At the end of last week, Marc LoPresti, who is the CEO of Market Rebellion, wrote to me and asked me to comment on an article whose headline was, “Hedge Funds Are Selling Like Never Before – Should You Worry?”
My initial response was to laugh. Then my analyst response was that this statement was not based on sound data and I was going to prove it.
The idea was that the hype of Stocks, Bitcoin, Gold and Silver were not being bought by Hedge Funds. In fact, they were net sellers for the last four weeks in a row according to Bank of America’s Equity Client Flow Trends. The outflows totaled $2.1 billion.
Moreover, Hedge Funds were buying $52 million of tech stocks and selling $129 million of Tech Focused ETFs. Heavier selling came from financial stocks where Hedge Funds dumped $670 million of stock. Now remember this was a week ago around October 10th. As of the publishing of this article, it is the 17th of October.
At Market Rebellion, we rely on Erlanger Research and their indicators to help guide us. One of our favorite indicators is the Erlanger Volume Swing (EVS). The idea behind EVS is to track the day-to-day movements of volume for a stock, ETF or an index. So, if the price is higher, then we consider the volume to be positive. If on the other hand price is lower, then we consider volume to be negative. Part of the model is to be making a higher high as well.
Now that you have a basic understanding of EVS, it is important to understand the scoring system. Above 0 is a buy and below 0 is a sell. A rising EVS is good if you own shares. A falling EVS is good if you are short shares.
On the close of October 8th , our Market EVS for the entire market was 6 and through Thursday, October 16th it was 4. The Market EVS has not turned negative so the idea that hedge funds are massive sellers does not pan out.
Meanwhile, our EVS on the Tech Sectors sees scores of 0.81 on Software, Computers/Equipment at 8.10 and Semiconductors at 21.20 as of October 16th and a week ago were even stronger. The leading ETF for Tech is XLK and its EVS score is 12.41 on the 16th and a week ago was 29.12.
Last but not least are the financials. Diversified Financials via XLF had a score of -18.71 on the 16th and back on the 10th its score was -7.95. Indeed, these were being sold and we would stay away from the Financials for the time being.
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