When the check engine light flashes – bring your car in…don’t panic.
Running a diagnostic test helps visualize what’s going on.
To do that, a mechanic’s gotta pop the hood.
The same goes for the market. Today we’re popping the hood.
Monday’s Sell-off Was Off The Chart
Let’s start from the top and work our way down. I want you to see what we’re seeing under the hood each day.
Monday’s halted sell-off was epic. When we say it was off the chart, we actually mean that.
The below chart nets buys and sells each day. Green sticks are net buys and red are net sells. You can see just how large Monday’s selloff was compared to December 2018.
Have a look:
We’ve seen similar, but nothing of this magnitude. It was the single largest day of selling in stocks in our history.
Usually days like Monday are near local bottoms.
But, even as epic as it was, it’s still eerily similar to prior sell-offs.
The next charts should make that very clear.
We are inching ever closer to what is historically a very strong buy signal for us. The thing is, for us to get oversold – things have to get ugly…like now.
Below you can see our big money index which measures buying vs selling on a 5 week moving average. When it’s falling, like now, buyers have disappeared.
Our Mapsignals Big Money Index is free-falling:
We’re likely 1-2 weeks away from being oversold. So, that means we likely have a bit more downside.
Big Money Selling In Sectors Is Huge
Let’s work our way down into sectors. Here’s a look at 5 sector charts that show how big the selling is currently.
We create each big money index by taking a moving average of sell signals in each sector. As the index moves higher, selling is increasing.
The key takeaway is how similar-sized selling has happened before over the past 6+ years.
Here’s Financials:
Now, Energy:
And Industrials:
Then Materials:
And lastly, Technology:
Here’s the bottom line – pullbacks like these happen. It’s part of the game.
Using data is such an advantage in times like this. We are able to gauge supply and demand by looking under the hood.
And the mechanic in me says, “she’ll be ready for the road in no time.”
So, don’t panic when the engine light flashes – it’s part of owning a car.
The same can be said for investing.
A diagnostic test gives you the clarity you’re looking for.
Great simple analysis showing we are reaching the bottom if we have not already. As the selling index falls back from its peak levels I guess this reprents a good time to buy the market again. Or at least dip in a toe or three !!
I think the Map signals work is brilliant. I am retired and only trading a small hobby account now but were I still trading professionally I would subscribe immediately. I would like to ask if you have or can construct data much further back in time? The data presented is great but the time period covered happens to be a relative small sample of market environments. I have been trading since 1975 and over bought/sold sentiment levels can look very different in secular bull or secular bear markets or when transitioning from one to the other. None of this is to question the call you are making, I agree with you now.
Thanks for the kind words, Bruce.
This is what we love to do. We have data going back to 1990, but much of it is limited. We will be working to expand the dataset!
-The Mapsignals Team
So several weeks away. I think that makes sense based on the timeframe it took for the virus to Peter out in China. South Korea and Japan now under control. Here is my question: we are down 20% in a little over two weeks. You say we could go down for another 2 weeks. How much? Another 20%? More then that you are getting into 2008-2009 50% ish sell off range.
We are likely less than 2 weeks away from oversold. We aren’t thinking another 20% lower, closer to 10%.
Markets will bounce around, for sure. We’d be dipping toes on these wicked down days of 4%+. Great stocks are going to make it out of this!
-The Mapsignals Team
Thanks guys for these excellent updates, especially in this environment! I see SPY just broke below $272, yikes! Yes, your work is most impressive. I hope in the future to have a trading account of a size that will justify your paid service. Keep up the good work.
what makes you think we are not heading into a recession?
Hey B –
We very well could be heading into a recession. We try and let the data guide us and we do know that earnings are definitely going lower.
This is an extraordinary time.