Research Excerpts

How We Got In Front Of Today’s Fed-Fueled Rally

Posted on: Wednesday, March 18th, 2015

The following is a brief excerpt from our Wednesday March 18th report, entitled Asset Flows Heading Into Today’s Fed Statement, which was sent to clients as the US stock market opened this morning.

The type of report, which we call What We’re Watching Today, is one of 8 different reports that we produce for subscribers throughout the month. WWWT is a typically a pre-market opening report, taken directly from our dynamic watch list of key markets and market factors that we we use to identify important changes in market conditions and direction.


What We’re Watching Today

Asset Flows Heading Into Today’s Fed Statement

Posted on: Wednesday, March 18th, 2015

Conclusion, Investment Implications, Strategy

Heading into the release of today’s Fed Statement at 2 pm ET today, investors appear to be collectively leaning towards the likelihood of more dovish/market bullish language by the Federal Open Market Committee (FOMC) as the total net assets invested in most key US stock market-related ETFs have been expanding since March 6th to March 13th.

Analysis and Rationale

Investor asset flows tend to slightly lead directional movement in the price of an asset because they “fuel” that move, either by expanding to drive prices assets higher or by contracting which causes prices to decline. The following 6 charts indicate how investors are collectively leaning, direction-wise, heading into today’s FOMC’s meeting announcement at 2 pm ET today.

S&P 500 SPDR ETF (SPY)

The green highlights in Chart 2 below show that the outstanding shares in SPY have also recently reversed upward, on March 11th, just as they previously did on January 30th, December 16th, October 21st, and August 8th, all which closely coincided with near bottoms in SPY.

Chart 2

Chart 2

In addition, these outstanding shares have also risen back above their 21-day moving average as of yesterday (March 17th), indicating that a new trend of monthly expansion is beginning. This is typically positive for SPY.

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The S&P 500 (SPX) traded as much as 13.05 points lower at 2061.23 today, shortly before the Fed Statement was released, and subsequently rose by 38.19 points or or 2% to close at 2099.42.  Our Correction Protection Model remains on a February 9th buy signal.

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