Overtime
ETF Flows
Good morning,
Late last week, the market got some much-needed rotation, and, as it often is, sentiment was the catalyst.
While surveys, the VIX, option data, and other sentiment all have their place, one of my favorite sentiment indicators is ETF flows.
Just like our previous reports, I’ll highlight ETFs that fall into one of 3 categories:
Overly aggressive. These ETFs have seen extreme inflows. For an uptrend, I don’t believe that alone is a reason to sell but it’s a yellow flag and could indicate more downside vulnerability in a correction.
Contrarian positive. These ETFs have seen significant outflows recently and extreme readings could indicate selling is unlikely to continue to the same degree. Potential tailwind if a downtrend can stabilize and a bullish indicator for uptrends or ETFs breaking out.
Apathetic. Flows here aren’t extreme in either direction but that means there could be room to run for the underlying trend.
Let’s get into it!
Overly aggressive
Oil refiners
The VanEck Oil Refiners ETF has taken in its most inflows ever over the trailing three months. Adding to potential warning signs is a recent lower high. A close below $47 would complete a small head and shoulders top.
Clean energy
Inflows for ICLN have surged, hitting their highest levels since 2021. These are a blip compared to the amount this fund took in during the post-Covid bubble (shown below), but it makes you more vulnerable to a sell-off, as we saw last week.
Software
Another group where sentiment got the best of it last week was software. The majority of IGV buyers did well for themselves, flooding in at the bottom, but they still had to endure an 12% top-to-bottom pullback last week.
