The kids' last day of virtual school was Friday here in Florida with no graduation. My eldest son finished four years of work to test for his first-degree black belt in Tae Kwon Do. The 2,000-year-old sport is one of two Olympic martial arts. Today, over 70 million people in 188 countries practice Tae Kwon Do, and 4 million of them are black belts.

My boy is now one. Normally, hundreds of parents crowd a high school gym for hours as kids do grueling testing. But this time, it was in our living room staring at a computer screen video call.

We had much to celebrate. I decided that we should finally go out to dinner! The country is slowly opening, and people are timidly taking steps back toward normalcy. Or so I thought. 

We loaded in the car and drove 40 minutes to get to our favorite spot. We specified outside seating only. There were a handful of tables free. We felt happy to order food and drinks for the first time in months.

But soon after, the manager came and said that, unfortunately, we'd have to leave. Protesters over George Floyd's tragic death were moving quickly from Miami, and we were the bullseye for the unrest's next location.

We left disappointed but started calling restaurants. Then shock came. We called seven. None could seat a family of five until 9:30. Several were booked solid. Many cars were on the highway. Traffic met us once we got off. People spilled into the streets dancing outside bars. 

People have had it. They're done with lockdown. Like it or not, reopening is here. I bet it will happen faster than expected. When we finally got to another restaurant, it was packed. People of all ages dining outside in closer-than-expected circumstances, but mask-less.

Maybe this is why stocks have been so strong since March lows. The market always thinks forward. The local pent-up demand suddenly exploding now may translate nationally. Economic strength should at the very least see an uptick. People are out of work, but jobs will be needed as reignition happens. 

But don't take my word for it – data says that big stock buying is here in full force. Last week was the highest five-day signal count since March 31, or 43 trading days. And it was a four-day week! Interestingly, out of 569 signals, 568 were buys. Yes: only one sell signal for the week.

The five-day stock signal average since 2012 is 548. We've finally climbed back to average signal counts. And they're all buys: not bearish.

Buying last week was focused in technology, industrials, and materials. Discretionary, staples, financials, communications, and health care all say big buying as well. Of 11 sectors, eight saw more than 25% of their universe of stocks bought. That's big buying.

Table showing big money signals by sector

What could it be that's driving all this buying? Someone suggested that it might the Russell Rebalance. The FTSE Russell 2000 Index Reconstruction actually starts June 5, according to the FTSE Russell site.

Rebalance just means the index is designed to reflect an ever-changing market. Stocks fall in and out of the index and must be reweighted. All the investors tracking indexes need to adjust, which can have big volume impact on markets. For now, that's not it, but starting next week, it may drive market activity. It turns out that a less popular index alignment took place last week – the MSCI. 

But something else is going on that no one is talking about: exchange-traded funds (ETFs). There was significant buying in ETFs last week. Last week (a four-day trading week) had 116 ETF signals. All but 10 were buys. While that may not seem big, let's put it in perspective.

Since markets bottomed March 23, there have been a total of 55 signals: an average of 1.2 per day. Last week's ETF trading activity was 30 times the average activity since March 23. Average daily ETF activity breaks down like this:

  • 10-year average – 12.06 ETF signals per day
  • 15-year average – 10.08 ETF signals per day (ETFs hit their stride in popularity in 2005)
  • 30-year average – 5.29 ETF signals per day 
Chart showing the performance of the S&P 500 with ETF sells and buys 

Markets went overbought a few weeks ago, which is normal after deeply oversold markets. I recently told you that the overbought market was less FOMO and more technical. That's because no one was trading ETFs based on our data. 

Now big money stepped in. My goal is finding big players buying stocks and ETFs. There's none bigger than Uncle Sam. Look:

Table showing the top Fed ETF purchases as of May 19

Big buying in ETFs is heating up. We just hit a level not seen since mid-January. But as I said earlier, big stock buying is ramping too. Wednesday was the biggest day of buying in 2020. 

Remember my warning: overbought periods may last for many weeks. Our data says that, after being oversold, overbought markets average 20 trading days. It's only been 17 so far. The longest time was 68 trading days – more than three months. For context, here's 30 years of the Big Money Index:

Chart showing 30 years of the Big Money Index

Interesting times. We wanted to celebrate after lockdown, and it got complicated – nothing to do with COVID. The market is rocketing in the face of bad news. It should go down, but it's going up. Then markets went overbought and seem to be staying there. 

It's confusing. But confusion shouldn't cause inaction. Following the big money cuts through the noise. I follow the data. 

Henry Miller said: "Confusion is a word we have invented for an order which is not understood." The reason always comes later. We will understand, just maybe not today.

The Bottom Line

We (Mapsignals) are bullish on high-quality U.S. equities in the long term, and we see market pullbacks as areas to pick up great companies. 

Disclosure: The author holds no positions in any mentioned securities at the time of publication.

Investment Research Disclaimer