Saturday, December 22, 2007

Money flows

Thanks to Subscriber Robert L for pointing this out. The chart above shows the money flows selling into strength and buying into weakness. All data points are for significant inflows and out flows of the SPY ETF. A couple of things become apparent as you study the data. Assuming this is smart money selling into strength and buying weakness which I am going to do since retail investors do the opposite. Then it seems like the smart money can't pick tops any better than you or I but it does look like they recognize quickly when a top has been made and use any rallies to sell into. They also seem to spot bottoms as they are nearing and start buying into weakness. While this data probably won't help us time the markets it could potentially warn that a top has been put in especially when coupled with COT data. Vice Versa it might help us to buy closer to the bottom again combined with COT data. The take away from the last two days of heavy selling and the lack of buying last week or Monday would seem to be that this rally had more to do with options expiration and making sure everyone went into the final weekend shopping season in a good mood than an actual bottom to this decline. Couple this with the very large decrease in net longs in the COT this week and I'm not sure I want to be a big buyer of this market just yet. I would prefer to see the COT adding longs and smart money buying some of these down days first.