New Highs Before The New Year? – Weekly ETF Fund Flows

| October 27, 2014 | 0 Comments

fund flowsLast week the S&P 500 rebounded sharply higher after a 10% pullback.

It was the first time in more than three years that the large cap index had endured a 10% pullback. It sparked fears a major correction or even a bear market for US stocks.

But the 4% surge to the upside last week was the best week of the year for the S&P 500.

The volatility is largely the result of the general uneasiness and fear that has zapped the bullish market momentum in recent weeks. Several indicators of fear in the market, such as CBOE Volatility Index (VIX) and demand for safe haven investments like Treasuries, have surged recently.

It has triggered some unusual ETF fund flows over the last few weeks.

The ETF with the largest net inflow last week was the iShares Short Treasury Bond (SHV). This ETF invests in US Treasury Bonds that mature in less than a year.

In other words, SHV is the same thing as cash.

Last week SHV had net inflows of $1.025 billion to push the total assets under management up to $3.2 billion. Nothing says fear and uncertainty in the market like a massive influx of money into an ETF that’s the same as having your money in cash.

Despite the unusual influx of money into SHV, the American Association of Individual Investors Sentiment Survey showed bullish sentiment jumped 7% higher last week.

In fact, 49.7% of investors expect the stock market to be higher in the next six months. That’s well above the 39.0% long-term average for bullishness.

What’s more, the number of investors that are bearish on stocks dropped 11.2%. Right now only 22.5% of investors expect stocks to be lower in the next six months. That’s well below the usual level of bearishness among investors.

Obviously, individual investors are extremely bullish on stocks right now. And for good reason… if this was a pullback within a long term uptrend, then the S&P 500 should be back at the recent highs by Thanksgiving and pushing to new highs by the end of the year.

Based on the ETFs with the largest outflows last week, investors don’t think it will be energy, healthcare, industrials, or utilities sectors that are leading the markets back to those highs.

The Energy Select Sector SPDR (XLE), iShares US Healthcare (IYH), iShares US Industrials (IYJ), Health Care Select Sector SPDR (XLV), and Utilities Select Sector SPDR (XLU) all experienced heavy outflows last week.

Here’s the thing…

The recent ETF money flows, as well as several other indicators, show that fear is still very prevalent in the market. Despite those concerns, many individual investors are turning bullish on stocks.

If this was simply a pullback with a long-term uptrend, then we should see some of the signs of fear abate and the S&P 500 should recoup the losses by Thanksgiving and be pushing to new highs by the end of the year.

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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