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Big Money Index Signals Red

May 6, 2021 //  by Lucas Downey//  16 Comments

You can feel the tension in the air… investors are afraid.

Past times when the BMI approached overbought, we told people to look for an investing bonus level. Meaning, hold great stocks because more gains were coming. That’s because no sellers were in sight.

This time it’s different: The Big Money Index signals red. It’s a kiss away from overbought and the tone in the data looks to be shifting.

Here’s why:

BIG MONEY INDEX SIGNALS RED

Anytime growth stocks are weak, people freak out. They worry of a crash as emotions run high. It’s happened time and time again…and now is no different: Growth stocks are getting picked off and it’s causing much discomfort.

So, are we freaking out at MAPsignals? No. Are we zipping up the bear suits? That’s a definite no. They’re hot, itchy, and uncomfortable.

What we are doing is looking at data. A clear narrative is happening: Growth stocks are reaching a congestion zone, but not all stocks. It’s true there is selling in popular Tech names, but we also see healthy buying in cyclical stocks.

Price action of the last 2 days has halted the BMI’s rise. That’s new information, because prior to this week, there were hardly any sellers in sight. But, that’s suddenly changing.

There’s just enough recent selling (specifically in growth), to slow the Big Money Index to a pause. While we’re close to overbought, we’re not quite there yet. But more important is the trajectory of the BMI, not necessarily the reading itself.

This is critical: being overbought isn’t a sell signal itself, instead it’s an alert. When stocks rise quickly (like now), even subtleties in our data put us on watch. Think of a flashing red light. It works like a stop-sign: You roll to a stop, look both ways, then proceed with caution only if it’s clear.

Two days of trading rarely makes a trend. But the past two days do signal that we must be attentive. Is this just a bump in the road? Or is it the start of something bigger?

Only time will tell us. Seasoned investors know that market environments differ from one another. And today’s environment resembles a growth unwind more than anything else.

Tuesday and Wednesday showed significantly increased volumes coupled with a fat sector rotation.

As growth stocks take a beating, other areas are just fine, such as: Financials, REITs, and dividend growth. As the Big Money Index signals red, this could be just another rotational rampage, like we saw last November.

The BMI can’t fall until there is broad selling.

The data doesn’t show that… at least not yet.

Big Money Index Signals Red

“So why is the BMI red now?”

You may be confused thinking: “doesn’t the BMI flash red when it’s overbought?”

I told you above that being overbought itself is not a sell signal. That’s because the real signal is when the BMI starts falling. The BMI is flashing red now because it’s stalling.

Heading into this week, the BMI was in a clear uptrend. The last 2 days of selling in growth stalled the rise.

Remember, the BMI measures buying vs. selling in stocks (subscribers can monitor it in real-time here). A rising index means there are more buyers than sellers over the past 25 days. A falling index means sellers have the helm.

Today we see neither. We now have what appears to be a flat-lining BMI after a big run-up, and there’s only one thing holding it down:

big money index signals red nearing overbought

Had we not had growth stock selling the last 2 days, the BMI would now be overbought.

So, taking this all in, the Big Money Index signals red because it is stalling. Like seeing a flashing-red light ahead…you slow and proceed only when clear.

To see how to proceed, let’s start with stock trading.

Stocks See Value Over Growth Rotation

For the real picture, we look at daily buys and sells. Tuesday’s market selloff stuck out for a few reasons.

First, it was the biggest outsized volume trading day in 6 weeks. We circled that off to the right in our Daily Big Money Volumes chart below. Sudden big volumes usually means new trends are starting:

daily big money volumes

2nd was that Tuesday was the largest sell-day in 8 weeks, but that’s only part of the story.

3rd was that Tuesday was also the largest buy-day in 7 weeks!

Check it out below on our Big Money Stock Buys & Sells chart. Off to the right you see the red and green:

big money stock buys and sells

Let’s zoom in:

big money stock buys and sells zoom in

This price action is eerily similar to what happened in November once news broke of a 95% effective COVID-19 vaccine. While that started the scramble for reopen/value stocks, it was a red light for growth stocks.

Let’s look at a final measure of market breadth: ETF buys and sells (subscribers can monitor this too in real time here).

