One of my favorite stock market indicators is the flow of money into – or out of – mutual funds and exchange traded funds (ETFs). There is no question that the best source for this information is a firm called TrimTabs, founded nearly 20 years ago by Charles Biderman.
I’ve interviewed Charles dozens of times through the years, and I always find his analysis insightful. In fact, I spoke to him toward the end of June, just as the market was beginning another leg up.
He, however, was bearish, and he was exactly right. After hitting a recent high of 928 on June 29, the S&P 500 has fallen about 5% in just a couple of weeks.
He told me there were three signs that led him to believe the market would turn back down:
1. Individual investors were putting more money into mutual funds and ETFs than they had in a long time. His research indicates this is often a precursor to a pullback.
2. While individuals were pumping money in, corporate insiders were taking it out. Insiders were selling at about 27 times the rate that they were buying.
3. New offerings were flooding the market with additional shares, about $100 billion worth, which dilutes value.