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CORRECTION AHEAD? ANSWER: ONLY IF THERE ARE MORE SELLERS THAN BUYERS.

Among the many stories in today’s news I came across the following headline: “Correction ahead? Investors exit stocks despite new records”

(http://www.marketwatch.com/story/correction-ahead-investors-exit-stocks-despite-new-records-2015-04-24)

And, it has the below chart to illustrate its point.

MW-DK394_us_equ_20150424101804_ZH

“Hmmm”, I thought.

Then two questions came to mind:

1. “Are these mutual fund outflows? (Answer: Yes) And, aren’t they mostly wrong? (Answer: Yes)”

and,

2. “If fund liquidation is taking place, who is taking the S&P 500 to new highs?”

Those of you that have followed the work at The Investment Compass (www.theinvestmentcompass.com) know that if a stock or an index of stocks, like the S&P 500, it doesn’t really matter “who” is buying, the fact is that there are simply more buyers than seller.

It’s as simple as that!

Somebody is buying and there are more of them (buyers) than sellers which is seen in the point-and-figure chart of the S&P 500 seen below, thanks to StockCharts.com.

Remember, the only thing a point-and-figure chart illustrates the prevalence of buyers and sellers, it doesn’t tell us who is buying (or selling).

$SPX – Graphical P&F – Charting Tools – StockCharts.com

SharpChartv05

And, maybe the first chart (Chart 1) seen above is really good news for the market since mutual funds are generally wrong. However, to their credit, it is the investor in the mutual fund that is selling and not the management of the fund that is creating the outflow of funds.

So unless the mutual fund investors withdrew their funds, wouldn’t that mean the mutual fund would have cash and therefore have increased buying power?

Just sayin’.