 -2.1 Personal & Household Goods 0 -94 0 Media 29 18 Food & Beverages -31 -93 0 Food & Bev 26 22 Telecom -25 92 0 HealthCare 25 -18 Utilities 8 -92 3 Telcos 2A 99 Technology 0 88 26 Travel & Leis 2.1 0.7 Media | 87 7 Retail 5 04 Industrial Goods & Services 0 -13 35 Prs & HH Gds 412 06 Oil & Gas 1 -45 4 Autos 08 05 Autos 0 “12 8 Insurance 09 08 Chemicals 0 8 0 Technology 1.0 0.6 Travel & Leisure 0 -2f 37 Banks 10 06 Financial Services -{ 3 43 FinServ 10 06 Construction & Materials 0 -17 45 Industrials 15 14 Retail 0 -42 90 Oils 16 09 Insurance 36 0 94 Chemicals 1.9 08 Banks 16 8 94 Construction 2.0 12 Basic Resources 9 q 100 Basics 27 29 Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg Chart 45: Basic Resources 4" overbought signal this year — previous Chart 46: Utilities near a record -4SD oversold vs 52-week average pullbacks last 4-8 weeks and averaged -11% relative 100 80 60 40 5.0 t2 4.0 3.0 2.0 1.0 1.0 0.0 1.0 0.8 2.0 3.0 07 4.0 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Utility - relative price vs 52wk average (SD) 1.1 P 0.9 } == =CTl relative —=—<Basics relative 12/15 02/16 04/6 0616 08/16 10/16 0.6 Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg , Bankof America 22 European Equity Strategy | 01 December 2016 Merrill Lynch HOUSE_OVERSIGHT_014481