Conclusion, Investment Implications, Strategy
Our analysis of the daily asset flows invested in the SPDR S&P 500 ETF Trust (SPY) suggest that a breakdown below 3090, and below 2999, in the actual S&P 500 (SPX) would put $16.2 billion to $23.1 billion — or 6% to 8% of the total assets invested in SPY — into the red, which would likely trigger even more aggressive selling.
Chart 1 below plots the S&P 500 (SPX) daily since mid April in the upper panel, with a corresponding chart of the daily total net assets invested in the SPDR S&P 500 ETF Trust (SPY) and their 21-day moving average plotted in the lower panel. The green highlights show the actual level of these assets on three different dates since May 29th (lower panel), and the actual index levels in SPX they pertain to (upper panel), to show the sharp acceleration of investor inflows during this period.
SPX is currently trading 3.9% lower at 3230.
Chart 1
The green highlights in the lower panel show that $16.2 billion of investor assets were added above SPX’s 3090 June 4th low. A decline below 3090 would indicate that all these assets — which comprise 6% of the total assets invested in SPY — would be losing money.
A deeper decline, below SPX’s 2999 May 29th low, would put $23.1 billion of these assets, or 8% of the total asset invested in SPY, into the red.
Because of the recent flood of assets into SPY, which have made the US broad market index top-heavy and vulnerable, we view SPX 3090 and 2999 as “hot spots” that, if broken, could trigger even more aggressive selling (long liquidation).