Market Clouds Are Fading

Look, we’ve seen the biggest selling in stocks since the pandemic lows. It’s been painful.

But our data is shifting. Market clouds are fading … at least initially.

I had a great talk yesterday with a colleague about what it is that makes MAPsignals unique. And the main takeaway was this: we use data to cut through the noise. And let’s be frank, it’s noisy out there!

Headlines rage about out-of-control inflation and rising interest rates. Heck, some pundits are calling for 5+ rate hikes in 2022. The latest CPI printed this morning showed consumer inflation climbing an eye-popping 7.5%! That’s the biggest gain in 40 years.

To many, that means the stock world is ending!

But what if inflation is set to peak soon? What if supply constraints are going to ease in the future? My humble opinion believes that’s the case … I’ll save the reasoning for another writeup.

My job is to inform you with data. And right now, it’s showing positives. And this gets me excited.

Let me be clear: This is not the all-clear for stocks. But it is very encouraging. There’s real stock buying happening under the surface.

From where I sit, I believe the Big Money is looking forward … past the gloomy headlines of today and towards what’s coming in the future … better days.

And you know me, I like it when our data shows a different message than the headlines. So, let’s get to that now.

Market Clouds Are Fading

There’s a time to worry and there’s a time to worry less! Looking at data can clue you in on what’s happening under the surface of the market.

For weeks, we saw big selling. But the market clouds are fading. Stocks are actually getting bought.

Below are the daily buys and sells for stocks. Notice how selling evaporated and buyers are stepping in. Have a look:

That’s right. The last 2 days have seen momentum pick up in a lot of stocks, especially small-caps. You can see the 2-day breakdown of buys and sells by market cap below:

This is new data that follows nicely from last week’s message of shaking out the weak hands. I noted then how selling was drying up and that what I needed to see to get excited was buyers stepping up to the plate.

That’s what’s going on now.

And drilling down you can see where the juice is flowing: Discretionary, Industrials, Materials, and Communications.

Let’s check in on discretionary first. Yesterday (Wednesday) saw the most buying since November 16^th:

Lots of high-quality travel and leisure names are ripping higher. To me that says the smart money is betting on a world less worried about COVID. And I agree with that logic.

Next, check out Industrials. Yesterday saw the most buys in over a month:

The names getting bought are containerships, machinery, and airlines. To me, this could mean the market sees a future where supply chain constraints are eased. If that’s the case, inflation could certainly cool. Wouldn’t that be a relief!

Looking at the data, market clouds are fading.

But let’s keep going. Materials are seeing buys too.

 

Yep, companies with exposure to the agricultural space are on the radar of Big Money. Logically that makes sense given high commodity prices.

Finally, look at the communications group. It saw the most buys since August:

This was so interesting to me since many of these stocks are wireless providers. That’s rarely an area on my radar. But when you see off the charts action, take notice! That’s one area where market clouds are fading.

Now, let me tie this all together.

Why It Pays to Buy Great Stocks on Pullbacks

The late January selloff was epic. If you recall, I laid out a game plan that said the market would bottom on February 11^th. That date was made based on the historical average.

After a week of relentless selling, it usually takes 3 weeks for the market to trough out. Some lows happen within days, and some take over a month.

And while that date hits tomorrow, odds are that the market lows made on January 27^th will hold up for now. But the other piece of that study had what was important: Major selling in stocks is a great opportunity to hunt for beaten down stocks.

I made the case then that it was a great time to go shopping. And so far, what’s happened since, falls right in line with historical returns.

As a reminder, here’s the forward 1-week to 1-year returns for the market post a market washout. It’s epically bullish across the board. I’ve circled the average expected gains for the S&P 500 after major selling in stocks:

That, folks, is what we call the JUICE! I’ve filled in the 1-week and 2-week returns for the January selloff and as you can see, it turned out to be positive.

In my experience, it pays to buy great stocks on pullbacks.

So, what am I doing now that the market clouds are fading? I’m waiting for prior outlier stocks to start leading again. And they will!

Many of them are found on our MAP 50 report. These are companies that attract tons of big money and have stellar fundamentals. Once they start getting bought, it’ll be incredibly bullish.

I wake up each morning and check our portal for clues. And you can, too!

Let’s wrap up:

Here’s the bottom line: Buyers are slowly stepping into the market. As it stands, market clouds are fading … at least initially. This tells me there’s reason for more cheer and less fear.

The data is contradicting the gloomy headlines. To me, that’s opportunity. One way or the other, the market will eventually get back on firm footing.

My bet is the big money will be first in line when it happens.

***Finally, my latest video is out: Best Growth Stocks for February 2022. Check it out if you want to see how I find opportunity in these uncertain times. Data has a way of cutting through the noise!

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