Did The Bond King Kill This ETF – Weekly ETF Fund Flows

| October 6, 2014 | 0 Comments

fund flowsThe apprehension on Wall Street is reaching a breaking point.

Investor sentiment is rapidly turning more bearish, fear is the dominant emotion, and the Bond King bailed on PIMCO.  Needless to say, it’s an unusual feeling for investors after more than a year and a half of steady gains for US large cap stocks.

As a result, we’ve seen ETF fund flows into safe haven bond ETFs over the last week.

In fact, iShares 1-3 Year Treasury Bond (SHY) led all ETFs with net inflows of $1.7 billion last week.  And there are many other bond ETFs that enjoyed strong inflows as well.

The demand for safe haven assets like Treasury bond ETFs is a clear indication of the level of fear among investors.

However, there was one bond ETF that had large net outflows despite the banner week for bond ETFs.  PIMCO Total Return (BOND) had net outflows of $662 million last week.

BOND is clearly reeling from the hasty departure of Bill Gross.  The Bond King left PIMCO on September 26th.  And the money is following him out the door.

The losses are clearly a blow to BOND, but it still has $2.9 billion in assets under management.  The bigger takeaway from last week’s ETF money flows is that fear is dominating investor actions.

These fund flows are a valuable indicator of what traders are thinking.  It takes a lot of buying or selling to drive millions or even billions of dollars into or out of individual ETFs.

Fund flows are something traders use to find trends and gauge investor sentiment.  And it can help you pinpoint which ETFs could be next to make a big move higher or lower.

ETF fund flows are just one piece of the puzzle…

Another piece is the American Association of Individual Investors Sentiment Survey.  It showed that bullish sentiment dropped 6.4% to 35.4%.  That’s below the 39.0% long-term average for bullishness.

What’s more, the number of investors that are outright bearish is increasing as well.  Last week the AAII survey showed that 30.9% of investors are now bearish… that’s an increase of 2.7% over the previous week.

To make matter worse, there are several more market indicators that are flashing warnings signs as well.

For instance, the volume of put options versus call options is at the highest levels in two years… there are more stock hitting 52-week lows than hitting 52-week highs… and more volume is trading on stocks that are moving lower than higher.

Here’s the thing…

This is a critical moment for the market.  When we have reached these levels of fear and weakness in the market over the last few years, the markets have always responded with a strong rally that carried the S&P 500 to new highs.

So, this could be a buying opportunity.

However, something feels different about the market right here than it has over the last few years.  Maybe it’s just the fact that the Fed’s bond buying program is ending.

That’s one plausible reason there’s more uncertainty than usual.

But use caution here… When the Fed has ended its bond buying in the past, it has led to the most significant market corrections we’ve had during the current 5-year bull market.

That wraps up this week’s ETF fund flows…

Keep in mind, there’s a lot of information about ETF fund flows.  And it can be a very useful tool as long as you know what you’re looking for.

Good Investing,

Corey Williams

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Category: ETFs, Market Analysis

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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