The Mutual Fund Panic Index

Based on data reported by the Federal Reserve Flow of Funds Reports, which have been released on a Quarterly basis since 1952 I have formulated an Index based on flows involving Mutual Funds which I call the Mutual Fund Panic Index.

Basically what the Mutual Fund Panic Index shows is that when the total value of Equities held by Mutual Funds decreases by 20% (as denoted by black line) on a Quarterly basis significant Market Bottoms have occurred since the early 1950's as the chart below shows.

Meanwhile the table below shows all of the Quarterly Signal dates since 1952 along with the total gain in the Dow from the Low to the High and the number of Quarters it took for the High to be reached.  As you can see Total Gains have ranged from 70.2% up to 97.3% when a Signal has occurred. The last Signal occurred in the 4th Quarter of 2008 which was followed by the bottom in March of 2009.  Also keep in mind the Flow of Funds data is released by the Federal Reserve roughly 2 1/2 months after the actual Quarter Ends so this last Signal matched up very well with the actual bottom.

Meanwhile also notice I have included the performance over the 1st 4 Quarters when a Signal has occurred. Overall when a Signal has occurred the gain over the 1st 4 Quarters prior to the last Signal has ranged from 35.8% to 55.9% in the Dow. However notice the current Signal has been followed by a gain of 69.3% over the past 4 Quarters. This is by far the largest gain over a 4 Quarter period since a Signal has occurred which has happened only 6 times since the early 1950's. 

Quarter Low High Total 1st 4 Total
Signal Date Gain Quarters Quarters
2Q 1962 524.6 1001.1 90.8 39.7 15
2Q 1970 627.5 1067.7 70.2 52.7 11
3Q 1974 570 1026.3 80.1 55.9 8
4Q 1987 1616.2 3024.3 87.1 35.8 11
3Q 2002 7197.49 14198.09 97.3 45.4 21
4Q 2008 6469.75 10955.48 69.3 69.3 4 so far



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