Research Excerpts

Money Market Flows Tipped Off The May US Stock Market Decline

Posted on: Monday, June 13th, 2011

Understanding the relationship between investor positioning and the direction of financial asset prices can provide investors with an important edge.

The following (green highlights) is an excerpt from our May 20th Sentiment Survey report, which examines investor positioning in US stocks, US bonds, the Dollar and in economically-influential commodity prices, and points out emerging investment opportunities based on these data.

excerpt from Asbury Research’s Sentiment Survey
The US Stock Market
May 20th 2011

Chart 4 indirectly measures retail-oriented investor sentiment on the US stock market via the

day-to-day flow of investor assets in and out of the money market.

Since investors typically allocate more of their investment dollars to money market funds when they are fearful of a stock market decline, and shift those assets out of these funds and back into equities when they think the danger is over, tracking the day-to-day level of assets in this fund can tell us a lot about the level of greed or fear that investors are feeling about the stock market over the near term.

Chart 4

This 3-panel chart is admittedly a bit complicated, but it essentially defines instances when investor assets are aggressively leaving the money market — presumably in search of a better return

The rightmost red vertical highlight between all three panels points out that that investor assets are aggressively leaving the money market right now, while the other vertical highlights show that previous, similar instances of this have coincided with or led what have been the most important peaks in the S&P 500 (upper panel) since 2010.

During the 3 weeks or so since our May 20th report, the S&P 500 has declined by 76 points or -6%.