Three Trillion Dollar Tuesday – A Little Inflow Goes A Long Way

Happy $62.1 Trillion! 

That was the market capitalization of Global Equities at Friday’s close.  That’s up $3.1Tn since February 4th as $11Bn flowed back into Equity Funds last week.  Sure, $3.1Tn is 281 TIMES $11Bn but NFLX trades at 235 times earnings and TSLA will be lucky to have earned 63 cents per $198 shares this year and that’s 314 times earnings so what’s the big deal if Global Equities move a mere 281 times faster than actual inflows?  What could possibly go wrong with the implied assumption that $11Bn will continue to flow in for 281 more consecutive sessions?  

Notice, in the Money Flow chart above, that we’re repeating a pattern we made back in September, when the S&P ran up 100 points, back to 1,750, just before giving it all back again into early October.  It’s simple physics – until as much money flows back in as flowed out, you’re not going to have a sustainable recovery!  

How many times over the years have I warned you about chasing low-volume rallies?  The average volume on SPY was 98.5M/day last week, vs 174M/day the week before and 162M the week before that – WHEN WE WERE SELLING OFF.  Can that really all be reversed by 7 sessions of light buying?  It certainly didn’t work out in late December and early January, when light volume led us up to a cliff. 

I guess we’re going to see this week, with options expiring on Friday and oil contracts rolling over on Thursday (/CLJ4 will be the new front-month and we’re already using it for our oil trading – currently short at $100.90 with a stop at $101.01). 

We’ll also get a bit of data this week with the Empire State (NY) Manufacturing Survey this morning along with Housing data that we expect to be disappointing and E-Commerce Retail Sales that will probably be excused by the weather – even though that would make no sense at all.  Tomorrow we get the FOMC Minutes and Bullard (hawk) and Williams (dove) speak on each side of it.  Also more housing data and the PPI.