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Sunday, March 09, 2014 7:44:06 PM
Amateur Investors Weekend Stock Market Analysis (3/8/14)
http://www.amateur-investor.net/Weekend_Market_Analysis_Mar_8_2014.htm
Tracking Mutual Fund Activity can give you an advantage as far as long term investing. Nearly a decade ago I developed an index called the Mutual Fund Panic Index (MFPI) which tracks inflows and outflows out of Equity Mutual Funds on a quarterly basis. Data can be tracked back to the early 1950's and what the research shows is that when outflows equal or exceed -18% (points A) significant bottoms have occurred followed by impressive rallies of at least 70% with each event. Also notice these events are rare with only "8" signals since the early 1950's.
The last Buy Signal was in late 2011 which is probably one reason why the market rallied strongly from 2012 into 2013. The S&P 500 bottomed at 1075 in October of 2011 so we have seen a 75% gain since then and a 181% rally from the March 2009 low of 667. In addition there was a long term Buy Signal with the March 2009 low as well.
Naturally one would ask since the MFPI has done so well in timing market bottoms does the reverse hold true in timing market tops? Unfortunately there isn't a strong correlation between inflows of money (18% or more) into Equity Mutual Funds and market tops in the S&P 500. Notice there have been several instances in which readings reached or exceeded 18% (points B) but the S&P 500 still moved substantially higher.
Next weekend I will show what conditions have led to market tops in the past using a combination of Investor Sentiment, Shiller PE Ratio's and Interest Rates.
http://www.amateur-investor.net/Weekend_Market_Analysis_Mar_8_2014.htm
Tracking Mutual Fund Activity can give you an advantage as far as long term investing. Nearly a decade ago I developed an index called the Mutual Fund Panic Index (MFPI) which tracks inflows and outflows out of Equity Mutual Funds on a quarterly basis. Data can be tracked back to the early 1950's and what the research shows is that when outflows equal or exceed -18% (points A) significant bottoms have occurred followed by impressive rallies of at least 70% with each event. Also notice these events are rare with only "8" signals since the early 1950's.
The last Buy Signal was in late 2011 which is probably one reason why the market rallied strongly from 2012 into 2013. The S&P 500 bottomed at 1075 in October of 2011 so we have seen a 75% gain since then and a 181% rally from the March 2009 low of 667. In addition there was a long term Buy Signal with the March 2009 low as well.
Naturally one would ask since the MFPI has done so well in timing market bottoms does the reverse hold true in timing market tops? Unfortunately there isn't a strong correlation between inflows of money (18% or more) into Equity Mutual Funds and market tops in the S&P 500. Notice there have been several instances in which readings reached or exceeded 18% (points B) but the S&P 500 still moved substantially higher.
Next weekend I will show what conditions have led to market tops in the past using a combination of Investor Sentiment, Shiller PE Ratio's and Interest Rates.
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