By Nigam Arora
Four events are sending investors out of stocks and into the safety of gold, bonds and the Japanese yen.
How do I know this? I am looking at money flows.
The market reaction to Brexit and the Trump election is more than ample proof that investors do not come out ahead just by analyzing events and making predictions based on the prevailing wisdom. As an example, the prevailing wisdom was that if Trump got elected, the stock market would plunge. Initially, Dow Jones Industrial Average futures did plunge 700 points, and since then the market has staged an impressive rally.
A useful gauge is money flows. Due to the importance of money flows to investors, let us explore it before delving into the four important events.
Please click here for tables of important money flows. I have been watching and investing based on money flows for a very long time. Long ago I concluded that investing and trading on money flows alone did not give me the edge I was seeking. That led to the multi-year quest of developing algorithms to dissect money flows into various segments. Money flows from the following three segments are the most important.
• Smart money
• “Momo” (momentum) crowd
• Short squeeze
The tables linked above show current money flows for each of these three segments for stocks, gold, oil and bonds.
Now that you have been exposed to a better way of looking at money flows, you too can appreciate the impact of the four events with a new perspective that is likely to generate more profits and fewer losses. Here are the four events:
Qatar is a small, but strategically located, Arab nation. It is different from most of the Arab population in that the majority of its citizens follow the Salafi branch within Sunni Islam. It has close relations with Iran.
The news is that Saudi Arabia, Bahrain, UAE and Egypt have cut off diplomatic relations with Qatar. They claim Qatar is supporting terrorism.
The news started an avalanche of buying in gold from the Middle East. ETFs of interest are gold ETF /zigman2/quotes/200593176/composite GLD -0.63% , silver ETF /zigman2/quotes/205744453/composite SLV -0.05% , gold miner ETF /zigman2/quotes/206399889/composite GDX +0.19% and junior gold miner ETF /zigman2/quotes/204075079/composite GDXJ +0.85% . Day traders are having a heyday with leveraged miner ETF /zigman2/quotes/208908392/composite NUGT +0.33% .