Sunday, April 29, 2007

XLF and Money Flows for Financial Stocks

The last time we visited the Financial sector, we found waning adjusted relative dollar volume flows leading up to the late February/early March decline. Since that time, we can see that 10-day flows (pink line) have returned to above average (red line), but that the sector price (XLF; blue line) has yet to register fresh bull market highs.

The five highly weighted stocks within XLF that I use to compute the dollar flows are C, AIG, BAC, WFC, and JPM. Together, they account for about 36% of the index.

Of these five, only BAC is showing a 10-day level of flows below its 200-day moving average. Those flows are still quite positive, however. The strongest inflows are occurring within AIG, which seems to be attracting significant institutional interest. There is absolutely no sign of money fleeing this sector, as flows for all the stocks are strong.

As long as we have expanding dollar inflows to the Financial stocks, I expect price to continue higher. We normally see some tailing off of those flows prior to any significant correction. While XLF has been underperforming other S&P sectors of late, it has still been quietly accumulating institutional assets.