Where Are the Funds Flowing?

Dear Slingshot Trader Subscribers, 

It’s been an interesting couple of weeks in the stock market. We have seen the Dow Jones Industrial Average break up and through 13,000 and the S&P 500 break up and through 1,400. And even though there have been multiple attempts to break back down and through these new key support levels, the major indices have been able to hold their ground.

At the same time, we continue to get reports or record-low levels of volume from the New York Stock Exchange (NYSE), the NASDAQ and other exchanges.

In other words, we have a bull market, but there seem to be relatively few bulls in the stampede at the moment.

So where are the other bulls? Where are the bears? Where are the funds that ultimately drive growth in any market actually flowing right now?

Mutual Fund Flows

Let’s start by looking at fund flows in mutual funds, because that’s where the majority of the 401(k)-investing public has their funds.

As you can see in the table below, equity funds started to see a nice inflow of funds earlier in the year, but that all changed in mid-February. Since that time, we’ve seen the inflow of new funds slow down to the point where we actually saw an outflow of funds the week of February 29.

At the same time, the inflow of funds into bond-based mutual funds started to pick back up – with investors putting more than $10 billion into bond funds the week of March 7.
chart1

Table courtesy of ICI (Investment Company Institute)

Naturally, this isn’t an inspiring data set if you are looking for an influx of bullish stock investors to jump in and continue pushing the market up higher and higher.

However, there is a little more hope on the ETF side of things.

Exchange-Traded Fund (ETF) Flows

When it comes to ETFs, investors seem to be much more interested in stock-based funds than they are in bond-based funds. The amount of money flowing into stock-based funds is three times as much as the amount flowing into bond-based funds.

We also see that instead of decreasing, the amount flowing into stock-based funds from January to February actually increased a little bit.

chart2

Table courtesy of ICI (Investment Company Institute)

Of course, we can’t get too ahead of ourselves with this analysis because the total amount of money flowing into ETFs is only a fraction of the amount of money that is flowing into mutual funds. The mutual-fund market – thanks to 401(k) plans – is still the 800-pound gorilla. The ETF market also seems to be where more market speculators are putting their money, while more long-term investors seem to still prefer mutual funds.

The Bottom Line for Next Week

It doesn’t look like there is going to be a bullish surge of new money flooding into the stock market in the near term, unless we start to get surprisingly good economic announcements or a dramatic change in investor and consumer confidence.

This, however, does not mean stocks are going to immediately turn around. Most of this current rally has occurred during a period of anemic volume. So long as the bulls who have been playing continue playing, the stock market should see some decent support. But if the bulls who have been playing stop playing and start taking money off of the table, there doesn’t seem to be much to keep the market from suffering a decent pullback.

This Week’s Events

Here are some of the news events that we may trade in the next week or so. We’ll be discussing some of these in tonight’s webinar.

Apr. 5 – Weekly Jobless Claims
Apr. 6 – U.S. Employment Situation
Apr. 10 – Alcoa (AA) Earnings Announcement
Apr. 11 – Import and Export Prices
Apr. 11 – Beige Book

TRADE REVIEW

When it’s time to open or close a trade, we’ll send you alerts via e-mail. You also can sign up to receive text messages regarding our trades. For more info about our SlingShot Trader portfolio, you can read trade alerts here and view our portfolios here. You can also see more trade-specific details by clicking on the trade links below.

Open Positions

These are the SlingShot Trader positions that are currently open and active.

Alcoa (AA)On April 3, we recommended you to “buy to open” the May 10 Puts for $0.45 or less. AA releases earnings on April 10, after the market closes. You can get into this trade any time before then.

iShares 20+ Treasury Fund (TLT)On March14, we recommended you to “buy to open” the April 111 Puts for $02.00 or less. This trade has been moving up and down, but if you can still get into it at a price below our recommended maximum, we still like the trade.

Closed Positions

These are the SlingShot Trader positions we closed during the past week of trading.

Constellation Brands (STZ)On April 3, we recommended you “sell to close” the May 25 Calls. We closed the position for $0.55 for a gain of 57.14%.

Monsanto (MON)On April 4, we recommended you to “sell to close” the May 75 Puts. We closed the position for $0.70 for a loss of 61.33%.

Webinar Preview: Join Us Tonight at 6 p.m. ET

Every Wednesday at 6 p.m. ET, we host our live webinar, in which we’ll review this weekly newsletter, discuss coming events in more detail and walk through our Top Trades. We also encourage you to submit your questions live during the session. We want to do everything we can to help you become a successful options trader, which is why you’ll have live access to us for an hour every week.

And if you have any questions or comments you would like to send us in advance of the live session — or anytime during the week — you can write to us at johnandwade@slingshot-trader.com.

If you can’t attend the session live, you can watch the archived version on our website in the “Live Weekly” section. It’ll typically be posted within about two hours of the end of the live session.

Sincerely,

 

John Jagerson and Wade Hansen
Editors
SlingShot Trader