Stocks have been largely range bound throughout 2010, but the positives still outweigh the negatives overall. Chart 7 shows the **Dow SPDR (DIA)** starting the year just below 105 in January and finishing just below 105 this week. While it appears that DIA has nothing to show for eight months of trading, there are at least five (5) positives on this chart.
Click this image for a live chart
Working from left to right, DIA recorded a new 52-week high with the move above 110 in April (1). Despite a new high, the ETF then declined and broke its February low in late June. This seemed bearish at the time, but the ETF quickly recovered and surged back above 100 to create a bear trap (2). A falling wedge took shape and the ETF broke above wedge resistance in July (3). The uptrend was in good shape until a sharp decline in August knocked the wind out of the bulls. DIA ultimately held above the June low and reversed course around 100 this week (4). In fact, I would now label key support at 99. Also notice that StochRSI bounced off the .50 level (5). Looking back, we can see that pullbacks reversed as StochRSI moved above .50 and held above .50 (green dotted lines). This gives us two levels to watch in the coming days and weeks. The bulls have the edge as long as DIA holds 99 and StochRSI holds .50.
The Investment Company Institute (
ici.org
) compiles statistics on mutual funds and publishes them monthly. (
There is a one month delay between the end of the month being reported and publication.) Decision Point has been collecting these data for almost five years, and we finally have enough to start charting it. Amounts shown on the charts are in billions.
The bottom panel on the first chart shows the percentage of of mutual fund assets held in cash. A low percentage of cash indicates that fund managers are bullish on stocks and do not believe they will need much cash to meet redemptions, as would be the case if stock prices were to fall. The current percentage (3.4%) is lower than what it was near the top of the last bull market. I would consider that to be bearish for stocks.
The next chart shows assets in money market funds. What stands out to me is that, while money market assets have declined since the 2009 market bottom, they have not dropped to the levels seen during the bull market in 2005 and 2006. I interpret this as evidence of investors' reluctance to make a robust commitment to stocks, in spite of a substantial advance from the bear market lows.
Bottom Line: We seem to be getting mixed signals from the mutual fund assets data. The low percentage of cash held by fund managers is bearish for stocks; whereas, the level of money market fund assets shows plenty of cash on the sidelines which could be used to feed a substantial advance in stocks. On the other hand, perhaps the relatively high money market levels indicate that investors have reached their maximum tolerance level for risk in stocks and that they will not be committing any more money to the stock market. I am not sure if this is the correct interpretation, but it would seem to be confirmed by the consistently low volume the market has experienced during the advance from the 2009 lows.
Market Insider | admin | September 4, 2010 | 
Comments Off 