I remember how much I loved the original movie "Charlie and the Chocolate Factory" with Gene Wilder. It simultaneously fueled the imagination and freaked me out. The movie was ahead of its time for so many things.

For instance, Wonka's boat, the SS Wonkatania, has just enough seats on it – and not a single one to spare. But Augustus Gloop was sucked up into the chocolate pipe before the ride. Wonka was either a bad counter or he knew that one of the kids would meet a nasty fate before the boat.

If you remember the super fizzy, lifting drink scene where Charlie and his grandpa stole a sample – they floated up and up until they almost got shredded to bits by the ceiling fan. They had to burp to get back down to ground level. It's like this bull market, which is also simultaneously fueling the imagination and freaking people out.

We are seeing off-the-charts buying persisting right into the new year. Last week saw an astonishing ratio, with nearly 700 buy signals against only 58 sells. Out of 11 sectors, 10 saw more than 25% of their institutionally tradable stocks log buys. The buying is not only persistent; it's massive!

Chart showing the unusual institutional (UI) buy and sell signals by sector

So as far as getting a pulse on the sectors, they are all cooking with gas, with virtually no selling in sight. And as the market goes up day after day, you may wonder: "When is a good time to get in, and where do I put my money?"

The first question is easily answered by looking at the Big Money Index (BMI). It is now at 87.6%, which is wildly overbought. This means that the level of buying we are seeing is unsustainable. It may be hard to fight the feeling of wanting to get in if you're on the sidelines, but you'd be buying at an unsustainable top.

The reality is that it's not Main Street buying. It's not you and me. I haven't heard people at the gas station raving about stocks. The office watercooler doesn't have people clamoring to compare Schwab accounts.

I saw exactly that scenario for bitcoin and cryptocurrency fever-fueled speculators. When the Coinbase comparisons peaked, so did the crypto market. We're nowhere close to that. That's the good news: this bull market has loads of room yet to run.

But timing-wise, this market is overheated and due for a pullback. When that BMI starts to fall, that's the signal that a top has likely been hit and that a pullback is imminent. I can't, in good conscience, recommend buying into a setup like that.

Image of big money index (BMI) showing market at overbought levels

As for where to put your money, I'll answer that with a story about football. Last week, I went to New Orleans to watch the LSU/Clemson National Championship game in the Superdome. Man, it was awesome. I don't even particularly love football – I'm more of a hockey guy myself – but what I do love is an outlier.

An outlier is someone or something that clearly deviates from the pack. Babe Ruth was a baseball outlier: he skewed home runs for 100 years. Michael Jordan was a basketball outlier, establishing long-held records that only LeBron James is coming close to breaking. Wayne Gretzky was the hockey outlier – there was Gretzky, then everyone else. You can easily grasp an outlier in this Gretzky graph:

Chart showing the performance of Wayne Gretzky

The LSU/Clemson game was less about the championship for me and more about seeing Joe Burrow. This is the college football outlier. He slayed records. He threw for more touchdowns this season (60) than the prior four LSU seasons combined. He leads the NCAA with 5,671 yards passed. He has become a legend in college football. I couldn't pass up the chance to see an outlier.

Outliers are where to put your money. In a sea of 5,550 stocks, I focus on the Joe Burrows: only the best. That means I am super-picky. It means I don't care about 99% of stocks. Let the media and pundits battle about which ones could be turn-around stories or could get a new lease on life.

I only want to find the outliers. There is heavy evidence that those outliers, 4% of all stocks, are responsible for all the gains (above Treasury bills) in the market for the past 100 years according to this Hendrik Bessembinder paper.

While you stay patient for a Charlie-like, burp-buying opportunity, make your outlier shopping lists. Look for stocks with growing sales and earnings, great profit margins, low debt, and unique businesses. Look for those types of stocks that big money investors are loading up on.

Once you win, you get that face. Gene Wilder had it. Joey Burreaux had it. MJ, the Babe, the Great One – they all had it. They knew they were the outliers. When you look for when and where to put your money in stocks, play the odds, and bet on the outliers. They are the ones that keep winning, that keep shattering records. But then again, I’m not telling you anything new … You know it.

Get in the winning habit. According to Vince Lombardi: "Winning is habit. Unfortunately, so is losing."

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.

Investment Research Disclaimer