Big Money Index Approaches Overbought

Watch and learn.

Those 3 words were uttered to me by a veteran trader years ago. His message was simple: Pay attention to how the market trades. That’s the signal.

That memory rings loud and clear today as the Big Money Index approaches overbought.

Back in my Wall Street days, intuition was the name of the game. Traders had an old school way of doing business, transacting on phones and booking trades on paper tickets. They would size up markets by reading the tape.

That means they paid attention to volumes and how markets and stocks traded. The underlying trend was more inciteful than news headlines. I learned early on to respect the flow of money – supply and demand was the key to becoming a successful trader.

Fast forward to today, and MAPsignals was born out of many of those unforgettable experiences. Our data reveals trends, patterns and more. The flow of money has been one-way for months – UP.

Today I’ll walk you through why the Big Money Index is pushing higher and what you’ll want to pay attention to in the coming weeks.

Big Money Index Approaches Overbought

Respect the trend. For months, the Big Money Index has been heading north. Late October we were oversold and witnessing the weakest breadth reading since the pandemic.

Those are the moments to strap in, because once the rally starts, it can wow the crowd. And it did. Look how the BMI has pointed straight up since. Today we sit at 73%, inching closer to an overheated reading of 75% and overbought (red line) triggers at 80%:

Keep in mind this rip was expected as mid-term election years tend to see an overbought BMI in December and January. That enforced the narrative that we were setting the stage for a yearend rally. I still believe that’s the case.

Diving further we see how heavily skewed buying the last month has been. Blue bars reveal that buyers have been in control of the tape:

Under the surface, there’s been a strong bid for stocks. Certain groups have been thriving. They’re the reason the Big Money Index approaches overbought.

Let’s breakdown the 5 areas attracting inflows.

First, there’s healthcare. This defensive group has been one of our top sectors attracting investors. Recession fears often send investment dollars into “safer”, dividend paying areas. Biopharma and health insurers have been beaming lately:

Next there’s industrials. Defense, machines, road & rail stocks – those have been beacons for capital lately:

Even technology stocks have joined the rally. Below you’ll notice chunky blue signals. Semiconductors and software stocks have been under accumulation:

Lastly, yield-sensitive groups like Utilities and Real Estate have been perking up in our data, too. As rates fall, these dividend-rich groups become more attractive to investors.

Both have signaled inflows recently. Utilities companies were sold hard in October. Capitulation often offers attractive entry points:

Real Estate shows similar patterns to utilities. Big selling often ends, leading to buyers:

These 5 areas of the market are signaling healthy buying. That’s been the trend for months. And it’s the main reason the Big Money Index approaches an overbought.

If you’re a trader, once we reach the red zone (overbought), consider trimming risk after falling from overbought (near 75%) or rotating into a more defensive posture.

The last time we visited the red area was mid-August. Back then I discussed your sell signal to take profits… markets swiftly pulled back within days.

Keep in mind, we aren’t at risk of hitting overbought today or tomorrow… but at 73% the yellow light is flashing.

Chances are that buying will be unsustainable once that threshold is breached. But don’t be fearful – use it for what it is: an opportunity to go shopping for great stocks.

Let’s wrap up.

Here’s the bottom line: Our data is signaling solid buying under the surface of the market. The Big Money Index approaches overbought.

5 areas are leading the inflows: healthcare, industrials, tech, real estate and utilities. These are the outperforming groups… the alpha generators. Some of the best performing stocks in our research reside here.

MAPsignals is your map of the market. Focus less on news headlines and follow the trend of money.

Data allows you to watch and learn and become a better investor.

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