Saturday, September 27, 2008

Money Flow Update for September 27th

In the last review of money flow for the Dow Jones 30 stocks, we found a bounce in dollars entering the stock market, but also "more evidence of sector rotation than across-the-board buying". As we can see from the chart above of the four-day money flows for the Dow stocks (pink line), we have indeed bounced into positive territory over the past week, although only Friday showed significant dollar inflows into stocks. Note that, to this point, bounces into positive money flow (i.e., above the zero line, showing that more dollars are flowing into than out of stocks) have been limited in duration and have been occurring at successively lower price levels. That is precisely what we'd expect to see in a bear market. There is nothing so far in the present bounce that deviates from that pattern.

During the past week, only 12 of the 30 Dow stocks showed positive dollar inflows. Once again, this suggests that buying is probably more related to sector rotation than across-the-board bullishness. Notable dollar inflows were seen among WMT, JPM, HPQ, CAT, and C. Stocks showing sizable outflows on the week included AIG, AXP, DD, GE, HD, JNJ, KO, MSFT, PFE, and XOM. I will need to see positive inflows among a broader array of stocks to conclude that we've put in an important market bottom; thus far, buying has been relatively brief and selective.