French writer Jean-Baptiste Alphonse Karr said, "Plus ça change, plus c'est la même chose." English translation: "The more things change, the more they stay the same."

Take flight for example. On Dec. 17, 1903, the Wright brothers made history. Their first flight changed us forever. That 12-second air-hop paved the way for global air travel and freight.

Image of airplane
Pixabay

Flight is one of the most significant human advances thus far. But the principle of flight hasn't changed. Nor has the method of how air traffic is controlled.

Decades ago, air traffic controllers loosely standardized commercial flights. For most of the world, eastbound planes fly at odd levels (i.e., 35,000 ft.), while westbound planes fly at even levels (i.e., 34,000 ft.).

So it goes for stocks too; the more the market changes, the more it stays the same. Long ago I discovered an inescapable truth: Big Money is the real market-moving force. The number of Big Money players is small relative to the whole market. There may be tens of thousands of professional investors: hedge funds, pension funds, and asset managers. While that may seem like a lot, there are tens of millions of everyday investors. But I have found that the muscle is in the few, not the many.

As stocks grew in popularity through the turn of the 20th century, the market changed dramatically. It grew, listings came and went, operators and investors engaged in a never-ending tug of war. Players changed. Technology advanced. Commissions shrank. Competition grew. The landscape was dynamic and ever changing.

But the underlying principle remained unchanged – like the principles of lift. Big Money players had, and still enjoy, an advantage that the little guy has little hope of matching. Discovering and understanding this truth changed my investing outlook forever. It also immensely affected my investing success – for the better.

Decades ago, I realized that all I had to do was some clever sifting of the thousands of available stocks. Weed out the ones with unwanted qualities, removing 90% of all stocks. I am very picky. Then I look for when I think Big Money investors are plowing money into the best quality stocks. That simple formula allowed me to win in stocks – year after year. That formula is unchanged.

Boiling down the complicated subject of flight into simple concepts allowed a strong foundation of knowledge. The same is true for stocks: reduce complexities into a simple unchanging concept.

The universe is a yin-yang balance. Therefore: the more things change, the more they stay the same. Take 2020 for instance. The first major pandemic year since the Spanish Flu saw an immensely volatile market. And Big Money was so wildly active that records were broken. 

Looking back at 2020, let's start with the Big Money Index, a 25-day moving average of MAPsignals' buy and sell signals. It spent the most time being overbought since 1995.

Chart showing overbought days on the Big Money Index
www.mapsignals.com

It also spent the most time oversold since 2008. Reflect on that: 1995 saw bulls start to inflate the internet bubble. Contrarily, 2008 was an emotional low as the severity of the Great Financial Crisis peaked. We saw two extremes in the same year!

Chart showing oversold days on the Big Money Index
www.mapsignals.com

Big Money has been active in exchange-traded funds (ETFs) since they began in 1993. However, 2020 saw record activity. March saw record-breaking ETF selling. Look at how February and March saw monstrous ETF selling.

Chart showing big money ETF sell signals
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2020 also saw record-breaking ETF buying. November saw the largest equity ETF inflows on record, echoed by ETF buy signals.

Chart showing big money ETF buy signals
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Stock buying and selling also saw extremes in 2020. Look at the monthly tallies of stock buy and sell signals.

Chart showing big money stock buy and sell signals
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We clearly see that, when selling spiked, it coincided with market lows. The liquidation pain-point means that all sellers have done their selling. When they vanish, markets rally.

As far as the sector spotlight – let's see where big money went last year. Looking at 2020's cumulative buy signals, we that see technology, healthcare, and discretionary were the top three most bought sectors. Communications, utilities, and energy were the three least bought.

Chart showing big money signals by sector
www.mapsignals.com

It's wild thinking of such buying during a year of pandemic, economic whiplash, and presidential election. Technology stocks were humming along all year. Prior to COVID-19, it was the winning sector, attracting big capital. When everyone was forced home, tech got even more love. That is until we all got what we were waiting for – announcement of a vaccine.

As we see, since Nov. 9, the date of the first vaccine announcement, there was a huge rotation. Capital moved into "reopen" stocks: small-cap companies poised to benefit from a more normal economy. When people re-emerge to go to restaurants, movies, and take cruises, these battered sectors should see a big revival.

Chart showing big money signals by sector
www.mapsignals.com

Since flight began, principles of lift haven't changed. Since stocks began, supply and demand hasn't changed. The dynamics, players, and technology of stock trading has, however, changed immensely. From year to year, we can see extremes of buying and selling. 2020 showed us that it's possible in the same year.

One thing likely won't change going forward: Big Money moves markets and sectors. The more things change, the more they stay the same. The more things stay the same, the more they change.

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: At the time of publication, the author holds no positions in the securities mentioned.

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