“You can’t stop the waves, but you can learn to surf.” – Jon Kabat-Zinn
Our mantra could be similar: You can’t stop the Big Money waves, but you can learn to surf them.
Sometimes waves crash violently while other times they gently roll. How you react to them is the key. Surfing is all about adapting to the environment. And both surfing and investing is all about patience.
Know the waves and react.
It’s an election year which means uncertainty is typically high. Every four years there tends to be an election trade – that means we expect some choppy water up to at least the vote. But, history shows that there’s usually strong big money waves soon after.
Will that be the case this year? No one knows for sure until it’s over, but we feel this year will follow the paths set before it.
Last week we prepared for a new wave of big buying in our post, harvest moon. And it came as you can clearly see.
But now that’s calming down.
Big Money Index Money Waves
Our Big Money Index raced higher last week. Most of that is due to a surge in small-cap and growth buying.
The index powered higher as sellers dried up. The stocks we track saw massive juice:
We also see that the market rise was not from huge buy signals. This is notable because while markets zoomed, we are nowhere near frothy levels yet. When things get overheated, it seems just about everyone is racing to buy stocks. That is not the case yet.
To us, that means that there are likely more patient buyers lurking around… waiting for the inevitable dip. Our narrative hasn’t changed. We still anticipate election volatility but are still bullish long term. That means we see market pullbacks as opportunities to surf.
Below you can see the daily buys and sells on our Big Money Stock Signals chart:
Off to the right you can see that buyers came in swiftly but have since slowed down:
From what we see, the money waves are slowing. It’s time to wait for the next big wave. Now, let’s look at ETFs.
ETF Buying Slows Ahead of Election
It’s been a while since we visited our Big Money ETF Index because not much has been happening. Activity has been muted since the Animal Spirits came.
This morning’s data was interesting because there were zero ETF buys. As a reminder, for an ETF to get a buy signal, we need to see an increase in trading volumes, volatility, and a few price relationships.
The market’s blow-off top on September 2nd lined up with heavy ETF buying (circled furthest to the right).
Since then things have quieted down considerably. This supports our observations that election years tend to be volatile.
The bottom line is this: rotations in markets are part of the game in investing, just as wave cycles are part of the game in surfing.
Big Money tends to take their chips off the table prior to the uncertainty of election day.
Instead of worrying about the outcome, we say use that to your advantage.
Don’t try to stop the waves. Learn to surf.
ALSO – if you missed our Big Money podcast from yesterday, check it out here. We did a deep dive into the recent market action.
And for our subscribers, October’s MAP 50 is available now!
Know Yourself – Big Money Podcast Ep. 2
The market rise was not from buy signals. Most of the rise last week was from small cap growth. Small cap may not interest institutional buyers due to liquidity. I wonder if that explains there was lack of buy signals.
We would agree that much of the buying that we saw was small-caps…25B market cap and less.
There is a big rotation happening which is likely an exchange of capital..ie replacements.