My kids and I searched for 4 leaf clovers for weeks but came up empty.
Suddenly, we found our first one.
We got good at sifting through fields of clovers…uncovering the hidden.
Looking for outlier stocks is a lot like our clover hunt.
The search for the seemingly one-in-a-million is worth it when it pays off.
Those stocks are hidden in the fields of thousands of others.
Once in a blue moon, something really stands out…like this 6 leaf clover we found:
But finding the rare gem hidden in the vast field doesn’t only apply to finding the stocks of tomorrow.
Looking at the market as a whole can be just like an endless field of clovers.
Since the crash, the past couple of months, the field looks like an endless patch of monotony.
Looking day after day, eventually, an irregularity shows up offering new perspective.
And this week – things got interesting… we’re noticing that big buyers appear to be stepping in. The level of big buying in stocks is increasing rapidly. We expect this after a washout like in March. But now that it’s finally coming, it’s a change.
It’s what’s been missing in this rally. It’s the missing 4 and 6 leaf clover.
ETF Buying Is Picking Up
A few weeks ago we went overbought, not uncommon after a deeply oversold market. That causes us to pay attention. The Big Money Index helps alert us to change. Remember we wrote how, the big money index is dropping a dime?
We told you the overbought market was more technical rather than FOMO. That’s because ETFs were notably absent.
But, the rare clover popped up signalling a change just this morning.
In this chart, red sticks indicate the daily number of ETF sell signals, while green sticks are buys.
Look how big buying in ETFs is just starting to show up. Yesterday put us at a level we haven’t seen since mid-January.
This is bound to happen after a huge rally takes hold as buyers feel safe to redeploy capital into larger instruments.
I’ve circled 2 prior periods of large green sticks and the right-most circle is the ETF buying sproutling:
But ETFs aren’t the only green shoots.
Buying In Stocks Is Picking Up
Big buying in stocks is accelerating. Yesterday was the single largest day of buying in 2020.
This makes since as markets are ripping higher on real volumes. We’ve been in a vacuum for months after the crash in March. Markets and stocks take time to reset; now we are resetting.
Overbought periods can last for many weeks, similar to now. Our data says when we go overbought after deeply oversold markets, the average overbought period is 20 trading days. It’s only been 15 thus far. The longest period was 68 trading days – or more than 3 months. As we said last week, we’re in the investing bonus level. Long portfolios can rack up a lot of gains during these periods.
Below is a chart of daily stock buys and sells. We net them out, so a green stick means net buyers and a red stick means net sellers. I’ve circled this week’s patches of green.
Yesterday was the single largest day of net buys in 2020:
Let’s zoom in:
This shift was bound to happen. Markets were severely depressed and then snapped back. Now momentum, and likely some FOMO, is starting to take over.
New Information Is Like Finding A 6 Leaf Clover
Many are puzzled by the current market action.
The news headlines are terrible: We are in a pandemic. People are dying. The economy is not doing much better. Yet stocks are staging a massive rally in the face of grim news.
Markets went overbought and for now, are staying there.
You may want to ask:
“When will it end?”
“Shouldn’t I try to get ahead of it?”
We just follow our data.
Remember: the Big Money Index is like mama goose. Where she goes, her babies (market) tend to follow.
As you can see, the BMI has been flat-lining for a while now.
Following the big money makes it easier for us to cut through the noise.
It’s kind of like trying to find the outliers in the clover fields.
Eventually you learn how. When you’re patient and know where to focus, the 4 leaf clovers start to jump out at you.
Once in a blue moon- you can find a 6 leaf clover…