This Red-Hot Indicator Will Signal When Stocks Are Ready to Fall

Finally after a couple of years, the S&P 500 (SPX) has made new all-time highs.

This has lifted stocks to an extreme overbought level.

Big Money Index (BMI) is Extremely Overbought

Below showcases the MAPsignals Big Money Index (BMI), which tracks large buying and selling in stocks. We believe this to be institutional activity.

Readings above 80% indicate overbought levels, shaded in white. Notice how this indicator tends to lead the market lower once the yellow line starts to fall.

We are using the SPDR S&P 500 ETF Trust (SPY) as the benchmark:

Now, they say seeing is believing. However, let’s turn to history for guidance. I went back and studied all time when the BMI falls below 80% since 2009.

On average, the S&P 500 is down 1-week, 2-week, 1-month, & 2-month periods. This is in stark contrast to the normal behavior of the market during those timeframes.

Once the BMI falls below 80%, stocks suffer falling 1% on average a week later…a month later they’re still down .9% vs the market’s average return of +1%.

Yes, this has been a very important indicator to follow:

Now, do I say this to frighten you? NO.

This is an opportunity to be patient and wait for stocks to cool off…readying your buy list.

We’re very constructive on stocks in 2024 given the macro backdrop. The BMI offers a great positioning tool for those patiently waiting on the sidelines.

S&P 500 Price Prediction

The S&P 500 rally has been in place for months. Healthy buying under the surface has finally pushed stocks well into overbought territory.

Based on history, once the BMI falls below the red zone (80%), markets have come under pressure. Use this indicator to help you time your next entry point.

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

If you are a Registered Investment Advisor (RIA) or are a serious investor, take your investing to the next level, learn more about the MAPsignals process here.