This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Follow the Money (Supply): Why Stocks Are Headed for Trouble

Stocks in this article: SPY

Broadly speaking then, the M2 level is the relevant metric here. We can see in the latest report for the second quarter using the broadest average available on the spreadsheet, absolute M2 has gone up $80 billion. That's an increase of 0.7% for the quarter.

Since then, the S&P 500 measured by the SPDR S&P 500 ETF Trust (SPY), an exchange-traded fund, has increased just over 7%, or about 10 times the relative increase in money supply. Considering reserve requirements for banks with over $89 million in deposits is 10%, the 10 times relative increase in the S&P over the money supply makes a bit of sense.

A word of caution, though: There is not, nor will there ever be, an exact 10 times correlation between an increase in money supply and an increase in the S&P for any given quarter.

Money can come always come in from other directions and can be used to consume or spend elsewhere besides the market, and the market can always go down despite an increasing money supply.

There is no tracking individual human action with certainty. All this tells you is that the current market level is probably rather close to maxing out the amount of available money, and reserves available to bid up stock prices are more likely than not wearing pretty thin.

What this means is, ultimately, if money supply does not start to increase much quicker and very soon, say during the next three weeks, then someone is going to hit a sell order and there won't be enough loose money available to meet that market order at current stock prices.

Regardless of fundamentals, technicals or anything else, stock prices will likely trend down from here. The money just isn't there to support the market at current levels.

4 Stocks Warren Buffett Is Selling in 2014

At the time of publication, the author was short SPY.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs