All bear markets eventually end.
Extreme capitulation marks the turning point.
History says a massive rally is coming soon.
Stocks are exciting again. After months of non-stop outflows, the pendulum has finally swung in favor of the bulls.
Plenty of evidence is signaling big upside ahead.
Today’s message is simple: Oversold environments create some of the best investing opportunities you’ll find.
It’s go time.
Big Money Index is Now Oversold
The last 2 months of preparation are finally ready to pay off. The tide rushed out of stocks in early August, causing immense pain under the surface.
When institutions dump equities, prices fall. Period.
Normally you don’t want to fight that trend. Buying stocks into an avalanche of selling is rarely a good idea.
However, the rare event is here. The Big Money Index (BMI) has finally reached extreme oversold conditions.
Seen below, only the darkest moments of the market reach the green zone. The latest 24% reading is at a level not seen since October 2022, the depths of the 2022 bear market:
To reach the green zone, selling must be off the charts. It is. The crowd has been selling ETFs at record levels.
On October 3rd, nearly 200 discrete ETFs were sold. Treasuries and equity funds were smashed as the retail crowd capitulated. Note how this level of forced selling has preceded major rallies:
A Massive Rally is Coming Soon
Let’s zoom in on the latest capitulation event. You’ll see what’s important.
When capitulation stops, stocks pop. This is evidence that the seedling of a massive rally is coming soon:
This is where understanding the phases of Big Money comes into play. The 4 phases work in a circular rotation described as:
- Phase 1: Huge buying and zero selling (think FOMO)
- Phase 2: Buying slows as selling grows (market peaks form here)
- Phase 3: Buying slows further as selling takes over (pullback is underway)
- Phase 4: Zero buying and sellers are in control (scary headlines)
By my calculation, last week saw markets firmly in phase 4, rotating towards phase 1:
Keep in mind that this pinwheel is an illustration. Only over time can we accurately measure which phase we’ve exited and then entered.
Looking at recent market performance points to a monster repositioning under the surface. Small-caps and rate sensitive groups like Real Estate and Utilities have been battered in the equity rout.
Those market pressure points have now reversed since we saw peak capitulation. A short squeeze can ignite a blistering rally.
Since October 5th, small-caps, Utilities, Real Estate, and Russell growth areas have surged the most:
When forced selling vanishes, prepare for a crowd stunning rally.
When forced selling vanishes alongside an oversold Big Money Index, put the bear suits away!
Below shows that since 1990 when the BMI falls below 26%, the forward returns for the S&P 500 are abnormally high vs. the average:
Can the market head lower from here? Of course. However, the odds are on your side that a massive rally is coming soon in short order.
Earlier this week, our macro strategist Alec Young, made the case to buy stocks now. Today’s message echoes that view.
The tide is turning.
Don’t miss the boat.
Let’s wrap up.
Here’s the bottom line: Extreme capitulation suggests market lows are likely in. Forced selling tees up a mega opportunity.
The trusty Big Money Index has finally reached the green zone. It’s time to get the buy tickets out ahead of earnings season.
That’s worth celebrating!
That’s exactly what we’re doing at MAPsignals. Our latest Top 5 buy list for Individual members can be found here.
Our small-cap buy list for PRO members is out too.
Look, don’t wait for the news to give you the green light. Follow the Big Money.
That’s how you win.
If you manage money or are serious about investing, now’s a perfect time to get started with a MAP Pro subscription. You’ll easily spot the highest-ranking stocks under accumulation leading the next leg higher.