With Big Money, Forced Selling Precedes Forced Buying

So, Big Money investors have been selling. But we’ve seen this playbook before – and there’s opportunity ahead.

Forced Selling Precedes Forced Buying

MAPsignals data shows forced selling happening. High-quality stocks have been beaten down unfairly because Big Money is required to sell to meet liquidity demands.

Thus, markets can only go down.

Earlier this month saw 464 Big Money sell signals, the most capitulation since June 2022. Using the exchange-traded fund SPDR S&P 500 ETF Trust (SPY) as a proxy, the market fell hard:

Days of epic selling don’t happen often. Since 2007, it’s occurred just 41 times.

This causes volatility and nobody knows when the lows will be in. In fact, if we’re going to reach the rare oversold zone, we should all prepare for a bit more downside.

But with Big Money, forced selling precedes forced buying. After huge capitulation events, the forward performance is epic:

Notice how many of the red cells in that table happen in the first three months after huge capitulation events. So, perhaps you’d prefer to wait a bit before diving in. MAPsignals has a tool to help.

Big Money Inflows and Outflows

Years ago, MAPsignals created the popular Big Money Index (BMI). It’s a moving average of Big Money inflows and outflows.

When it hits 80%, the market is overbought, meaning money is rushing in and exuberance is high. When it falls to 25%, the market is oversold, meaning money is rushing out of the market (this is actually a huge buy signal).

The way to oversold is ugly and volatile, but actual oversold is typically fast.

The last time the BMI hit oversold was October 2023. Here are the last 10 oversold instances – notice how quickly markets revert:

As mentioned, the way to oversold stinks. Stocks are no match for a falling BMI.

Let’s again use ETFs as proxies – SPY for large-cap stocks, iShares Core S&P Mid-Cap ETF (IJH) for mid-cap stocks, and iShares Core S&P Small-Cap ETF (IJR) for small-cap stocks. As the chart below shows, they all suffer in the few weeks leading to oversold.

But once the BMI is truly oversold, a breathtaking rally ignites for stocks of all sizes:

Between these last two charts, it’s pretty clear that once the forced selling is done, Big Money buys big and stocks rip.

But that means you need the conviction to buy when things aren’t feeling great. For those who do, history shows big gains tend to follow.

A Good Time to Pounce

We could be headed for an oversold BMI. Or we might not.

Either way, quality stocks are being sold unfairly. And when this happens, history shows it’s a good time to pounce.

An oversold BMI doesn’t last long. Big Money will flow violently back into equities. To know which ones, use a MAP.

If you’re a serious investor, Registered Investment Advisor (RIA), or a money manager looking for hedge-fund quality research, get started with a MAP PRO subscription today.