Big Money Index Signals Pullback Ahead
Equities saw their worst daily pullback in weeks.
Our Big Money Index signals pullback ahead.
Yesterday was a reminder that volatility can strike out of nowhere.
The S&P 500 declined .92%. Even more jarring, the NASDAQ 100 fell 1.55%, its single worst performance in 6 weeks.
This pullback came just as the Big Money Index fell out of overbought territory. From a data-standpoint, this surprising turbulence actually came right on time.
A falling BMI indicates bids are fading and near-term caution is warranted.
Just don’t get too cute with the bearish rhetoric. While our cautious stance is still in place, there’s evidence that a mega buy-the-dip opportunity is just around the corner.
Today we’ll dive into why our medium-term outlook remains favorable for stocks…and which group you’ll want to overweight into any healthy market declines.
But first, let’s take a stroll through the Big Money landscape.
Big Money Index Signals Pullback Ahead
When your mind can’t imagine falling stock prices, turn to data.
Sometimes looking backwards helps us prepare for the future.
Our trusty Big Money Index (BMI) often spots potential inflection points when markets reach the rare overbought zone.
As we highlighted last week, once the BMI falls out of the red zone, stocks tend to wobble. Here you can see how each time the BMI fell out of overbought conditions, this Line of Truth retreats in healthy fashion:
Notice how the yellow indicator typically declines abruptly once the 80% threshold is breached, highlighting that demand for equities is shrinking and sellers are taking over.
This gravitational tug often spells near-term pain for stocks which you’ll notice below:
Let’s dissect this a little more. Let’s unpack what’s actually happening from a supply and demand perspective.
This is where understanding the Big Money phases comes into play. Forget the media headlines that change with the wind. Instead, focus on the waves.
The Big Money flows in 4 phases:
1. Huge buying and little selling (think early October)
2. Buying slows & selling grows (where we are now, typically near an interim peak)
3. Buying slows further, selling takes over (a correction hits)
4. Buyers are gone, sellers are in control (rare oversold conditions, the best buying opportunity)
We appear to be entering into phase 2 with the BMI heading south.
Before you panic, keep in mind that these phases can shift quickly. Sometimes equities fall fast…other times it’s a slow slog.
This is why it’s paramount to follow the BMI in real-time.
Good buying opportunities arise in phase 3. That’s typically where most pullbacks end. Rarely do we ever reach phase 4 which is defined as an oversold market…the last one occurred one year ago when we made the ultra-against-the-crowd call for a massive rally.
It pays to follow the money!
So, why am I of the belief that you want to be buying any pre-election dip? Simple. It comes down to one of the most bullish seasons for stocks kicking off in November.
That’s right, November – April is a very powerful 6-month period for markets.
Since 1995, November – April sees:
- The S&P 500 gain 7% on average
- The NASDAQ 100 ramp 9% on average
- The S&P Mid Cap 400 rally 9.35%
This last point is the bullseye. Mid-caps are the best performing group beginning in November. This narrative also aligns with the fact that mid-caps do well during rate cut regimes.
This is the opportunity in the current distribution phase we’re in.
With election tape bombs hitting daily, don’t be surprised if market gyrations continue in the coming weeks.
The Big Money Index signals pullback ahead. But now you know what comes next: opportunity ahead.
Election jitters tend to fade away after the vote.
History suggests mid-cap stocks are set to thrive…and plenty of them are under accumulation today.
You just need a map to find them!
Let’s wrap up.
Here’s the bottom line: If the Big Money Index could talk it’d utter 2 words: Pullback ahead.
Just don’t get too carried away with a drawn-out selloff. It’s a buy-the-dip opportunity. November kicks off a wicked seasonal period for stocks through April.
Make sure your buy list is ready and full of high-quality mid-caps exhibiting constant institutional sponsorship.
This is where MAPsignals offers best in class research. If you missed last year’s rally, don’t miss the next liftoff phase. As soon as the election is over, institutional investors routinely put money to work.
Let’s hope you do too!
If you’re a serious investor, money manager, or RIA searching for under-followed stocks under heavy institutional accumulation, get started with a MAP PRO subscription today.