A few years ago, I was in a San Francisco airport waiting area. My flight home was delayed three hours. I figured I'd just work, but the room was loud and distracting. I got out my trusty headphones and put on my usual jazz. But the music was so quiet, I could still hear the crowd. I needed to program a data analysis tool. I searched "music to work to" and found a two-hour continuous mix of music: only – it was house music. I figured what the heck?
A four-on-the-floor bass drum relentlessly thumped its way into my brain. After 10 seconds, I thought: no way – this is too distracting. But then my mind released and got lost in the monotony of the music. What I thought would take six hours took a quarter of that. An hour and a half later, I was done.
Even today, when I need to program or work with data and must tune out the world, I tune into hours of Deadmau5 progressive club music at 128 beats per minute (bpm). It works, but how?
This paper offers clues: "Music genre preference and tempo alter alpha and beta waves in human non-musicians." In short, the findings indicate that genre preference and artificially modified tempo affect alpha and beta wave activation.
And this fascinating article says that music synchronization can improve efficiency and mood. Humans also have a natural base frequency of 120 bpm: " ... isolated experiments that asked participants to tap fingers, walk, or applaud at their own tempo showed participants moving naturally at a tempo of around 120 bpm (or a 500ms delay in between pulses)." The Deadmau5 mix is 128 bpm, which breaks down into a nice mathematical grid each minute. 128 divided by 4 beats per measure is 32 bars per minute, which is a standard tune form historically.
The mechanics and math of music help us focus because they allow our brains to block out noise. Wouldn't it be great if there was something that did that for the stock market?
For me, the answer is data. Hard numbers are my Deadmau5 for stocks. It snaps the market into focus, filtering out the emotion and unnecessary media chaos. And when we focus in on data, we find that it's been very accurate, timely, and helpful for those who can tune out the noise and listen to it.
Each week, I write about what the data says. I go into sectors, trends, and most importantly, big money buying and selling. I often quote the Big Money Index, which tells us when markets are overbought and oversold. That market timing indicator helps us figure out when to add or remove risk. I say this week after week. So, this week, I wanted to look back and see how the data mapped out the bear market action of the past couple of months.
The following chart says it all. It may look jumbled, but simply follow along in time and look at each dot as it comes. The associated comment box will tell you the date of publication, title, and a quick synopsis of what was said in each Mapsignals Blog post. Red dots show when our data indicated lower market prices (Big Money Index falling), and green dots were when we went oversold and expected higher prices (Big Money Index ramping higher).
The chart shows that you got a real-time accurate model of market events to come courtesy of tuning out the news and focusing on the data. Please feel free to check my work – it's all out there.
In short, the data said:
- When the market became overbought
- When the market was due for a pullback
- When to have cash ready
- When it would go oversold
- When it would trough (off by a single trading day: March 20 was a Friday, while markets bottomed on Monday, March 23)
- When to buy
- To expect a rise
At risk of looking like I'm spraining my arm patting myself on the back, the point here is that an accurate picture of the future potentially lies in proper analysis of past data.
What does the data say now? The Big Money Index is rising rapidly. This is in part due to the utter lack of daily big money buy or sell signals. After drastic washouts like we've seen in recent weeks, time must pass in order for signal counts to approach normal again.
As the market volatility continues to calm and settle into a base, new leadership will emerge. Sector leadership, according to my data, shows us that technology and health care are king. This encompasses big buying and strong fundamentals.
When it comes to tech, this makes sense, with telecommuting and cloud computing in sudden heavy demand. Couple that with big consumer demand for "stay-at-home" stocks like home streaming services for entertainment and exercise. A major surge in demand for streaming means even more of a need to accelerate 5G as internet usage gets clogged country wide.
Meanwhile, health care stocks are seeing a big lift as the medical community is overloaded with care requirements and optimism for possible treatments and vaccination for COVID-19 … as evidenced by Friday's market surge on positive news on that front.
Financials and energy remain at the bottom of the barrel. Low interest rates and debt exposure weigh on financials, while for energy, all we need to do is look at the price of oil, represented here by the iPath Series B S&P GSCI Crude Oil Total Return Index ETN (OIL):
Sector rotations are underway, as is earnings season. The economic horizon is hazy at best, and the pandemic is still front and center. That said, stocks are rebounding swiftly, pricing in an optimistic economic recovery. "Time will tell, but data will tell sooner." – Me.
The Bottom Line
We (Mapsignals) are bullish on high-quality U.S. equities in the long term, and we see moments like these as areas to pick up great companies.
Disclosure: The author holds no positions in any mentioned securities at the time of publication.