Jubilant equity investors have been piling into U.S. exchange traded funds (ETFs) in the last few months, triggering a number of cautionary signals for stocks, according to U.S.-based tracker firm TrimTabs.
An ETF is a security that tracks an index, like the S&P 500, and flows into these funds have been positive for four of the past five weeks, according to the research. A time of continued positive sentiment might be a good thing for some investors, but contrarians, who like to go against the grain, see it as a bearish signal that markets might have become too exuberant and are due to pull back.
TrimTabs also highlighted that inflows into these ETFs over the month ending Nov. 26 was $42.9 billion, near a level not seen since December 2007, shortly after the last bull market ended. This inflow figure is also five-times the year-to-date average.
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"We are measuring plenty of exuberance among investors both in what they are doing and in how they say they feel," TrimTabs Chief Executive David Santschi said in a note released late Sunday. "Demand for U.S. equity ETFs rebounded last week, which is discouraging."