Market Internals Are Improving

Day after day stocks toss and turn. It’s signature bear market action.

However, the undercurrent in our data is getting healthier. Market internals are improving.

Believe it or not, there are positives shaping up for stocks. While major indices are deeply red in 2022, signs are pointing to more constructive action. Under the surface, selling has slowed dramatically and quietly buying is picking up.

In fact, growthier areas of the market are also joining the list of stocks ramping with big volumes. This is new information and further builds a case that markets are primed for higher prices in the months ahead. Any positive turn on the macro front (inflation/rates, war, etc.) would only springboard this narrative.

Today I’ll guide you through the market internals on my radar and why the bulls are gaining ground.

Market Internals Are Improving

To gauge the health of the market, let’s start from the top with our Big Money Index. This is a moving average of large volumes buys and sells of stocks. It’s nearing a 3-month high as money flows into stocks. That indicates that selling is dwindling relative to buying.

Also notice how the BMI has practically gone straight up since reaching oversold 2 weeks ago:

Today the BMI has a reading of 47%, which means that just under half (47%) of all signals the past 5 weeks were buys. That’s a massive improvement to just 2 weeks ago when the BMI reading was 25%. Since that oversold signal on July 14^th (yellow circle), the S&P 500 is up 6.15%.

Now let’s visualize why the BMI is ramping. Below are the daily counts of buys and sells. The BMI is constructed on a 25-day moving average of buys and sells. I’ve drawn a rectangle around the latest 25 days of signals. Notice how the massive capitulation selling is not being calculated in the BMI. This is the main reason for the large ramp:

Above shows why we are rallying: the bears have taken vacation the last few weeks. But, also notice the small blue bars off to the right. Those are the sproutlings of buyers. As they increase, market internals are improving.

Now, let’s dive down even further and look at sector action. Earlier this month I pointed out changing sector leadership, primarily driven by health care names. That’s still the case as you can see below in our Health Care Sector Buys and Sells Chart:

This group has been far and away the biggest magnet for capital lately. Likely due to recession fears sending money towards their defensive profile. Most of these buys are in big Bio and Pharma names.

Another area attracting capital has been the Financials space. The past few days has shown nearly zero sells, allowing for demand to accelerate into shares. Just yesterday we saw the single largest day of buying in Financial names in over 3 months:

Rising rates buoy interest rates earned on cash balances. This could be driving fresh capital into these stocks.

Additionally, Industrial names are joining the rally. Yesterday’s surge in stock prices sent fresh capital into the group:

Solar and Rail stocks are leading the charge in the industrial lift.

As the rally takes hold, sector breadth is clearly improving. But one other area saw chunky buying yesterday too: Technology.

Yesterday alone saw 15 stocks in the Tech space attract buyers. This is the most buying in Tech shares in a day in well over 3 months!

Actually, it’s the most buying in a day all year. Check this out:

That’s right – money is finally making its way into the value area of the market. Software specifically has been the beneficiary of Big Money.

Given the potential for moderating rate hikes, growthier areas of the market are beginning to see life. This is great news for investors looking for any signs of life in prior beaten down leaders.

We could be witnessing the first signs of a major market shift.

Let’s wrap up.

Here’s the bottom line: If you’re looking for a positive message for stocks, it’s here. Market internals are improving. The Big Money Index jumped to 3-month highs as many sectors see signs of fresh buying. Even the lowly Technology group is getting buy signals.

Our data is pointing to a further base being built.

Prior outlier stocks look poised for liftoff. And the best part, a few are already showing up in our buy lists.

Which growth names are on your radar?

***Finally, if you’re wanting to know the specific stocks getting bought in our data, get started with a MAPsignals subscription. Let data jumpstart your investing!