McClellan Chart In Focus: SPY Number of Shares Outstanding Continuing to Rise – By Tom McClellan



Note: This article previously appeared in the Jan. 14, 2020 issue of our Daily Edition. The charts are updated through Jan. 16’s data.

This week’s chart shows an interesting representation of bullish trader sentiment. The number of SPY shares outstanding is above its upper 50-1 Bollinger Band, and continuing to rise.

Check out the other instances when this indicator has gone above that upper 50-1 band. You will notice that all of them in this chart except one were associated with meaningful tops leading to noticeable corrections.

The number of shares outstanding in big ETFs like SPY and QQQ will fluctuate with investor interest.  When more people want to buy into the market, they bid up the price of SPY which triggers the sponsoring firm (State Street Global Advisors) to issue more shares to get the share price nudged back as close as possible to the net asset value. That results in more shares outstanding, and the firm invests the cash it receives in more of the underlying stocks.

So seeing excessive or scant interest in owning SPY can be a proxy for trader sentiment.  But there is a big caveat to this, which is related to that one exception shown in this chart. The principle does not work in late December, because of something that big portfolios do.

Around Christmastime, trading volume in the stock market generally dries up.  A big mutual fund or other portfolio which gets in new money to invest does not necessarily want to put that money to work by buying more shares of its preferred list of holdings, since that would adversely affect prices in the thin trading environment.  So they maintain “market tracking” by other means, by either using stock index  futures or by trading ETFs like SPY.

SPY Shares Outstanding December Effect

That results in a regularly occurring spike in SPY shares outstanding every December, which is unrelated to investor sentiment.  And then usually that gets unwound in January, as the funds sell SPY and go back to their regular holdings.  That is why the low readings in Jan. 2019 were not a sign of a price bottom, but rather a symptom of that unwinding.

We are not seeing an unwinding now in January 2020, which makes the high reading for shares outstanding all the more remarkable as a sentiment indication.

Tom McClellan
Editor, The McClellan Market Report

Related Charts

Jul 22, 2016
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SPY Shares Outstanding Showing Topping Condition
Feb 18, 2016
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VXX Shares Outstanding Data Work Differently
Feb 05, 2015
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Pessimism Evident in QQQ Shares Outstanding 

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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.