Don’t sell your stocks until clear warning signs appear.

That’s what Citi (NYSE: C) just told clients in a new report.

As they explained…

“On our definition, US equities are in a bubble. Historically, markets display strong forward returns after entering a bubble, and being bearish is only beneficial once you exit bubble territory.”

In other words: a bubble can keep inflating far longer than investors expect.

Here’s why Citi says the rally has more room to run.

The firm says this bubble is only in its early stages compared with 8 past bubbles going back nearly a century.

They also point out that, unlike previous bubbles when the Fed was raising rates, this time the central bank is cutting.

The bank also says the Fed could cut rates more than expected.

While most investors expect about 75 basis points of easing over the next six months, Citi sees 100.

That extra liquidity could keep pushing stocks higher.

So WHEN do you sell?

Citi points to two key indicators:

1. The POLLS Indicator – a mix of positioning, optimism, leverage, liquidity, and market stress. If it rises above 18, it’s time to exit. Right now, it sits at 13.
2. “When the Generals Fail” Indicator – a signal that flashes when 3 of the 7 leading S&P 500 stocks fall below their 200-day moving average. That hasn’t happened yet either.

Despite all the bubble talk…

Citi says conditions still favor staying invested.

And they’re not alone.

Bank of America and Goldman Sachs have both just raised their 12-month S&P 500 target.

Ian Wyatt

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