Bear Necessities

Thursday, May 04, 2006 | 07:13 AM

In the WSJ's blog MarketBeat, Scott Patterson points to a few interesting analyses in a post, Bear Necessities.

First up,  Ned Davis Research on Mutual funds purchasing of stocks:

"Mutual funds have been pouring money in stocks -- and that could be a bad thing, says Ned Davis of Ned Davis Research. In January and February, investors tracked by research outfit [NDR] put $16.39 billion into domestic equity mutual funds. But the funds only spent $4.3 billion of that amount on stocks. In March, investors put $15.6 billion into domestic equity mutual funds, and the funds stashed the entire amount, plus another $4.4 billion, into U.S. stocks.

More than $10 billion of the inflows went into growth funds, more than twice the amount that went into bond funds, a sign of heightened risk-taking.

"Historically, we have found that the ratio of money going into stocks versus bonds to be a fair measure of speculation," Mr. Davis wrote in a Wednesday research note. He says the data is "unfavorable" for stocks, "especially since inflows tend to peak in April."

Next up, MarketBeat looks at a specific technical indicator: % of stocks trading above their moving average:

"Phil Roth, technical guru at Miller Tabak, has more bad news. The percentage of stocks trading on the New York Stock Exchange above their 200-day moving averages hit 67% Monday, one of the lowest levels in years (it recently peaked at 91% in January 2004), one of the lowest levels in years (it recently peaked at 91% in January 2004), which shows that one-third of the stocks changing hands on the NYSE are "in bear trends."

While the benchmark averages may continue to meander higher, "very good stock selection is needed to outperform the market meaningfully," wrote Mr. Roth in a Wednesday note."

Interesting stuff . . .

UPDATE: May 4, 2006, 10:34am

I dug up a chart on fund flows:


Source: Sentiment Trader via Kirk Report


Bear Necessities
Scott Patterson, MARKETBEAT
WSJ, May 3, 2006 3:15 p.m.

Thursday, May 04, 2006 | 07:13 AM | Permalink | Comments (12) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Each Wed. IBD publishes the values of a few "Psychological Market Indicators" (p.18). Similar to NDR's emphasis, IBD notes that the ratio of Mutual Fund Share Purchases to Redemptions (x- money market) has been trending at a 5 year high for the last two weeks: this week's value is 1.41 vs. last wk's 5yr-high of 1.44. The 5yr low occurred in the first week of July '02 at 0.9.

Posted by: hbt | May 4, 2006 7:30:21 AM

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