Tuesday, March 25, 2014

A Look at Stock Market Money Flows

Punch up a chart of SPY and you'll see that, even with yesterday's drop, we're not far off the market highs and above the level at which we finished 2013.  (My flow index for the chart starts 2013 at a level of 100).

If, however, we look at the money flows in SPY--the product of the share price times the shares outstanding--we see a different story.  Money flows for SPY came off hard during the late January and early February decline and have only bounced partially back.  We remain well off the end of year highs.  

I like sentiment measures that reflect what real traders and investors are doing, not what survey respondents are saying.  You can see that market participants were gobbling up shares toward the end of 2013: prices kept rising and the shares outstanding kept expanding, reflecting strong demand.  A lot of that bullishness came off early in 2014, leading to the recent bounce.  Flows in SPY have stalled during the last few sessions.

The money flow concept is a handy one for assessing sector-specific ETFs as well.  Is money flowing into some sectors but not others?  Which ones are seeing sentiment extremes?  In an upcoming post, I'll take a look at a couple of interesting sector flows.

Further Reading:  Divergences in Money Flows

2 comments:

nate said...

What!?? How long has this blog been back? I feel like I've been kept out of the loop!

ML said...

you are plotting market cap right?

Not able to duplicate your results. please see the market cap chart from ycharts.com

https://ycharts.com/companies/XSPY/chart/#/?securities=type:company,id:XSPY,include:true,,&calcs=id:market_cap,include:true,,&format=indexed&recessions=false&zoom=1&startDate=&endDate=&chartView=&note=&title=&source=&units=&quoteLegend=&partner=