Can You Catch A Falling Knife? – Weekly ETF Fund Flows

| December 8, 2014 | 0 Comments

fund flowsTotal ETF inflows outpaced outflows as US listed ETFs crept closer to $2 trillion in assets under management.

Last week we saw large net inflows into ETFs that hold US and international stocks…

The ETF with the largest net inflows were SPDR S&P 500 (SPY) with more than $1.0 billion. But we also saw strong inflows into sector ETFs… the Energy Select SPDR (XLE) had net inflows of $735 million and the Technology Select SPDR (XLK) had $414 million in net inflows.

The increase inflows into XLE and XLK could be an indication of investors becoming more strategic in their asset allocation.

One thing’s for sure, energy stocks are cheap after a 23% correction off the 52-week high. But trying to call a bottom in oil prices is still a risky proposition. But the strong inflow into energy ETFs is a clear indication that many are willing to try.

Be careful jumping into oil and energy stocks right here… there’s likely still more pain to come.

What’s more, we saw that the ETFs with net outflows generally had smaller losses than the ETFs that had net inflows. Two notable ETFs among the ETFs with the largest outflows were the SPDR S&P Retail (XRT) and iShares Russell 2000 (IWM).

The outflow from XRT and IWM looks like profit taking… XRT was up a whopping 15% over the last few months and IWM was up an equally impressive 13% during the same time.

The strong rally in stocks over the last few months may be starting to run out of steam.

According to the American Association of Individual Investors Sentiment Survey, the number of investors that are bullish on stocks over the next six months dropped 9.5% from the previous week.

However, it’s important to note that the level of bullishness is still above the long-term average of 38.9% of investors that are bullish.

Investors had been overly bullish for the last few weeks. And history clearly indicated that it wouldn’t stay that way for long.

The decreasing level of bullish sentiment was also evident in other market indicators.

One thing that’s generally been viewed as a positive for the economy is the drop in oil prices. But some investors are beginning to call this logic into question.

The resurgence of US oil production has been one of the biggest drivers of jobs that have provided a much needed lift to the US economy.

Now some analysts believe the drop in oil prices could lead to massive cuts in energy investments and major cutbacks to oil industry jobs. The net effect would be a net negative for the US economy, not a net positive that many believe the drop in oil prices will trigger among consumers.

Here’s the bottom line…

Individual investors aren’t as bullish as they were a few weeks ago. The biggest bet that most are making is that oil prices and energy stocks will rebound in short order.

But be careful jumping on the bandwagon… I think we could see lower oil prices and more pain for energy stocks before we find a bottom.

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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