Fund Flows As A Fundamental Analysis (FA) Factor

Fund Flows are an important FA factor which measures the flows of capital into funds which will increase the price of the fund over time.

Institutional flow

It is well know that, for the US stock market at least, the last hour of trading (3PM to 4PM for the US stock market) is when institutional investors do their buying and selling of stocks for their funds. Now, even though institutional investors have a lot of resources and experience at their disposal, they are not necessarily 'right' all the time (and the same goes for hedge funds), but you can apply some basic TA to a chart and discern important support and resistance levels as in indicator of market direction.

In the last hour (blue line) chart below that level for the US SP500 stock market is currently 530. The red line shows that clear support and resistance level at around 530 with the longer red box coinciding with the big 30% sell-off during 2022. Since that point, time spent above 530 coincides with the subsequent bull market. The smaller red boxes show support and subsequent rebound in the SP500 also...

CTA BUYING MACHINES

CTA buying machines are a current reality in todays equity markets. It's unclear it they are a real driver of price action or whether they are just really good at what they do... tracking the momentum to the upside and downside. I get the impression they really a big 'driver' of price.

The chart below (from Goldman Sachs) for global equities marks out the extreme positions coinciding with short/medium term market tops with good accuracy.

... and a more advanced chart marrying together CTA's with Risk Parity and Vol Control funds smooths out the signal giving a clearer picture (and correlation) with market tops and bottoms...

Global & US Stocks Fund Flows & Insider Selling

A leading indicator for stocks/equities prices is the flows into and out of equity funds. Global stocks saw record in-flows in 2021 in excess of $1 trillion… bigger than the total inflows of the last 20 years. Then in 2022 those funds exited equities in a huge sell-off.

It's not that easy to track equity flows. The links below are the best I have found so far. So, it's a trend in outflows that we are looking for here to detect downwards momentum in equities...

• ICI ETF fund flows
  (Click the 'Release' link on the page)

Isabelnet even have a graph to show us a summary of insider stocks selling, the peaks of which tend to coincide with smaller timeframe stock market sell offs....

• Isabelnet Insider Selling

The Chaikin Money Flow Index measures money flows into or out of a stock or index by calculating the difference between high, low, and closing prices over a given look-back period, typically about 20 days. This indicator acts as an oscillator as can be seen below... when the chart heads below zero, it has a remarkably high correlation with the short tern peaks which are followed by short term corrections.

In the chart below on the far right, we see the extreme divergence on the 2024 sentiment driven bull run fuelled by fundamentals such as the confirmation of expected Fed policy (interest rate cuts) and the subsequent FOMO. The Chaikin Money Flow Index was diverging and warning about declining money flows WEEKS before the April 2024 correction...