Watch the Block Trades

While the S&P 500 ETF (SPY) has inched towards multi-year highs, block money flow — a gauge of net institutional buying and selling activity — has fallen off a cliff since mid-January , suggesting the U.S. equity market is on shaky ground.

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Source:  Mike Panzner, Rabo Securities USA


I would add that unless institutions come crashing back in, this is yet another data point that confirms the topping process . . .



UPDATE:  March 17, 2006 5:42am

Its not the raw fall off in block trades that is revealing, but rather, the divergence versus the market direction that is significant.

Why? Block trades may reveal what is driving the market in a given rally. Is it Institutional Buying, which tends to be measured and longer lasting as buyers scale in over time.  Or, is it retail investors?

Institutional buyers tend to be part of longer lasting trends . . .

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  1. wcw commented on Mar 16

    It appears to have fallen off the same cliff last year around this time, though.

    Thanks for the data, nevertheless.

  2. Abobtrader commented on Mar 16

    I’ve never come across this ‘block money’ chart before. It would be really useful to have a longer term chart to better assess the relationship between the two variables, as there appears to be some periods on the chart where the correlation is negative.

    Indeed, you could argue that the funds have gots scared about what some deem to be an unhealthy technical picture. But with the mkt still rallying, you could argue that there is a lot of money waiting in the wings if the rally is sustained….i.e. perhaps you can make the case for this data to be a contrarian indicator.

  3. Mark commented on Mar 16


    If I remember correctly, Apr ’05 wasn’t exactly smooth sailing. But thanks for the comment, nevertheless.

  4. B commented on Mar 16

    Gotta put all of that “retail” investor money to work that flowed into the markets the last few months. Especially that energy money and emerging markets money. Ain’t no freakin way the global markets are not setting up for a correction in lock step with American equities. The correlation for all major global markets sans China is extremely high. I hate to see anyone lose money but from a speculator’s standpoint, oh how I wish they had an India ETF instead of just mutual funds. What a pig that will be to short on a correction. Ain’t alotta “stuff” stocks there just pure greed.

    I have to chuckle when I hear people talk about new money inflows to fuel the advance. There is no truth to that any more than the rumor that I’ve been dating Racquel Welch. lol. Although I did go out with Miss America once. That was very odd. There are still the same number of shares exchanging hands regardless of how much money there is. That is such a fallacy. It is when heavy duty money refuses to put a bid under the price that the market craters. This market behavior is what a sage old fart once told me is smart money passing shares to dumb money at the top. Sneaky selling. Bounce it up, exchange shares. Bounce it up, exchange shares. The longer the bouncing the bigger the turd. The dirty little secret is that someone needs to own the shares in a decline and it gets to be Ma and Pa Middle America.

    That chart shows why the only sentiment indicator that matters is reading the way it is.

  5. Investing Intelligently commented on Mar 17

    Block Trades in SPY

    Watch the Block Trades from the Big Picture shows a chart of block money flow, a gauge of net institutional buying and selling activity in the SP 500 ETF, SPY. He says this suggests suggesting the U.S. equity ma…

  6. Nick commented on Mar 17

    I agree w/the conclusion, but I believe Money Flow has become a un-usable indicator. The explosion of algo trading which is limited to institutions and funds has changed the liquidity landscape. There are still blocks, but buying 100k CAT is now done in 200 share prints, fired in by a computer and not a call to a block desk.

  7. B commented on Mar 17

    If algorithmic trading indeed meant that we saw block trading as a thing of the past, which I would argue as not true, why does block trading correlate quite well with the markets throughout 2005? Did everyone install new trading software on December 31, 2005?

    While electronic trading using algorithms to hide big purchases/sales is a relatively new phenonenom, market makers have used a similar capability since the beginning of time for large clients. ie, I would not the above data.

  8. Sestina commented on Mar 17


    That change hasn’t happened since January. It’s been going on for a long time. Not sure what that chart is measuring but it’s not a sudden switch to algorithmic trading.

  9. JoshK commented on Mar 17

    Every day algorithmic trading takes a larger piece. But also, in the last year, the market has become much more efficient and a lot of this is just being done as futures since the correlation is pretty tight. You can put on $100m in a few seconds with big contracts in the pit.

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