After seven consecutive up weeks, this week was flat. The Dow was up less than 1%, and the S&P was down less than 1%. However, it did come out this week that retail investors may be returning to stocks, after missing this huge rally. Their inflows into equity mutual funds was $3.8 billion. This was the largest since May of 2009. That returns some of the $35 billion they pulled out last year.
Analysts used to discuss the "odd lot" rule. Most stock purchases are for 100 shares or some multiple of that. When purchases of less than 100 shares (called odd lots) increased, that indicated the smaller investors, who could not afford a full lot, were returning to the market. As they were not considered to be sophisticated investors, that was a bearish indicator, meaning the market was going down. Today, we watch mutual fund inflows for the same reason.
Does this mean we are at a tipping point before a market slide? Of course, no single rule-of-thumb proves anything. Still, I believe the market needs to take a rest until the economy catches up. I do expect market weakness over the next few months.
