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Money Flow

07/13/2010

Historically, the first ten calendar days of January, and sometimes July, are a time for money managers to deploy fresh investor capital into the equities market. Obviously, that provides natural price support for the markets. As an example, this past January, the S&P 500 Index opened trading on the first day of the month @ 1115. Over the next 5 sessions fresh capital buying or "Money Flow," as we like to describe it on the Street, elevated the index toward 1150.

S&P 500 Index December 31, 2009 - January 11, 2010
 

Source:  Bloomberg
 

Once the "Money Flow" effect subsides, the market will lose that underlying support and its direction will be driven by the impending earnings results which begin the second week of both January and July.
I, however, view the 'Money Flow" indicator as a great read into overall investor confidence about the next few months. The fact that fresh capital was being deployed in the first week of July this year indicates to me that investors do not believe an impending equities market "washout" will occur in the next few months. Rather, I view this week's price action as investors taking the opportunity to acquire capital market assets at attractive levels, this even with the overwhelming theme of the mass media suggesting that "Armageddon 2: The Sequel" is upon us.
Laggards performed very well this week, some of the legacy hedge fund VIP names in particular. The re-attraction to those laggard names confirms positive 'Money Flow." Take a look at the names below - quality companies I suggest - with terrible year-to-date performance, but still beating the S&P 500 Index over the first nine calendar days of July 2010.
S&P 500 Index                year to date -3.33%            month to date +4.58%
Google (GOOG)               year to date -24.6%            month to date +5%
Amazon (AMZN)              year to date -12.8%            month to date +7.3%
Suncor (SU)                    year to date -9.3%              month to date +8.7%
JP Morgan (JPM)             year to date -6.7%              month to date +6.2%
Peabody (BTU)               year to date -4.3%               month to date +10.6%
US Steel (X)                   year to date -22.2%             month to date +11.2%
Freeport Mac (FCX)          year to date -17.8%           month to date +11.6%
Potash (POT)                   year to date -14.3%           month to date +7.8%
Res in Motion (RIMM)       year to date -21.1%           month to date +8.3%

The focus now shifts to corporate earnings which may send the near-term indexes higher or lower - something that is rather difficult to forecast. But, I like the fact that fresh capital was being deployed in the first week of July, even with the gloom and doom crowd back out in full force again warning us of the arrival of the next recession.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.