Tuesday Midday Color
Here's what's piquing my interest so far on this mixed day.
China Shines
Chinese stocks continue their march upward, which bodes well for the longer-term. We saw in previous reports how a 20% rise from a low in the Shanghai Composite had led to more long-term gains when buyers continued to press in the short-term. Now, more 70% of stocks in the index (rounded) are in bull markets, roughly defined as trading above their 200-day averages.
When that figures has gone from < 20% to > 70%, it has often marked the exhaustion point for the initial rally.
Every time, the Shanghai showed a negative return either 1 or 2 months later.
Fund Flows
Using ETF flows as an indicator can be a tricky endeavor, as they don't always act how we think they should. A few funds are showing some extremes in recent days, though. The XLV health care fund has now averaged a leak of more than $150 million/day over the past week, which has mostly occurred at the troughs of selling pressure.
ETF traders have also left the HYG junk bond fund, with an outflow of more than $250 million/day over the past week. That has been a decent sign of excessive pessimism.
It's odd to see this as the fund rallies, though. In fact, we've never seen it as the fund rallies. The "wall of worry" crowd would suggest this is an even better sign for the fund, but I've never bought into that argument. Anything weird is a worry. Evidence has proven that markets rally when investors become more optimistic, not less, until the point of excess.
The GLD gold fund has lost an average of more than $300 million/day over the past few sessions. That has not been a contrary indicator.
The Fast Lane
I'll just leave this one here.