MAP: Market update – Like Clockwork (2/6/2018)

It has been quite a while since I wrote anything other than my usual MAP VIEW commentary, “institutional buying continues to outstrip selling…” talking points. In fact, it’s been practically a year since any unusual selling has occurred.

Each week’s data has been the same, like clockwork… At MAP, we just kept waiting for the alert to come…the signal. That day finally came January 24th – the market was now officially overbought. Finally, there’s something new to talk about. And the best part is we can look historically at our data and see how these events tend to play out. Believe it or not, there are consistent patterns we’ve noticed over the years – I’d also call the patterns, clockwork.
As I write this, I want to point out a few patterns we pay attention to as it relates to the current meltdown happening in equity markets. There are 3 distinct data points that reveal themselves in times of stress that can shed light on potentially what’s to come in the days/weeks ahead. The first thing is that our overbought signal for the market, time and time again, is prescient in alerting us to when extreme readings of institutional buying is occurring, and thus unsustainable. These overbought signals, simply stated, are both rare and short-lived. Once the levels shift away from equilibrium and to extreme, it’s a warning. That warning came on January 24th.
The 2nd thing we can point to in times of market stress as it relates to our data is that when sell-offs of this magnitude hit, the 4% kind, we typically see multiple gyrations in the market in the short-term. There tends to be a ripple effect within the supply and demand mechanics of the market– thus keeping volatility elevated and resulting in high share turnover for days/weeks. What’s important here is the market is going through a much needed reset as institutional demand for shares is no longer a match to the level of increased supply. In the upcoming MAP View report, it will come as no surprise the level of institutional selling happening this week.
The 3rd thing we can point to, and most important to you the reader, is the level of selling we are experiencing now will eventually exhaust itself – ie buying opportunity. Looking at past intense selling, the spike in institutional activity tends to slow as we approach oversold levels. There is usually one sector that begins to lead as institutions start buying shares. This is what we’ll be paying attention to most in the coming days/weeks. We are going to want to see a waning in selling suggesting a rally is ahead. We will update you once the data shifts to oversold. Stay tuned and grounded.