The smart money is ready for Dow 16,000
While regular investors are worried about the Fed's stimulus tapering, the professionals are moving in.
The markets have been spasming since Federal Reserve chairman Ben Bernanke started talking up the possibility that the Fed's $85 billion-a-month bond purchase program could be rolled back later this year. Bonds and commodities were hammered. Interest rates surged. And stocks fell into a three-month-long downtrend.
That's all ending now with small cap stocks, represented by the Russell 2000 iShares (IWM), already pushing out to new all-time highs.
Once again, the smart money was one step ahead. And now, with the Dow Jones Industrial Average less than 100 points from setting new all-time closing records, insiders are locked and loaded for a run at the 16,000 level. Here's why.
Analysts out of Barclays' London office pointed out this disparity between retail and institutional fund flows in a note to clients this morning. Professionals have been steadily pulling money out of money market accounts (essentially cash) since talk of Fed tapering emerged in late May. This, in their opinion, reflects "growing optimism among non-financial firms about the economic outlook and a willingness to shrink precautionary cash balances."
In contrast, retail investors have been pulling money out of stocks and bonds and increasing their money fund balances. You can see this relationship in the chart above, which shows fund flows after Bernanke's Congressional testimony appearance on May 22.
As for specifics, retail money fund balances have increased 5% or nearly $30 billion while institutional balances are down 2.3% or $22 billion over the same period.
There is other evidence the smart money has been quietly preparing for another run at new all-time highs. Options traders are building their bullish bets as call option activity increases. Commercial hedgers in the equity futures market are covering their net short positioning. And the relationship between stocks and bonds suggests money is transitioning into equities.
For the run higher, I'm concentrating on the energy sector. In the Edge Letter Sample Portfolio, I have exposure to crude via the ProShares Ultra Crude (UCO), which is up 8.2% since July 2. I've also added exposure to small breakout plays like Lifevantage (LFVN), a dietary supplement and beauty products maker that is up 7.4% since July 1.
Disclosure: Anthony has recommended LFVN to his clients.
Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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This can't be true !!!! ..... It was only a few short months ago that Mirahoodari was predicting
an "Epic Bear " market. Day after day he profusely produced charts and graphs to support his convictions with nary a doubt about its validity or probable fruition. Damn fool didn't even have the foresight to hedge his opinion. So much for macroeconomics, heh.
Smart money ready for Dow 16k'
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