For now, ETF buyers are still in control:

etf buys and sells

But it’s what is getting bought that is important. This week, we’ve seen heavy buying in ETFs focused on:

  • Dividends
  • Bonds
  • Short-term Inflation Protection
  • Financials
  • Commodities

Notably absent are growth-centric ETFs.

Now we have a setup. Under the surface there’s much going on. In some ways the data is conflicting:

  1. a stalling BMI
  2. growth selling
  3. buying elsewhere

To us the message is clear: This is a big rotation yet again.

So, let’s wrap this up.

Here’s the bottom line: Tension is in the air. Sentiment is getting increasingly negative with time. Not all stocks are rising like they were just a few months ago.

The BMI is nearly overbought but suddenly stalling. The last 2 days changed our data’s tone. Value stocks are getting bought. Growth stocks are getting sold.

So, what’s next? For a sell alert to trigger, we need to see more deterioration.

Jason and Luke discuss this in our latest podcast: Big Money Index Flashing Red.

Look: As long as there’s big buying and big selling, our bear suits stay in the closet- we don’t wear them unless absolutely necessary.

To us, this price action shows money managers repositioning risk for a reopening economy.

Our playbook is simple: wait for the Big Money Index to begin falling before we change our tune. Only then will the trend really change.

Stocks are approaching a red light. Let’s pause a minute and look both ways before proceeding.

Pullbacks are inevitable so it’s smart to start planning now. Build your buy list and look for overweight risk areas to trim. Failing to plan is planning to fail.

On the flipside, don’t press the brakes in fear for too long: Eventually there’s always a green light.

And people stopped for long want to go fast. That’s how rallies come.

They say if you mess with the bull, you get the horns. The BMI should tell us when the bears come, but they always get chased away by bulls.

We’ll alert you when and if the trend shifts, but we always end up running with the bulls.

Lucas Downey
Lucas Downey

Lucas is co-founder of MAPsignals. His full bio can be found here.
Prior to MAP, he was Head of ETF Sales at Cantor Fitzgerald & SVP of Derivatives at Jefferies, LLC.

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Category: All, Big Money Insights Weekly

Previous Post: «big money index flashing red Big Money Index Flashing Red?
Next Post: Stocks Are Heading Lower STOCKS ARE HEADING LOWER»

Reader Interactions

Comments

  1. Greg

    May 6, 2021 at 11:46 am

    When the BMI goes Bearish, I want to see you guys do a podcast in your bear suits. 😉

    Reply
    • MAPsignals Staff

      May 6, 2021 at 11:49 am

      Oh YESSSSSSS!

      Reply
  2. Dan

    May 6, 2021 at 11:55 am

    From peak-to-recovery, there have been times of up to 20 years of waiting. With the post-pandemic run-up, many of us have bought-in at new market highs.

    Though your narrative consistently reassures that the lights eventually turn green, some of our cars won’t last a decade’s waiting at the intersection.

    Is there any indication in the data of possible long-term correction in growth?

    Reply
    • Jon

      May 6, 2021 at 1:21 pm

      Would like to see some good shorting ideas from you guys once the bear steps in something we can use for hedging.

      Reply
      • MAPsignals Staff

        May 6, 2021 at 4:19 pm

        We do have the bottom 10 for consideration. BUT, it’s always easier to find shorts when correlation is 1… ie everything is pulling back.

        Reply
  3. Vincenzo

    May 6, 2021 at 1:05 pm

    Great job guys!

    Something I have noticed in the BMI Chart is that when there is a divergence between the SPY and the BMI Index, it’s a sign of a possible change of trend, like an RSI divergence.
    For example, when the price of the SPY goes up and the BMI value is moving sideways or going down, then a correction is likely to happen.
    Also, it seems that the BMI index is anticipating always what the price of SPY will be.
    Is that correct or just a coincidence?

    Reply
    • MAPsignals Staff

      May 6, 2021 at 4:18 pm

      That is generally correct at the top level. Then we try and see if there is an underlying trend of selling. Is it broad-based, is it sector specific, or market cap specific, etc.

      From there we can try and decide if the selloff is real or not. But in general, the BMI falls before a sustained pullback in the markets.

