Weekend Analysis by Amateur Investors By: Amateur Investors | October 14, 2017
It's been interesting to watch activity in Mutual Funds for the last several years. When the market exploded higher in the 1990's it was accompanied by a massive amount of money flowing into Mutual Funds, as shown by our Mutual Fund Panic Index, which tracks Quarterly flows in and out of Mutual Funds. Meanwhile when the market bottomed in 2009, initially there was a lot of money going back into Mutual Funds. However, as the years have gone by and the market has continued higher, notice there has been a gradually decrease in the amount of money flowing into Funds.
Meanwhile our Mutual Fund Panic Index has done a good job of timing market bottoms going back to the 1950's. Notice when the MFPI has dropped below a value of -18 (points A) bottoms have occurred followed by significant rallies (points B to C). Although these signals don't occur often they all have been followed by gains of at least 70% in each event. Keep in mind this is just one of four different signals we use to time market bottoms.
As far as the market, the S&P 500 has closed positive in 7 out of the last 8 weeks. In addition it has closed two weeks in a row above the top of its upper Bollinger Band. Thus it wouldn't be a total surprise if a small pullback were to develop. Finally, as long as the S&P 500 holds support along its upward trend line from the early 2016 low, we have to assume it will eventually rise up to the 2600 level.
The 2600 level is at the upper Bollinger Band using a monthly time period.
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