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(3/8/14)
Tracking Mutual Fund Activity can give you an advantage as far
as long term investing. Nearly a decade ago I developed an index called
the Mutual Fund Panic Index (MFPI) which tracks inflows and outflows out of
Equity Mutual Funds on a quarterly basis. Data can be tracked back to the
early 1950's and what the research shows is that when outflows equal or exceed -18% (points A) significant bottoms have occurred followed by impressive rallies
of at least 70% with each event. Also notice these events are rare
with only "8" signals since the early 1950's. The last Buy Signal
was in late 2011 which is probably one reason why the market rallied strongly from 2012
into 2013. The S&P 500 bottomed at 1075 in October of 2011 so we
have seen a 75% gain since then and a 181% rally from the March 2009 low of
667. In addition there was a long term Buy Signal with the March 2009 low
as well.  Naturally one would ask since the
MFPI has done so well in timing market bottoms does the reverse hold true in
timing market tops? Unfortunately there isn't a strong correlation between
inflows of money (18% or more) into Equity Mutual Funds and market tops in the
S&P 500. Notice there have been several instances in which readings
reached or exceeded 18% (points B) but the S&P 500 still moved substantially
higher. Next weekend I will show what conditions have led
to market tops in the past using a combination of Investor Sentiment, Shiller PE
Ratio's and Interest Rates. 
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This Strategy focuses on the typical End of Month markup by the Institutional
Money.
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