The duck test goes like this – “if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.”
Based on the duck test, our data says markets are overbought and due for a healthy pullback.
From wikipedia, “A mallard, shown looking like a duck and swimming like a duck.”
Investors seem to be greedy. That’s usually not the time to be buying stocks. Let’s perform the 3 part duck test to see if markets are overbought.
ETF Buying is Huge Right Now
We measure ETFs and look for big buying and selling. Recently, buying surged.
We’ve seen this before – it tends to preface lower market prices. Last time it happened was mid January of 2018. Just before a pullback.
It looks like a duck.
The Big Money Index is Overbought
We measure thousands of stocks each day looking for big money buying and selling. Recently, we broke into the red area…ie overbought.
That just means that buying is extreme compared to selling.
When the index begins to fall from the red area, markets fall.
Here is the Big Money Index.
It swims like a duck.
You can see the average returns after we reach these red areas. Out to 7 weeks is lackluster.
Keep in mind these periods are after 2012…an incredibly bullish 7+ years.
Buying In Stocks Was Off The Charts
Weeks ago there was a shock wave of buying in stocks.
It’s a rare event when all sectors see massive buying. In yellow below, you can see the % of the universe showing big volume buys.
Usually you see this type of out-sized activity when the market has a flush out…ie bottoms. It’s a cry of “uncle.”
It quacks like a duck.
Bottom line: we’ve seen signals like this before. Signs point to a healthy pullback. We’ll be getting our buy lists ready.