Early Warning System

True story:

It was December 26^th 2004 and I was in literal paradise.

I was on Koh Racha- a tiny island 12 miles south of Phuket, Thailand. This part of the world is so beautiful: It’s where they filmed the gorgeous movie “The Beach.”

Little did I know, shortly I’d have to deal with an early warning system.

Our villa was high on a hill in the Thai jungle. The birds were chirping, the sun was coming up, and my 3-month-old son was wiggling on the huge king-sized bed.

All was right.

Then it happened.

I felt a rumble: like a huge truck going by noiselessly.

Out of nowhere the scenery immediately changed.

Everything went oddly quiet. The birds stopped. I could no longer hear the other animals either. They all left in a hurry. Something clearly had changed to me. It was nature’s early warning system.

But I didn’t really know what it meant. So, I went on down to the beach to have breakfast with the rest of our family.

We were on a trip to Thailand to attend my wife’s uncle’s wedding. Up to that point, things were going great. The food was amazing, and I was relaxed for the first time in what seemed like a year.

What on earth could possibly go wrong?

At breakfast, I told my family about the earthquake I felt that morning. Someone said: “maybe there was an earthquake in your room!”. We all had a laugh.

But I knew what I’d felt, I just didn’t know what yet.

Suddenly, someone ran into the restaurant and said something was weird with the ocean. “Come check it out!”

My wife left with her sister to go look. Apparently- the water was gone… boats were laying in the sand which was once a full crystal blue bay. The tide had simply vanished.

I didn’t know it as I stayed behind with the baby.

But then my wife suddenly busted in and screamed: “RUN!”

I said: “but I made you an omelet.”

She screamed: “$^%&! The omelet! Grab the baby and RUN!”

I had never seen urgency like that in her.

What happened next was sheer mayhem. The water that had sucked out of the bay came rushing back in massive force. People began running as fast as they could to get to high ground. We ran out of the restaurant and up the stairs as the water started to hit just behind my feet.

Everyone freaked out and then it all clicked.

The hotel staff came outside and blew a horn…A tsunami was in effect.

“Immediately head for higher ground! Do not stop for belongings. Immediately head for higher ground! Do not stop for belongings!” they just repeated it- over and over.

I didn’t know what to do so I did what everyone else did- ran.  Along the way, I saw hysteria. I saw despair. People were clinging to trees and scaling sides of buildings.

We just kept running. Now, I’ll save you the suspense and give you the short version (this story usually takes an hour to tell). Miraculously, my family and I all got out safe. We were rescued from this island by helicopter and destroyers from the Thai Royal Navy.

I’ll never forget how quickly things changed from perfection to horror on a dime… neither will anyone else. Soon after, it was discovered the tsunami early warning system failed in Indonesia due to prolonged lack of maintenance. Its very purpose was to help limit loss in a disaster scenario: hard to do when it doesn’t work…

Sadly, many weren’t as lucky as us. Over 350,000 people died during the boxing day tsunami…

This crazy story, believe it or not, offers us a window into how financial markets can be similar to what I witnessed.

One day everyone is making money hand over fist. Then, out of nowhere, the bids fade.

But don’t worry, because when it comes to stock tsunamis, MAPsignals is your early warning system.

HERE’S YOUR WARNING: The scenery is changing people.

Our late-January prediction of a market pullback looks to be here.

And while we’ve been sounding the alarm …we follow the data. We ride the Big Money wave until it crests.

As we’ll show you, the signs of change is here…right now.

Prepare for lower prices ahead.

Big Money Index Should Head Lower

Today we’ll start from the top and then work our way down through our data. As most of you know, the Big Money Index has been flatlining for a while now.

And while the agonizing wait may be frustrating , it’s actually easier to spot a pending pullback once data shifts.

We believe the BMI has peaked near-term. Our early warning system triggered this morning.

Let me show you what I mean.

Big Money Early Warning System

Under the ocean’s surface is an entire ecosystem we can’t see from above. Similarly, beneath the surface of the BMI is an unseen world of data. As a reminder, it measures the breadth of big buying and selling in stocks. Our goal is to use this data as an early warning system.

Before the BMI falls, there’s usually a monster wave of unseen activity under the surface. The wave came this morning. It’s like the earthquake before the flood.

Below is a chart of Big Money stock signals. To simplify things, think of them like unusually big volume. Think of it as when institutions are making moves with their money.

Huge amounts of trading that comes out of nowhere is like when the tide goes out before the next big wave comes.

I’ve circled what we saw this morning and the last time we saw similar activity:

There are 2 major things to point out:

1. Nearly all stocks that we track for big money activity traded with huge volume yesterday (we track about 1500 stocks)
2. The last time we saw similar, the outsized trading put big pressure on stocks (circled above)

Now obviously, the left circle above is the wave of selling during the March pandemic crash. To be clear: we don’t see anything like that on the horizon. Our long-term narrative for stocks is actually quite bullish.

This market does however, need to cool off.

But, as scientists, we can’t go off of only one datapoint. There are other signs that point to a near-term peak for stocks.

Stock and ETF buying appears to have suddenly disappeared. To us, this is like when the birds fly away from the water and the silence becomes deafening.

Up first is a chart of daily stock buys and sells. When the buying dries up, it makes way for the sellers to take over. That’s what we believe is ahead:

If we zoom in, you can see what’s really important. Sellers were part of yesterday’s move. In fact, yesterday had the most selling in a day since October 30^th…nearly 3 months.

Take note: when we get the first red bar, more red tends to follow. We expect more selling in the coming days and weeks.

Let’s keep going, because the early warning system flashed yet another alert.

ETF Buying Is Drying Up

Just like with stocks, ETF buying appears to have peaked, too.

Below are the big money ETF signals. Think of them as the total number of ETFs making buy and sell signals on chunky volumes:

It’s another early warning signaling that we are likely entering another phase.

As a reminder the phases work like this:

Phase 2 looks to be here. It’s when sellers match buyers and the tide starts to shift.

All of this new information may seem scary and unnerving. But I want you to keep in mind that this is completely normal after an extreme overbought period.

Just yesterday, Jason and Luke felt it was important to discuss the current landscape in our latest podcast, Cracks in the Dam.