HUNCHTRADES

[RULiquid]

Suckers or saviors? Small investors buy up stocks
Fund flows offer no guide to future stock moves, says one analysis FRANKFURT (MarketWatch) — Are mom and pop stock investors late to the party again?

Individual investors at long last have begun pouring money back into U.S. stocks as indexes hit five-year highs. But hopes the renewed flows will extend the rally, which pushed the Dow Jones Industrial Average (DJI:DJIA) back to 14,000, are tempered by fears the recent participation by retail investors may be marking a market top.

For a start, the data on investor stock flows isn’t a reliable guide to market direction, according to one analysis.

“It’s not a signal about where the market is heading,” said Brad Barber, a finance professor at the Graduate School of Management at the University of California, Davis, whose research focuses in part on investor psychology. He noted that on some occasions fund flows have peaked just as the market prepared to tank.

That was the case nearly three years ago. Data from the Investment Company Institute, or ICI, shows mutual fund flows turned positive in March and April 2010, just as the S&P 500 (SNC:SPX) hit a 30-month high above 1,200. The index then tumbled below 1,011 in July before regaining its footing. Flows also turned positive in April 2011, with the S&P 500 setting its peak for the year a month later.

But others contend that when viewed in context of the overall market backdrop and fading tail-risk fears, the data offers bulls some limited reassurance. http://www.marketwatch.com/story/suckers-or-saviors-small-investors-buy-up-stocks-2013-02-05?dist=afterbell