Hockey is my favorite sport. I still enjoy football strategy, soccer drama, basketball high scores, and baseball stats. Watching hockey is amazing but can be hard because it's so fast. Bobby Hull shot the fastest puck in recorded history at 118.3 miles per hour. Imagine a one-third of a pound of frozen hard rubber whizzing right at your face at more than 100 mph. That helps explain the lack of teeth in the sport: actual teeth.

Hockey action never stops, even when the whistle blows. But don't just watch the player with the puck – watch as much of the ice as you can. Sometimes, everyone rushes for the puck at once. Other times, players set up in a systematic way to execute plays. The past couple of weeks show why the current market is more like everyone rushing for the puck at the same time.

The stock market is almost like all sports combined. And just like sports, there are endless subtle nuances to pick up on. I pay attention to big money moving in and out of stocks.  It dictates play and direction. Sometimes, it might be a lone hedge fund affecting a single stock or exchange-traded fund (ETF). When the big money wants to buy more shares than available, the price goes up.

Other times, big money moves together en-masse. ETFs are the best example. Along with tracking 5,500 stocks per day for big buying and selling, I also track thousands of ETFs too. (I don't sleep much.) I've written a series of three white papers on how ETFs have grown from novelty in the early 1990s to the main event now. Financial advisors morphed into asset gatherers rather than asset managers, making ETFs the main weapon of choice in adding or reducing equity exposure.

The ETF series of white papers can be found here:

But you don’t need to read the 65-plus pages I've written about it. Here, I summarize it for you in two simple charts. The first chart shows that, when there's sustained buying in ETFs, it pushes the market higher. Continual buying is the gas on the bull-fire. But when it vanishes, the market goes soft. It's very clear from this that big ETF inflows have a lot to do with market rallies.

Chart showing that markets rise with sustained ETF buying

The second chart shows what really happens in that vacuum of buying. If it's accompanied by dumping of ETFs, guess what? The market falls quickly. 

Chart showing that markets fall when ETF selling spikes

This seems obvious, but it's not often discussed. I tell you this because last week saw the biggest ETF buying since the week of March 15. Since many ETFs are a collection of stocks, we could assume that last week saw serious buying in stocks.

The yellow numbers mean above average buying in that sector. As you can see, it was major buying nearly across the board. There were three notable exceptions: real estate, energy, and utilities … they all were sold. But industrials, financials, and materials saw massive buying. Tech, discretionary, and health care also felt the juice. Even telecom and staples found love. This is clear risk on, and notice the headlines? The market is strong right in the face of impeachment.

Table showing the buy and sell signals by sector

What does buying like this mean going forward? Looking back at similar setups, we saw two recent times, but with different characteristics.

  1. Nov. 28, 2017, to Dec. 4, 2017: Buying was big for five days. The Big Money Index was just starting to rise from 65% to 69%: nowhere near overbought. Remember, overbought is when 80% of all signals are buys vs. sells on a 25-day moving average. The S&P 500 rose less than 1%, and then buying cooled off after the five-day run.
  2. Jan. 2, 2018, to Jan. 26, 2018: Buying was big for 18 straight days. The Big Money Index went from 77% to 82% (80% and above is extremely overbought). The S&P 500 rose 6.5% over those 18 days, then plummeted.

This chart shows the start dates when a five-plus day stretch of big buying started:

Chart showing the start dates when a five-plus day stretch of big buying started

How does today compare to those two examples above? Today's buying looks like scenario number one for two reasons:

  1. The Big Money Index surged from 58% to 66% over the past five days. That is similar to Nov. 2017 (not overbought, just starting to rise).
  2. The S&P 500 rallied less than 1% in the past five days.

Here’s the deal: The S&P 500, Dow Jones Industrial Average, and NASDAQ are all at highs. Sustained buying won't last forever, but I do expect more buying to come in order to get us to overbought. 

Enjoy the ride if you are long – but have a game plane for once/if we get overbought. If you are on the sidelines, I would recommend staying put. Pullbacks are opportunities, and they will come. 

The bottom line: "Don’t chase a raging bull." The time to buy was weeks ago. This is what I said in mid-October when I said that the bulls are ready to run. The important thing is to tame fear of "when will the market correct?" Justine Musk put it nicely: "Fear is a powerful beast. But we can learn to ride it."

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.