Money continues to flow out of Stock Mutual Funds

Redemptions by retail investors from Stock (Equity) Mutual Funds continue for the ninth consecutive weekly period. However, most of that money seems to be moving into bonds and data does indicate that the outflow is decreasing in total amounts. But does that suggest that the pace of redemptions might pick up again in the future? Possibly.

Ninth Sequential Month of Mutual Fund Redemptions

ICI data link

So what is sustaining this market? Some theorize, with some merit, I would suggest, that the computers and their "black box" High Frequency Trading parameters are "kiting" the market and creating volume when the underlying lack of TRUE investor buying is far lower. This is just one more aspect that a market technician will need to assess when viewing volume related data. Fully eighty percent of all volume is related to HFT activity and we all know what happened on May 6th, 2010 when those computers were shut off.

So where are they folks getting their money to feed the computers? You're guess is as good as mine. But I suspect some major banks are lending them money, or engaging in proprietary trading with their own Black Boxes. With nearly zero interest rate loans available from the Fed, these banks can invest it in Treasuries, Corporate bonds, or in Equities. So as bond yields decrease due to retail investors outflows from equities to bonds, the black boxes start looking at equities as being reasonably valued.

So, if the theory is correct, how much longer can they borrow money to have computers trade against one another? And what happens if one, or more, of those proprietary black box systems decides to take a holiday AGAIN?

What I believe is that the average retail investor is realizing that the markets are no longer about human decision making related to proper "price discovery" in achieving the proper valuation of stocks. These decisions are being left to computer models and computers programmed to make thousands of trades a second based upon those models.

The amazing part of this is that computer based models are supposed to analyze and predict human behavior. But if human behavior is telling them that these markets are increasing rigged against them, then how do they model what seems to be a decreasing amount of retail investor interest? If investors vote with their feet and flee the equities markets, then can we not question whether those computer valuations are based upon sound analysis/programming?

Let's not forget that computer models were used to value Mortgage Backed Securities and they turned out to be utterly flawed.

Well.. let's see what tomorrow's market has in store for us. Looking good in Asia, thus far.

But we have the jobs data tomorrow morning, and the consensus is for 465,000 new jobless claims.
Anything higher than that and we'll likely see a sell-off. But if we meet or exceed consensus, the markets will likely rally further up to the 30 Day MA line at 1080 SPX, at which point the market will likely hesitate.

Scrutinizer