Sunday, April 27, 2008
Money Flows Into the Energy, Consumer Staples, and Technology Sectors
My recent posts have tracked money flows to the consumer discretionary and financial sectors (see the latter post for an explanation of the money flow measure). Above we see five-day average money flow for the energy, consumer staples, and technology sectors plotted against their respective ETFs: XLE, XLP, and XLK.
As with the earlier posts, I drew upon the ten most highly weighted stocks within each of those sector ETFs to estimate overall sector money flows. The stocks chosen were:
Energy: XON, CVX, COP, SLB, OXY, DVN, RIG, APA, XTO, HAL
Consumer Staples: PG, WMT, PM, KO, CVS, PEP, KFT, MO, CL, WAG
Technology: T, MSFT, CSCO, IBM, AAPL, INTC, HPQ, GOOG, VZ, ORCL
We can see from the top chart of the energy sector that the sector has been quite strong in terms of price action, following the strength of oil overall, but that money flows have been lagging. We've seen net inflows since the start of April--a pattern also noted among the financial and consumer discretionary shares--but those inflows have been modest. Indeed, with some selling in the energy markets this past week, flows actually turned negative among the energy issues of late. It's clear from the chart that selling pressure (outflows) has dried up since the January lows (another pattern we noticed in the prior two sectors reviewed), but we've yet to see investors devote funds aggressively to the sector.
The consumer staples sector (middle chart) gives us a different look altogether. Significant outflows from the sector have been seen even following the January lows--a possible result of a shift of priorities among investors from a more risk-averse stance to a more risk-seeking one (something we've seen of late in the Treasury market). Price of the sector ETF has lagged of late, and we are having trouble sustaining any kind of inflows to the sector.
The technology sector (bottom chart) shows particular strength, as outflows have been moderating since November, 2007 and inflows have recently hit new highs. Once again, this may reflect a shift in investor sentiment from a more defensive stance toward one that favors growth-oriented names, such as those found within the XLK universe. We're seeing multi-month price highs in XLK, and those are confirmed by money flow strength.
From this comparison, we can see how a sector-by-sector examination of money flows can provide us with insights into themes pursued by traders and investors. Because large transactions dominate the money flow figures, the sentiment of institutional traders is nicely tracked by the money flow measure.