foxex: Money Flows

Chart Advisor | Focus on the Price

Tuesday, September 01, 2020 Headlines

1. Market drives higher on high demand for stocks
2. Gold losing its shine?
3. Netflix might go strongly higher

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Market Moves

The S&P 500 Index (SPX) closed .75% higher in this session and continues to show a pattern of money flowing strongly into the benchmark index. A simple comparison leads to a dramatic conclusion about just how much demand there is for stocks right now.

The chart below shows a graphic which depicts three lines. The top panel shows the dollar volume of all shares traded on State Street's S&P 500 index ETF (SPY). This is calculated as the number of shares traded on a given day multiplied by the closing price for that day. The values are measured in trillions. The second panel shows a line calculated for the same metric, but for Apple (AAPL) shares. These values are measured in billions. Both top two panels show a conspicuous rise over the past month.

However, the third panel is generated by dividing the second panel into the first to calculate what percentage of the money traded in the market is specifically traded in AAPL shares. Not surprisingly, the percentage is small. But what IS a surprise is that the percentage is noticeably falling. This implies that MORE money is heading into stocks in general than into Apple. That is good. It implies a healthy demand for stocks in general, not just favorite stocks. It further implies that this trend could simply continue for the foreseeable future, despite warnings from the CBOE Volatility Index (VIX).

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Gold Losing Its Shine?

One important observation to make is that if money is going to continue to move into the stock market, where is it going to come from? Is that source likely to run out? One possibility is that it may continue to come from commodities such as gold or fixed income securities as investors seek better returns.

The chart below shows how Gold is likely to face troubled pricing ahead. Notice the bearish candle formations on State Street's Gold Shares Trust ETF (GLD) and VanEck Vectors Junior Gold Miners Trust ETF (GDXJ). Compare these with the middle panel, the U.S. Dollar index (DXY), which is showing a divergence on the Relative Strength Index and four bullish candle formations over the past month.

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Netflix Might Go Strongly Higher

If stocks were to continue moving higher, one company not likely to be left behind is Netflix (NFLX), especially considering the cup-and-handle pattern it has just completed (see chart below). This pattern is thought to be all the more reliable when it has two characteristics. First, a volume pattern that matches the price pattern, and second, a volume spike at the low of the cup pattern.

The Bottom Line

The S&P 500 and Apple continue to rise. However, more money is being put into stocks in general than just Apple, a trend that could continue. Gold is beginning to form bearish candles which may indicate lower pricing in the future. Netflix is still on the uptrend and is continuing strong.