Holding Pattern
Hello folks, this is your captain from the flight deck.
We’ve got some heavy fog causing low visibility and clogging up air traffic where we’re going.
Unfortunately, Ground Control wants us to circle for a while so they are keeping us in a holding pattern until we can land safely.
Sorry for the delay folks, just sit back and relax.
Just a year ago, I was flying to the College Football Playoff National Championship. We have young children at home and I needed to maximize time at home. So I didn’t leave much wiggle room to make the game. But flights were on time…and the weather was great…
Everything looked like it was going to work out… well, almost.
The schedule was tight as a drum: my plane was supposed to land just 3 hours before kickoff. Emotions were flying high; the plane was filled with fellow fans and rivals. Everyone was chanting loudly.
Then the captain came over the loudspeaker with unfortunate news: our scheduled landing was being pushed back with no replacement time.
Instead of flying into New Orleans, we were being diverted to Houston to refuel. My perfect plan ended up getting dicey at the last minute.
I was upset. In my head I was screaming: “Doesn’t this guy know that I have a game to be at? I mean, I already paid beaucoup for my tickets!”
Then, reality hit. He was simply doing his job and keeping us safe. My vaporizing vision of a perfectly on-time landing had no bearing on his decision to head the opposite direction from where I needed to be.
His job was to follow the data…not, to follow my “feelings.” His job was to get his passengers safely to where they needed to be: punctuality is always second to safety.
Better to be alive and well tardy, than a punctual dead person.
Luckily, I somehow made the game just 10 minutes after kick-off, and had one of the best memories ever.
We watched as Joey Burrow, the college football outlier, methodically destroyed the competition. Here’s our post depicting that epic night.
Look- sometimes the weather can change a little mid-flight and pilots have to adjust. In the stocks world, occasionally data signals a market pullback is coming, and then things change and stall into a holding pattern delay.
It’s like when the captain tells the cabin, we are making our initial descent…only to find out a half hour later that plans have changed.
The market just queued us to our flight circling above our destination.
Many of you are asking great questions.
- So, that was it?
- Was Friday’s pullback the low?
- Has the all-clear signal been fired?
- Time to buy stocks?
The answer is: No.
While pundits may say markets have the green light, MAPsignals’ data has not. Currently, it’s says money is changing hands. We expect to descend but we’re suddenly in a delayed holding pattern.
Maybe the market will rally to new highs soon. It’s possible, but we aren’t so sure…
As I’ll show you, we don’t see clear skies on our radar.
Big Money Index Delayed Holding Pattern
From the top, we start with the Big Money Index. Simply stated, wherever it goes, stocks tend to follow.
Last week, our data saw a behavior change under the surface. Buyers slowed and sellers picked up. We expected the BMI to fall under pressure:
As you can see, the BMI started it’s descent. Now let’s look deeper to see what’s really going on.
Biggest Stock Selling Since Election
The Big Money Index is made up of daily stock buys and sells. If buying increases relative to selling, the BMI rises. If selling increases, it falls.
Last Wednesday and Friday saw the first significant red bars (sellers) in a while:
This is important because Friday marked the single largest day of selling since election day. That was a clear difference in trend from months prior. This is why the BMI started to descend.
When extremely overbought, any hint of selling can have a measurable impact. And that’s the delayed holding pattern.
In layman’s terms, it tells us that IF we see any more significant sell signals in the coming days and weeks, the BMI will fall further. But prior to last week’s action, any weakness in markets had no signs of selling in our data. So it was just like turbulence.
Last Wednesday and Friday were notably different however.
Next, we need to look at momentum.
Stock Buying Momentum Slows
Strong stock market rallies need momentum to keep going. Momentum simply measures the rate of a trend.
The trend of buying is slowing…
When we get bullish, we come out and say it – just like when our data signaled We Have Liftoff on November, 5th. The underlying shift in data that we saw then, pointed to massive upside.
Well, as I’ll show you, buying in stocks is not accelerating right now. It’s yet another indication that stocks are in a delayed holding pattern.
Below are our Big Money Sector Indexes. If the green line is increasing, the momentum of buying is ramping. If it is falling, momentum is slowing.
First up is Industrials:
Next is Technology:
Lastly, here’s Healthcare:
Despite looking at strong green market performances in recent days, from our viewpoint, momentum is waning.
That could change today or tomorrow. But, until it does – our radar sees clouds ahead.
Here’s the bottom line: We’re like stock market pilots: we scan for turbulence ahead. Sometimes our flightpath can change at a moment’s notice… Other times the signal alerts us to hang in a delayed holding pattern, like now. Either way, we feel it’s our job to get to where we need to go safely before timely.
To be crystal clear: our stance has not changed.
Stocks will eventually fall from overbought…it just might take longer than the data initially indicated.
At the end of the day, we are data scientists…and must wait for the green light. It doesn’t always come exactly when we want or expect, and it isn’t here…yet.
As we’ve shown, stock buying hasn’t resumed on a grand scale since our latest bout of selling. We’re waiting to see if the clouds part, or intensify.
Either way, we’ll eventually reach our destination. Our Early Warning System post from last week suggested weakness ahead and the next day markets fell ~2%. Then stocks furiously bounced back.
But when it did it was with noticeably less Big Money support.
The flight plan was perfect. Only now, it’s going to take more patience to get where we’re going.
In the meantime, we’ll be listening to air traffic control.
Eventually the fog will disappear.
Your job is to sit back and relax. If you’re flying with us, you’re holding outlier stocks. History has shown us strongly, that they tend to outperform over time, regardless of what the broader markets do.
Think of star students who emerge from bad schools or millionaires who came from abject poverty. Those are outliers. They will shine no matter what the market brings. Those are the stocks we focus on.
Our plane is filled with Michael Jordan, Wayne Gretzky, and Warren Buffett style outlier stocks.
As we’re carrying precious cargo, our top goal is to get you there safely.
So this is your captain speaking: just sit back, relax, and we’ll update you as soon as we hear more. On behalf of MAPsignals, we want to thank you for flying with us.