Recent tariff news is unsettling, to say the least. Big Money investors have been selling hard as uncertainty and negativity rule the landscape.
Market pullbacks are painful. However, I think these many unknowns will eventually solve themselves. Until then, let’s focus on what is known – Big Money data.
The MAPsignals Big Money Index (BMI) is a 25-day moving average of Big Money investor activity netted. When it rises, it reflects buying and money entering the market. When it falls, it’s evidence that Big Money is selling.
When the BMI hits 80% or more, it’s considered overbought. That’s when things are frothy and bulls are running rampant.
When the BMI hits 25% or lower, it’s oversold. This is when things are dreary and there’s “blood in the streets.” It’s also an excellent buying opportunity, historically.
The BMI is a slow-moving indicator tracking big institutional footprints. During times of extreme uncertainty, it’s led the way.
Recently the BMI was around 38%. Here are the oversold moments since 2016:
Notice how oversold instances don’t last long. Also notice how the market, using the exchange-traded fund SPDR S&P 500 ETF Trust (SPY) as a proxy, tends to rally after oversold instances.
This is today’s bright spot – the tariff news could send the BMI to oversold territory. Historically, those who buy then reap rewards down the line.
It takes a lot of carnage for the BMI to hit oversold. And there’s a lot we could discuss about how it gets there – interest rates, macroeconomic conditions, and so on.
But let’s focus on Big Money because that’s what drives markets.
I mentioned a few weeks ago how with Big Money, forced selling precedes forced buying. Keep in mind, since 1990 (including backtesting), the BMI reached oversold only 25 times.
Again using 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 – stocks of all sizes suffer as the BMI falls. But look at what happens after oversold:
Those gains after the pain are validated by history. The BMI’s track record is outstanding.
The latest tariff developments could send the BMI to oversold territory.
While that never feels good, it means it’s a great time to find quality stocks on sale. When data hits extreme levels, like an oversold BMI, it means extreme opportunities.
It’s important to keep a steady head and focus on best-of-breed companies. If the BMI hits oversold, you’ll want to quickly bet on the outliers loved by institutions…this is where the MAPsignals process shines.
