Friday, April 27, 2007

Money Flows Into the Dow Jones Industrial Stocks

Here's an update of relative dollar volume flows into the 30 Dow stocks as of the close of Friday, April 27th. Recall that we're assessing the dollar volume on upticks minus that on downticks each day for each stock and then expressing that dollar volume as a proportion of the total volume traded that day. The blue line represents the Dow Jones Industrial Average (DIA); the pink line is a 10-day moving average of relative dollar volume flows (current flows minus the average flow over the past 200 trading sessions). The red horizontal line at the zero level thus represents the average level of dollar volume flow over the past 200 days.

You can see that, overall, we've had above average relative flows into the Dow stocks, supporting the recent rally. Note how dollar volume flows tailed off prior to the late February-March drop; that, so far, has not occurred in the present market. Accordingly, I'm not looking for any significant, extended corrections at this point in time.

The individual Dow stocks with outright negative flows during the month of April so far are DIS and JNJ. We're seeing relatively low positive flows in GM, MSFT, T, VZ, and XOM. The latter is interesting, because oil prices (and stock prices of oil companies) have been high.

We're seeing very strong April flows into INTC, HON, JPM, KO, WMT, and HD. I find the latter especially interesting, given the housing weakness story.

I continue to hear from many traders, most of whom make the bear case. I agree with most of what they say regarding politics, the economy, etc. The fact remains, however, that institutions are putting funds to work in stocks. That's a tide I'm not willing to swim against.

Tomorrow we'll look at the flows in the various sectors within the S&P 500 Index and what those might be telling us about his market.


James said...

Its my impression that there aren't very many places to put your money right now other than stocks regardless of tepid economic growth. Bond and currency volatility has been whacked to unheard of levels. Until CB's are forced to change policies global macro trading will not offer many opportunities. Have a good weekend

Em said...

Thank you for your analysis Dr Brett.

I am curious about the April negative flow in JNJ, as it's price actually performed well this past month. Can this be reconciled as an "earnings surprise" to these larger traders? How would you interpret negative flows with rising price?

Brett Steenbarger, Ph.D. said...

Hi Em,

Yes, it appears that large investors are selling into JNJ strength. The money flow figures are very sensitive to whether large trades are occurring at bid vs offer.