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“Show Me The Money !” January 12, 2013

Posted by Tom in Thoughts.

The title is taken from the Tom Cruise movie “Jerry McGuire”.  But perhaps there is some true to this.  Note on the chart below the big gap up after the first of the year.


The logical conclusion is that right after the first of the year a bunch of money flowed back into this market.  Sure enough the data on Mutual Fund In & Out flows confirmed at least some of this.  (the rest was likely do to tax selling to lock in lower rates, then re-buying to reset the cost basis)

Mutual Fund Inflows

The chart above shows that money coming into Mutual Funds ($8.9 billion) was second only to that back in March, 2000 (perhaps an ominous sign?).  So with all that money back in, what next?  Caution, that’s what.  Now. . . this is no time to panic, just be watchful knowing what the background is.  I remember the phrase “The markets can stay irrational longer than I can stay liquid!”, so this could go on for some time.  The main reason I say that is the volume.  Note in the top chart of the NASDAQ Composite that the volume after the first of the year is actually down compared to the pre-holiday volumes.  So . . I don’t see the “froff” coming in just yet, just a lack of sellers right now.

We’re likely going to encounter a lot of news driven whip-saws in the coming 2-3 months and this market will likely respond in kind.  Look for what the price is doing on high volume days (is the bar spread tall or short, is the Close at the top or the bottom?) and where the overall trend is.  That should be our guide on.

Have a good weekend and Take Care.         ………….  Tom  ………….

(price chart courtesy of MetaStock; used with permission)


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