Did you ever see something you can't un-see? The next time you go to your grocery store, pay attention to the eyes on cereal boxes. You won't be able to un-see that every mascot is looking down.

Messed up as it may be, it's so the mascots can make eye contact with kids. This helps get attention and establish trust. This way, kids are more likely to ask their parents to buy a box of cereal. It's admittedly creepy mind control, but there – now you can't un-see it.

So it goes for me and monitoring unusual trading. It all started when I got a client order like I had never seen. My job was to match buyers and sellers of large blocks of stock and options. The order was an activist investor taking a huge stake in a company. When someone needs to buy millions of shares, fundamentals go out the window – at least temporarily. A nearly bankrupt company's share price surged 70% in a few weeks, solely because my client was a buyer.

It was shocking to witness first-hand what impact big investors can have on stocks. They literally move markets. It changed the way I see markets, and now it can't be un-seen. That's why monitoring what big institutional investors are likely doing unusually is so crucial to me.

Last week saw earnings season in full swing. And while indexes are up, there is some volatility beneath the surface. According to FactSet, 46% of the companies in the S&P 500 reported Q1 results, and 77% beat EPS estimates, which is above the five-year average. The average beat is 5.3% higher, which is also above the five-year average. Of the companies that reported, 59% beat sales estimates. These are solidly strong metrics.

The blended earnings decline for Q1 is -2.3% as of Friday, April 26. If that's the actual decline for the quarter, it will be the first time for a year-over-year decline in earnings since Q2 2016. This was largely expected due to tough year-over-year comparisons. However, six sectors are reporting year-over-year growth in earnings, led by the health care and utilities. Meanwhile, five sectors are reporting a year-over-year decline in earnings, led by energy and by info tech, which leads the pack for earnings beats at 96%:

S&P 500 earnings above, in line and below estimates: Q1 2019
FactSet

A noteworthy long-term trend is that earnings growth is tightly tied to the market's appreciation. Notice that, when there were hints of earnings deceleration, it had a negative impact on the market. The most recent downdraft seemed like overkill relative to the temporary EPS slowdown:

S&P 500 change in forward 12-month EPS vs. change in price: 10 years
FactSet

The macro picture sets up quite nicely for continued strong earnings. "Trade resolution" is now on the lips of the media. Equity performance since Dec. 24 lows has been stellar, with info tech and semiconductors still supreme. Growth performed well this week, with S&P 500 Growth, Russell, NASDAQ and the Russell Growth indexes all surging higher.

The individual sectors are also responding well. Last week saw health care take a belly flop, but this week saw it bounce as the best performing sector of the week, up 3.7%. Communications was second best, up 2.7%, followed closely by utilities and real estate. On the surface, however, this is defensive sector action and warns of possible volatility ahead.

Performance of major indexes over past week and since Dec. 24 lows
FactSet

Back to unusual institutional activity: we saw big buying in tech, industrials, financials and to a lesser extent energy. Selling was less than the week prior. Noteworthy was the deceleration of health care selling.

Unusual institutional (UI) signals by sector
www.mapsignals.com

When looking at how the sectors stack up, Mapsignals ranks all stocks that can be easily traded by institutions – about 1,400 on average – and then averages the score per sector. We see a mimicking of recent price action: tech, industrials and discretionary are tops in terms of both technicals and fundamentals, while materials, telecom and health care come in last. Once again, growth is tops:

Sector strength/weakness
www.mapsignals.com

Lastly, let's just look at unusual buying versus unusual selling. As you can see below, after Q1's surge in unusual buying, buying has managed to sustain itself quite well. Selling has picked up slightly only recently. This is a good thing, as a balanced ratio of buying to selling is healthy for a sustained bull run in stocks. I usually like to see around 2:1 buys versus sells – that is, the daily average of unusual buy signals to sell signals should be 66% buys and 33% sells for a healthy sustainable uptrend.

Unusual institutional (UI) signals in the S&P 500
www.mapsignals.com

Little eyes peer up at cereal characters gazing down at them. We just see breakfast food. Markets ebb and flow in a sea of everyday buyers and sellers. I see big players trying to be quiet about it. Sometimes a different perspective is just what's needed. Pablo Picasso said, "Others have seen what is and asked why. I have seen what could be and asked why not."

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. Technology and industrials stocks see the most unusual buying, making the sectors best in class.

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