      Reply
      • Vincenzo

        May 13, 2021 at 11:11 am

        Perfect, thank you.

        Reply
  4. Joe

    May 6, 2021 at 2:45 pm

    As I alluded earlier in the previous comment. ……It’s the Fed, and …..Yellen stumbled. (Misspoke yesterday and then the jaws came home to roost.)

    Not a good omen going forward, at least not in the immediate future, expect lower lows, Fed and the kool aid is a likely pair.

    Lurking in is the enemy disguised as INFLATION.

    Reply
    • James B

      May 7, 2021 at 5:26 pm

      Joe,
      I responded to Your latest post on BMI in agreement in detail. Hopefully staff will post as I’d prefer not repeating.
      Like these guys for simple data buy/sell. However, a plethora of other useful data out there.
      Appreciate You, Joe.
      James B

      Reply
  5. James B

    May 7, 2021 at 4:13 pm

    Once again agreeing with Joe. Had nice answer from the Bureau of Labor Statistics (BLS) as to why the social security agency has yet to post the March 2021 CPI-W. BLS posted the second highest March over previous March CPI-W since 1970! Subsequent fed people are suggesting short term inflation similar to a blip caused by the shutting down of economy last year. However, commodities are through the roof on a multi-year comparison and trending higher. Other data suggests broad earnings not depleting an overbought market ratio. Also second highest since 1929!
    Eventually markets will wake to data beyond buy/sell.
    My powder is dry. Thinking April would be a game changer. Now waiting through May. Buying in at peak levels just doesn’t seem prudent.
    Thank You, Staff

    Reply
  6. William

    May 9, 2021 at 10:32 am

    Isn’t part of the move in the BMI due just as much to the 26th day dropping out of the calculations as the addition of the most recent? If you had an outliner day dropping off couldn’t that affect the BMI while nothing actually changed currently?

    Reply
    • MAPsignals Staff

      May 9, 2021 at 10:45 am

      YES. But, we are looking at what is dropping out of the BMI to make our assumptions. Heading into the week, some weak readings were set to roll off the BMI. And if stocks kept seeing no selling then the BMI was set to go overbought.

      But, Tuesday and after had multiple days of 50% activity. Meaning, half of the signals were buys and the other were sales. So, that’s new data that put pressure on the trajectory of the BMI. The level of selling determines the BMI more than anything else.

      Reply
  7. James B

    May 10, 2021 at 5:16 pm

    Commodities are through the roof!

    https://www.ft.com/content/1332da37-bf45-409f-9500-2fdac344d1dd

    If this is short lived, many don’t expect versus unending trail of fed handouts.
    Being paid handsomely NOT to work forebodes inflation not seen since late 70s!
    Productivity and earnings speed the markets. Already at ratios not seen since 2000, this balloon needs to pop!
    Any other data warriors out there?

    Reply
  8. James B

    May 12, 2021 at 4:39 pm

    It only takes one panic like east coast gasoline to awaken the fear monster, especially in overbought territory. As markets realize the broader scope of bubbles, cash will be king.
    Hold Your powder. Greater opportunities on the way down. God Bless every staff and reader for hedging a profitable bottom.

    Reply
  9. James B

    May 12, 2021 at 5:52 pm

    Social Security Dept has still not published the March CPI-W! This is unheard of! Me thinks they’re into May praying for lower number. However, recent data might correct the Bureau of Labor Statistics (BLS) even higher! That would put all govt pensions on a higher COLA forecast.
    In five months, inflation went from benign to real. COVID or not, Joe deserves listening to. The fed has only one more chip to bet: higher overnight lending fees. The 10 year US bond is straining to get to 2%. Billions still wait to be poured into the economy. IRS has yet to pay simple tax returns. Savings rates are highest in recent memory. Basic food, energy and building commodities continue to rise.
    Hold on staff and readers. Rodeo ahead!
    Yeehaaw!!!

    Reply

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mapsignals avatar; MAPsignals @mapsignals ·
18h 1622987016957820928

One of my favorite #dividend #stocks having a day - Skyworks Solutions $SWKS - owned it for years

The $2B buyback is pretty significant given the market cap is sub $19B

#Semiconductors continue to see major inflows

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