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Big Money Index Falls To 18-Month Lowv

In fact, many stocks aren’t participating in the rally. Let me show you what I mean and why it’s important.

At my research firm MAPsignals, we track thousands of stocks looking for unusual trading activity. We call it Big Money activity. To boil it down for simplicity, when a stock blasts higher on big volumes, it’s likely getting bought. And when a stock falls on outsized volumes, it’s likely being sold.

And what’s cool about doing this type of study, we can see patterns emerge at the market level and even the sector level. Let’s take a look at the market level first.

Below is the Big Money Index. It tracks what we believe to be buys and sells of stocks. We smooth those signals out over 25-days…it helps to spot trends.

When the BMI ramps, stocks are getting bought and that’s generally bullish. But, when it falls like the last month, it means there’s weakness under the surface of the market. Have a look:

Chart, histogramDescription automatically generated

I’ve circled what sticks out to me: the BMI has reached levels not seen since April 2020! The market rally over the past year has been strong to say the least. But, from a data standpoint it’s beginning to stall.

So, you might be asking, what kinds of stocks are getting bought and sold? Great question! Each week we dive into sectors, looking for where the green and red is.

Last week you can see a clear divergence. In the following diagram, we break out buys and sells by sector, ranked by score (think fundamental & technical scores). The higher the sector scores, the stronger it is.

Off to the right you can see some areas highlighted in yellow. Those showcase which sectors saw a lot of trading activity. Yellow means a sector saw 25% or more of its universe get bought or sold.

We can see that buyers were seen in Technology, Utilities, & Healthcare, while sellers were seen in Communications, Energy, & Staples.

Many of the stocks getting sold are small-cap stocks, which can be more sensitive to a reopening economy.

As the coronavirus rapidly spreads, we’ve seen a rotation into Technology and Healthcare stocks. And on the flipside, we’ve seen outsized selling in Energy & Staples.

And 2021 has been full of rotations. We’ve seen growth and value flipflop multiple times. But, this latest rotation looks a bit different from prior rotations…namely due to the rapid decline in the Big Money Index.

Now, we do know that the month of August tends to be quite volatile and it’s typically a low-liquidity environment. So, keep that in mind over the coming weeks.

Any further deterioration in our data could signal a healthy pullback is on the horizon. For the long-term minded investor, pullbacks offer opportunity.

Here’s the bottom line: Markets are near all-time highs. But, under the surface, there’s a tug of war going on. Growth is getting bought as small-cap and Energy stocks get sold.

The Big Money Index has fallen to an 18-month low. If it keeps declining, it could signal near-term trouble ahead for stocks. But always remember, over the long-term markets go one direction: UP. So, look for opportunity!

Disclosure: the author holds no position in SPY, QQQ, DIA, at the time of publication.

Learn more about the MAPsignals process here: