It's not fair. Reality is not perception, but perception is reality. Suppose I said that cows are 20 times more deadly than sharks. You'd spit out your burger laughing at me. But it's true; those docile cows kill more Americans each year than sharks, bears, alligators, snakes, and spiders – combined!
Humans, though, are the biggest killers on earth. But we live thinking sharks are all Jaws, and poisonous spiders and snakes are out to get us. Bears lurk in the shed when we take out the trash, ready to maul us.
Truth is, they're all doing their thing, and so are we. Usually, nothing happens. But fear rules because it sells. A friendly shark movie wouldn't make it past studio execs. They know the "Jaws" franchise did the equivalent of $2 billion in today's dollars globally.
Similarly, the market might conjure images of big bad bear claws more than charging bull horns. But reality says that bulls are large and in charge.
The Mapsignals Big Money Index measures unusual buying against selling. It surged to 71.2%. A month ago, it was 51.9%. Buying like that coming from nowhere can be spooky. When professional money managers suddenly all go hard into stocks, it creates FOMO.
But how long can buying like that last? We're not likely getting overbought this week (80%-plus is overbought). We could stay this way for a while. We'd need several huge-buying days in a row to get overbought. A few more days like Friday, a 92% buying day.
Eventually, the market will need to vent and pull back. But today, buyers are in control. Let's focus on what they’re buying. Friday gave us a good idea. It was the biggest day of health care buying since June 15, 2018. Nearly 20% of the universe logged a buy – in one day!
The next set of charts shows a little context for the type of buying we are seeing in health care. The first chart shows net buys/sells for the health care sector. When there's more buying than selling, there's a green bar. More selling means a red bar.
The second chart shows a stretch of huge buying in the biotech industry (most of last week's buying was in biotech). The green sticks appear when there is more than 150% buying on a 30-day moving average. How do we use these charts to help us decide when to get in?
On the chart of the Health Care Select Sector SPDR Fund (XLV), those looking for a safer trend development will notice that, when there's big buying (ramping green spikes), the longer term shows appreciation. Those looking for bargains will notice that, when there's a sea of red, it's a good time to grab a deal – but scarier. Those looking for optimal timing and safety will notice that the best time to pay attention is when we get green buying right after heavy selling.
This is the setup in the past week or so, with good-sized selling followed by a rush in, like air rushing into a vacuum. As I said above, the buying in health care was heavily tilted toward biotech. Of the 82 buy signals last week, 50 were biotech. Looking at the chart of the SPDR S&P Biotech ETF (XBI), just isolating biotech, you'll notice that patches of heavy buying are often followed by higher prices. In fact, when buying ramped up in early 2017, it preceded a six-month 60% rally in XBI.
Another place to pay attention is tech. We see the same type of charts below. Net buying (green) has picked up in tech after a nasty patch of selling. This bodes well for future prices in the info tech sector. Here we use the Technology Select Sector SPDR Fund (XLK) as a gauge.
Again: what exactly is getting bought in tech? Tech showed 68 buys for the week, and 21 of those were semiconductors. That's not surprising, as we have been harping on it for a while.
What is a surprise is that software showed 36 of those 68 buys. This is the industry that got torched late September into October. It was toxic, but again, not because the sector was fundamentally weak. We believe portfolio managers got the tap on the shoulder to sell winners to pay for losers after a rough summer. Software was the biggest winner for a while.
You can see this clearly in the chart of the iShares Expanded Tech-Software Sector ETF (IGV) on the right. It basically serves as an index to track the software industry stocks. What's interesting is when we see that big buying. Those green bars are 150% the 30-day moving average of software buying. When it perks up, it means big gains. If you look closely at the bottom right of the chart, you'll see that it just started again. After nasty selling last month, the buyers are stepping back in. Gun to my head: software stocks are in for a rise.
Bulls and bears can duke it out on CNBC. What really matters is the data: what’s actually happening? The same goes for human-killers. Jaws gets the bad rap, but statistically, it's those evil cows you gotta watch out for.
Ultimately, it's you who must trust where your information comes from. Most of the time, those who feed it to you want you to perceive things the way they sell them: so you buy what they sell. Arm yourself with data. Stephen King said it sweetly: "The trust of the innocent is the liar's most useful tool."
The Bottom Line
We (Mapsignals) continue to be bullish on U.S. equities in the long term, and we see any pullback as a buying opportunity. Weak markets can offer sales on stocks if an investor is patient.
Disclosure: The author holds no positions in any stocks mentioned at the time of publication.