Saturday, May 31, 2008

Money Flows: A Look At Energy and Technology




Money flows can be thought of as a kind of NYSE TICK measure applied to individual stocks. When a stock trades on an uptick, the price of that trade times the volume (dollar volume) of that trade is added to a daily cumulative total. When a stock trades on a downtick, the dollar volume is subtracted from the daily total. Positive values at the end of the day reflect money flowing into the stock; negative values mean that investors and traders are withdrawing their capital from those shares.

The top chart takes the ten most highly weighted stocks in each of eight S&P 500 sectors and tracks their combined money flows over a four-day moving average to capture the flow of funds in and out of the S&P 500 index. (See my earlier post covering the Dow issues; this post links to the sectors that I cover and the ten stocks within each sector).

What we see from the overall money flow picture is that flows have turned modestly positive over the last few days across the S&P 500 issues, but that overall we're still spending more time below the blue zero line than above. The money flows at the March lows held well above their January lows and turned outright positive in April, but since have lagged.

Interestingly, the strongest of the S&P 500 sectors, energy, has been showing a pattern of dwindling inflows even as the sector ETF (XLE) has moved higher. Over the last week, flows have actually been negative, despite an overall market rally. I will be watching this divergence carefully; it may well be that institutions are taking some chips off the table when it comes to energy related stocks.

Technology shares, on the other hand, have had the most consistent set of inflows of any of the sectors. Flows have turned positive once again in the last week, though so far are not as robust as we've seen in April.

In all, we're seeing more money fleeing stocks when the market sells off than entering stocks when the market rises. As we've moved from April through May, markets have moved higher, but money flows have been drying up. That poses a yellow caution flag for June.
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2 comments:

Michele said...

Absolutely excellent analysis, as usual. Money flow is a metric I was not familiar with until you mentioned it. It seems to capture some psychoogical component in a way that other indicators (such as MACD or relative strength) don't. Many thanks for your daily thought-provoking commentaries.

Brett Steenbarger, Ph.D. said...

Thanks much Michele; I appreciate the feedback!

Brett