Outflows from Stock Funds: Right data, wrong conclusion.
I've been following fund flows for over 13 years and found them to be a very reliable contrarian indicator, with a lead time range of 0 to 3wks. I follow AMG Data #s, but they show a similar picture. Fund flows peaked at +$5 billion/wk at the start of November, and have declined steadily since then, to a -$5 billion for the most recent week. After its rise to a November 8th peak near 1135, the S&P has, essentially, gone sideways since then. The data is muddied by seasonal patterns of weakness and outflows from international funds, but the latest week should have taken us beyond the pre-distribution weakness.
Far from being a bearish indication, this pattern of sharply declining $ flows as the Market goes sideways is actually bullish. It may seem strange to say it, but in all my years of following flows into stock funds, no major Market uptrend has ever ended when fund flows were negative. This is especially true in January, when seasonal flows tend to be strong. Conclusion: This uptrend cannot end until flows into stock funds turn strongly positive, and for more than just one week. |
