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Worried About A Market Crash? Consult The Big Money Index

And Consider These Stocks When It Does

They get cranky, roll over, fall out of bed, and hit their heads on the floor. It’s part of life, and most people don’t like when it happens.

But what if I told you there’s a tool that can alert you before markets roll-over?

It may sound too good to be true. But here I’ll introduce you to my favorite indicator that can do exactly that. I’ll show you how it works, what it’s saying now, and I’ll even show you examples of outlier stocks that weather the inevitable storms particularly well over the long-run.

The Big Money Index (BMI) is a great market timing indicator. It was developed by MAPsignals, a research firm dedicated to tracking Big Money investors in real-time. The idea is this: JPMorgan did a study estimating that 10% of all daily stock trading volume is due to fundamental discretionary traders. The lion’s share of trading is institutional.

If we can identify when huge investors are moving in and out of stocks in an unusual way, we can try and be ahead of the crowd. This way we can have a possible advantage and ride their coattails. We used our Wall Street experience of handling big stock orders to help us create this indicator. It’s our best guess of where the Big Money is heading on a daily basis.

When we add up all the daily buy and sell signals and smooth them out over a 25-day moving average, we get the Big Money Index.

Right now, it’s indicating higher prices for stocks. When it rises, like now, usually the market follows:

It looks like this:


We’ve back-tested this indicator going back over 30 years. When overbought, (80% or more) markets crest shortly thereafter often preceding a market correction. These are rare occurrences: The BMI was overbought just 20% of the last 3 decades.

Rarer still is an oversold BMI: only 4% occurred the last 30 years. When the Big Money Index goes deeply oversold, that’s when history says stocks are bound to rise. Markets usually rocket higher weeks and months later.

Here are some recent examples of the Big Money Index accurately foreshadowing market peaks and troughs:

  • January 2018 peak
  • December 2018 trough
  • February 2020 peak
  • March 2020 trough
  • September 2020 peak
  • October 2020 Election volatility
  • November 2020 rally

If a deeply oversold Big Money Index is great for identifying buy opportunities, then how do we know when to side-step a market drop?

Below is the same BMI chart. Only we’ve added periods where the 10- day average was below 65%. That just basically means, the BMI was weakening. Here’s what we saw over the last three years:

When red comes, it generally lasts a while. This also corresponds to a falling then recovering index. When red starts, indexes usually fall. Red can only stop when Big Money buying lifts the average above 65%.

To summarize, when the BMI is falling, the S&P 500 is mostly flat:

From 2012, we see similar:

To avoid being left holding the bag when the next market drop comes, watch for a falling Big Money Index. Remember, Big Money means we’re trying to track institutional investors. They usually have an edge over everyone else. They tend to have the best market information out there. So, it’s best to watch them!

Now you know about the BMI. You know you can use it to potentially manage your risk. You know you should watch out for a falling BMI to alert you of danger ahead.

They say the best defense is a good offense. I told you I’d let you know which stocks to hold when that inevitable cranky stock market comes. To find them, I went back over the following periods of market turmoil:

Each of these drops was preceded by a falling Big Money Index. And each time the market troughed, I went and looked at which stocks came out with flying colors.

Market volatility is inevitable. But when it comes, we’ve found the best defense is owning outlier stocks. These stocks are the best of the best. They have growing sales, earnings, and profits. And they are also getting scooped up by Big Money investors.

Hidden in MAPsignals buy and sell signals are high-quality stocks that can offer opportunity when things get bumpy.

You’ll notice in the 6-year charts below, the green bars indicate Big Money buying when stocks have superior fundamentals. These are mother-outliers. All that green, we call the stairway to heaven. But even through periods of wicked volatility, these stocks do incredibly well over the long run.

Facebook Inc. (FB) rose 293% since 2015:

Source: MAPsignals, end of day data sourced from Tiingo.com

Mastercard Inc. (MA) rose 378% over the same period:

Source: MAPsignals, end of day data sourced from Tiingo.com

Nvidia Corp. (NVDA) rose an astounding 3,067% since 2015:

Source: MAPsignals, end of day data sourced from Tiingo.com

Compare those stocks with the SPY SPDR S&P 500 ETF which gained 129%.

These outlier stocks are ones I would want to own when the next market rough patch comes.

So, there you have it: a detailed playbook on how to forecast, avoid, and even defend against the next market crash. We all know it’s coming eventually, but now you can be armed with tools to help you through.

The next time markets get cranky, you just might already be out of sight avoiding it until happier days.

The Bottom Line

Trying to understand what the Big Money is doing is important. Currently the Big Money Index is pointing higher, which is near-term bullish. When it heads lower, I’ll be paying attention. I believe in looking for quality companies in times of turmoil.

To learn more about MAPsignals’ Big Money Index please visit: www.mapsignals.com

Disclosure: the author holds no positions FB, MA, NVDA, & SPY at the time of publication.

Investment Research Disclaimer