index etf credit spread iron condor option advisory options trading system service using puts and calls, spreads and condors trader strategies

Money Flow IN/OUT of Long-Term Domestic Equity Mutual Funds

This "funds flow" indicator tells us how much money is flowing IN or OUT of long-term, domestic equity (stock) mutual funds.  When money is flowing into US equity mutual funds, it will help push-up stocks and help the major indexes stay above certain support levels.  If money is flowing out, mutual fund managers will need to liquidate stocks to satisfy requested distributions and their selling activity will usually push the markets down.  Below is the funds-flow chart from January 2007 through August 2009.  Note the heavy distribution in July and Sep 2008 just before the October crash, as noted by the two red arrows, giving us a warning that a severe market correction could be coming.  On this chart we also note how the In-flow of cash in April '09 through August '09 is "running out of steam", thus giving us a warning that a market correction could be coming.

When cash is flowing out of US Domestic Mutual funds, and if it is flowing into US Bonds, which are classified as a safe haven investment, this provides us further information about investor sentiment.  In this case, it tells us that investors are worried about the US economy and that they are moving their cash out of risky stocks and into safe US treasuries.