Big Money Index Is Flashing Red

Summer months tend to bring low liquidity, making stock moves exacerbated. I’ll get to the point: stocks are in for a bumpy ride in the next few weeks.

For me it all comes down to where the Big Money is flowing. The MAPsignals Big Money Index tracks buying and selling of stocks. When it rises, markets tend to lift.

But, when it falls hard, like now, that’s a signal that market participation is waning…and selling is picking up. That’s usually a short-term bearish signal for stocks:

And this this interesting because the S&P 500 (SPY ETF) has been muted or range-bound. Clearly, under the surface, something’s going on. Stock buying is slowing: Selling is growing.

You can see that with ETFs too. Below is the daily ETF Buys & Sells chart. It shows the total count of ETFs likely getting bought or sold. Blue bars are buys, red sticks are sells.

Look how the red has been increasing:

So, these data points are suggesting that trouble is brewing.

Back to the BMI. Since it just broke below 65%, I did a study looking back at the 30+ year history of BMI levels. 68% of the time it’s above 65%. So, what happens to stocks when it breaks below 65%?

My study looked at the 10-day moving average (2 trading weeks) of the BMI, when it fell below 65% (like now). I wanted to see if there’s predictive power. There were 51 periods since 2012 and the average performance of the S&P 500 was tiny at just +.68%:

At first glance, this tells me that when the Big Money Index 10-day average drops below 65%, prepare for volatility.

The chart below reveals in red the times the BMI average drops below 65%. Check out how the red patches usually mean choppy waters for stocks:

And we just entered the red zone.

So let’s wrap this all up.

The bottom line is this: The Big Money Index is falling hard. And history says that stocks will likely get bumpy near-term. ETF selling also suggests that the bears are gaining control of this market.

As I said last week, I think it’s a great time to start getting a buy list together just in case stocks fall due to the liquidity vacuum of summer. Turn a pullback into an opportunity.

Disclosure: the author holds no position in SPY or the S&P 500 at the time of publication.

Learn more about the MAPsignals process here: www.mapsignals.com

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