Friday, April 13, 2007

Dollar Volume Flows Into The Dow Industrial Stocks

I thought I'd update my research with Dollar Volume Flows. Here is the Dow Jones Industrial Average ETF (DIA) plotted against the relative flows for the 30 individual Dow stocks. Recall that the relative flows track how many dollars have come into the Dow stocks over the past ten sessions compared with the past 200 sessions. More on dollar volume flows can be found here.

What we see is that, for the Dow stocks as a whole, flows have been positive, but below the levels seen during the stock runup from July to February. My concerns for this market are twofold: 1) We appear to be tracing lower highs in money flows; and 2) Bounces in money flows are not pushing the Dow to new highs. I would call this a yellow light; not a flashing red alarm. It simply tells us that institutions are not putting money to work in the Dow stocks following the recent decline the way they had been previously.

Among the Dow stocks, we see outright negative flows over the past ten sessions in DIS and MSFT. Flows into XOM have been particularly strong on an absolute basis. On a relative basis, the last ten sessions have shown greatly improved flows into HD and INTC. I'll be keeping my eye on housing and semiconductors as a result to see if this represents bargain hunting among institutions. Another stock with significantly improved flow over the past ten sessions is WMT.

In short, we are seeing positive money flows into the Dow stocks, not outright net selling. The pace at which large traders and investors are putting their cash to work in these issues has slowed--something I'm keeping a close eye on.


James said...

Do you weight the individual Money Flows before aggregating them into the index?

Paolo Pezzutti said...

I suggest to look into tech stocks (nasdaq emini for example) with the same tool. It is clear that a distribution phase might be ongoing. Both the OBV and the traditional money flow display negative divergences. What has happened is that after the end of feb sell off, investors have looked more cautiously to the tech sector. Why is that?

Brett Steenbarger, Ph.D. said...

Hi James,

No weighting at all. I aggregate the flows from each of the 30 stocks, but do also compare each stock's current flow to its own longer-term average separately.


Brett Steenbarger, Ph.D. said...

Hi Paolo,

Great idea. The flows away from NASDAQ and small cap would suggest some degree of risk aversion, which would make sense following the nasty decline.