When Will This Selloff End?

The reality is, all stocks are trending down. And when that happens, even the best and brightest names can fall.

As in life, what goes up must come down. Stocks have been on a long bull run and it’s not unexpected for them to give some gains back as a refresh occurs.

So, when will this selloff end?

Supply and Demand

The good news is a lot of damage has already occurred. Even better, capitulation should be close, signaling a near-term bottom.

With markets, supply and demand rule. And when Big Money buying slows, stocks fall. A great way to visualize the trend is with the Big Money Index (BMI), which is my firm MoneyFlows’ North Star.

When the BMI is falling, inflows are slowing and outflows are growing. It now sits at 46%, the lowest reading since late April:

This month alone there have been twice as many outflows (1,546) as inflows (877):

The carnage is clear. Superstar stocks like Meta Platforms (META), Netflix (NFLX), Tesla (TSLA), Amazon (AMZN), Microsoft (MSFT) and NVIDIA (NVDA) are all well off their recent peaks:

If your portfolio dropped, just know it’s a broad pullback – pretty much everyone got hit.

Now, let’s look to data for when this will end.

Capitulation is a Powerfully Bullish Signal

The current BMI sits at 46%. When the BMI is this low, forward performance data shows the S&P 500 (SPX) outperforms its average 12% annual gain:

This makes sense – buy low, sell high.

Knowing when the low is in is key though, and MoneyFlows data helps you see forced selling in real-time.

We define capitulation as roughly 400 equity outflows in a session (roughly 30% of our institutionally traded universe). These rare signals are defined as a Forced Capitulation Trigger (FCT). Here are the FCT readings since 2020:

Look how stocks perform after 400 or more outflows since 2014:

That is major outperformance – proof that capitulation has been a powerfully bullish signal!

Weak Patches Rarely Last Long

Long-term investors know the pain comes before the gain. And a lot of damage has occurred under the surface already.

That makes many stocks attractive as we head for capitulation. The near-term bottom is a great place to add high-quality stocks that are loved by institutions to your portfolio.

How long will the selling last? I can’t predict the future. But I know these weak patches rarely last long – weeks for the cases highlighted in the chart above. And MoneyFlows can help you know when capitulation is around and it’s time to strike.

If you are a Registered Investment Advisor (RIA) or a serious investor, take your investing to the next level and follow our free weekly MoneyFlows insights.

Disclosure: the author holds long positions in META, NFLX, TSLA, AMZN, and MSFT at the time of publication.