“I’m catching a wiggle.” Think of when fishing in a pond and the line starts to wiggle. Is it a big fish? Or is it a smart minnow making off with your bait? Wiggles happen on Wall Street trading desks, too. You see, big traders are cautious…and rightly so. Any information that is leaked can and will tip their hand. So when someone is asking about a stock without saying if they are a buyer or seller, that’s a wiggle! It could be a big fish, or just an opportunistic bait seeker.
This morning our data reminded us of “catching a wiggle.” The market rallied hard yesterday after a nasty multi-week sell-off, but what we really saw under the surface was a decent amount of buying in stocks…something we haven’t seen in quite a while. Is it real buying? The short answer is probably. But instead of going on a hunch, we looked back at prior times when the setup looked similar. We need more than just a wiggle.
Here’s a snapshot of our ratio of buying to selling. It sits at 36% because sellers have been in control. We circled areas of declining ratio readings:
To drill down further, this morning we saw 4 things that caught our attention and look quite bullish:
- We logged more buy signals than sell signals in stocks.
- Over 50% of our stock universe (~1400) traded on unusual volume.
- A low percentage of our universe made buy/sell signals, indicating a reversion trade.
- Markets rallied hard yesterday.
Below are the prior times when numbers 2 & 3 occurred when our ratio was very depressed (<40%) with forward returns for SPY (S&P 500 ETF):
Bottom line: when selling slows and buying grows, markets tend to rise. The best stocks out there rise the fastest. In this sea of information, we are constantly looking for outlier stocks. We believe the worst is likely behind us near-term. Once the ratio lifts, markets will likely follow.