Riding A Wave Of Bullish Momentum – Weekly ETF Fund Flows
Bullish momentum is back…
The S&P 500 rode the wave of bullishness to a new all-time high last week. The large cap index is now up 10% from the mid-October lows.
Investors are clearly feeling emboldened by the recent stock market surge.
Last week they pumped money into ETFs that hold US stocks at an incredible pace. ETFs that give investors exposure to wide swaths of the US stock market enjoyed the largest inflows.
The always popular SPDR S&P 500 (SPY) led all ETFs with a gigantic $7.1 billion in net inflows. The PowerShares QQQ (QQQ) added $1.9 billion and the iShares Core S&P Mid-Cap (IJH) had $1.0 billion in net inflows.
Needless to say, these are the type of large inflows that are indicative of institutional and large money managers adding exposure to US stocks.
But it’s not just the big money managers that are bullish on stocks. Retail investors are also extremely bullish.
The American Association of Individual Investors Sentiment Survey showed bullish sentiment increased 3.3% to 52.7% last week. And at the same time, the number of investors that are bearish fell to just 15.1%.
That’s the highest percentage of bulls since December of last year and the lowest percentage of bears since 2005!
It’s not surprising to see investors so bullish… it hasn’t paid to stay bearish on stocks during the last five years.
But nevertheless, this type of extreme bullish sentiment typically doesn’t bode well for stocks in the very short term. Unless there are very unusual fundamental reasons, bouts of extreme bullishness or bearishness tend to trigger a reversion to the mean.
And judging by several indicators of fear and greed in the market – greed is dominating the market. Stocks are vastly outperforming bonds, bullish momentum for stocks is back near the highs we have seen at market peaks, and call option volume is far outpacing put option volume.
What’s more, the ETFs with the largest net outflows confirm the bullish bias. Two safe haven ETFs led all ETFs with the largest redemptions last week.
The iShares 1-3 Year Treasury Bond (SHY) that lost $1.3 billion and the Utilities Select Sector SPDR (XLU) that lost $732 million. Clearly investors are dumping these safer ETFs in hopes of earning bigger returns in riskier stocks while bullish momentum is in charge.
One thing’s for sure… stocks are riding a wave of bullish momentum.
It makes me nervous to see such extreme levels of bullishness… they typically don’t last long. And that means there could be a nasty reversal on the horizon.
Let your existing positions run, but use caution when initiating any new trades.
Good Investing,
Corey Williams
Category: ETFs, Market Analysis
