The S&P 500 edged up to another record close on Monday July 22, 2013 but other indicators would say you may want to leave that Champaign on ice. Read this investor insight by TrimTabs Asset Management to learn more about the recent record highs and what other indicators are saying.
As Wall Street rejoiced at the succession of record highs with the S&P 500 on Monday, our demand indicators continue to turn less favorable. Traders who are still aggressively long should definitely consider paring their long positions. The TrimTabs Demand Index, which uses 21 flow and sentiment variables for intermediate-term market timing, skidded to a six-month low of 62.5 on July 18 (readings above 50 are bullish). Since the index is between 50 and 75, the TrimTabs Demand Index model portfolio is fully bullish (100% long) rather than leveraged bullish (200% long) on U.S. stocks.
Contrarian analysis of fund flows also points to trouble for stocks over the short term. Investors are pouring money into U.S. equity funds at the fastest rate ever. U.S. equity mutual funds and exchange-traded funds have already received $36.8 billion in July, topping the previous monthly records set at the peak of the technology stock bubble in early 2000. U.S. equity ETFs alone issued $29.3 billion (3.4% of assets) in the past month, the highest trailing one-month inflow since early January. Such enthusiasm for stocks should make contrarians wary. Leveraged ETF flows are a bit more auspicious for stocks for the short run. Investors added 3.6% of assets to leveraged short ETFs in the past week despite the continuing melt-up.
Turning to the supply side, companies remain net buyers of shares, although the level of net buying in recent months has been a lot less strong than it was earlier in the year. Since the start of July, announced corporate buying (new cash takeovers + new stock buybacks) of $16.2 billion has been $8.9 billion higher than new offerings of $7.3 billion. Unless net corporate buying picks up significantly, we doubt the float will shrink much later this year (ticker-level data indicates that it expanded 2.0% in the first half of this year).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). This article was written by Minyi Chen, CFA the portfolio manager of the AdvisorShares TrimTabs Float Shrink ETF (NYSEARCA:TTFS). We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. This information should not be taken as a solicitation to buy or sell any securities, including AdvisorShares Active ETFs, this information is provided for educational purposes only.
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