Will it be bull or bear market? Here’s what the numbers clearly say
In July 2005, stock mutual fund cash reserves
reached 3.9% according to the Investment Company Institute. The cash level for
all mutual funds stands at 5% according to Data View.
Historically, mutual fund cash levels for
equities below 8% are bearish and levels near 4.0% in 1972 and 2000 each
preceded a 2-3 year bear market in equities.
Simple math suggests that if fund managers do not
have the cash on hand for redemptions then they must sell stock. This in turn
can create a downward spiral on prices.
Note that the S&P500 reached our target level of
1,245 just after cash reserves hit a new all time low in July. This was followed
by a plunge in the UoM consumer survey last week below a 30-year trendline of
rising optimism.
Money market funds are on track to outperform the
S&P 500, which is the benchmark for mutual fund managers. With consumer
sentiment on the decline because of rising oil prices and no more cash on hand
to throw at the market, we think the next big move for equities is down.
Regards,
Jes Black
FX Money Trends
613 4th St Suite 505
Hoboken, NJ 07030
Tel: 646.229.5401
Jes
Black is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
BlackFlagForex.com.
Prior
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department,
Forexnews.com. After four
years as a senior currency strategist he went on to found
FxMoneyTrends.com – a research firm catering to professional traders.
Jes
Black’s opinions are often featured in the Wall Street Journal, Barrons,
Financial Times and Reuters. He has also written numerous strategy pieces
for Futures magazine and regularly attends industry conferences to speak
about the currency markets.