My 14-year-old son Noah is an aspiring DJ and die-hard Skrillex fan. He nearly died from delight when he met him!
Skrillex is Sonny Moore – a multi-Grammy-award winning electronic musician and now seemingly fighter of dengue fever. He makes aggressive music, but that's just part of his wide range. Noah and I find common ground on Sonny's more mellow stuff, but what made him famous was Dubstep. It's a slow dub-like beat with wicked distorted bass-growls and synthesizers.
Summer here in Florida means oodles of mosquitos. Sprays and yard treatments sort of work, at best. So, I did a double-take when I read this on a fact site: "Playing the electronic song 'Scary Monsters and Nice Sprites' by Skrillex reduces mosquito bites and hinders their ability to mate." This came from a published scientific paper researching sound interfering with feeding and copulation of a primary dengue vector – the Aedes aegypti species of mosquitos.
Skrillex thwarting mosquitos has nothing to do with markets, does it? Well, it does – because information is hidden out there that can be really useful to the right people. That's my whole philosophy about tracking what the big money is doing. Intuitively, it makes sense that we should look at the mama duck to see where the baby ducks will go.
But most investors don't. Instead, they are slaves to financial news. I have written countless words about how the media have centuries of experience manipulating emotion for attention. While it's not always the best for investment results, it is usually best for eyeball grabs and advertisers.
Last week was a holiday week, so we expected thinner volumes and less reliable data. While the first was true – lower volumes – the second wasn't. We got solid data consistent with the bull run we have seen since May's sell-off.
We saw decent sized buying in info tech, financials, industrials, and health care during a slow week. If you look at the table below, you see just around 20% of the available universe of each mentioned sector saw big money buying. That is not typical for a four-day quiet week.
Also note the near absence of selling. This is interesting as well because a day like Friday saw the S&P 500 fall around 0.9% by 10:45, and then it got bought up almost all day thereafter.
At our halfway point of the year, where do we stand? We have just shy of 30 years of unusual trade data dating back to 1990. Much of that is backtested. We may look all the way back, but for today's exercise, I wanted to look at the seven years of live data. What I see is very interesting.
The table below may look complicated, but really, it's simple. Let me walk you through it.
We started collecting proprietary unusual buy and sell signals in July 2012. Starting there and going left to right, you can see for each year the number of unusual buys and sells that we documented followed by total signals.
The next two columns are the interesting ones – think Skrillex and mosquitos. They show the percentage of buys and sells of total signals. Alone they may not mean much to you, but look at the market's performance in the columns to the right, and things jump out. Here you see simple return (just the price) and total return (including dividends).
When we see buying at over 50% of all signals, the markets have positive performance. When we see selling at above 50% of all signals, markets have negative performance. When we see buying above 60% of all signals, we see double-digit positive performance. The one exception is 2014, when it was slightly lower at 59% for a +11.4% year.
So far, 2019 is shaping up to be an above-average year. Buying as a percentage of all signals is 9% above average so far, and the return is 5.6% above average. There is potential for a mega 2013 type of year, but should the market reverse, we could still see a great year – on average.
Things still set up great for a bullish U.S. market. Negative rates in Europe, uncertainty in Latin America and China, and low interest rates all conspire for higher U.S. equity prices, in my opinion – one that's backed by data on what big money players are likely doing. So far this year, they are buying bigly.
Skrillex never spent a dime marketing his records. He just went out and did his own thing. Now he has Grammys and millions of dollars. I do my own thing looking at the hidden activity of the biggest market players. I learned how by living it. Kierkegaard summed it up when he said: "Life has its own hidden forces which you can only discover by living."
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. We expect unusual buying in stocks to gain in the coming weeks.
Disclosure: The author holds no positions in any stocks mentioned at the time of publication.