At this point, I probably sound like a broken record…
If you’re a regular reader, you know I’ve been anticipating a pullback in the market for a while now. But every time it seems like one rears its head, the market shakes it off and climbs higher.
But remember, I don’t concern myself with the short-term moves in the market. I look at the data to help me nail the bigger picture. And the data never steers me wrong.
So while my system continues to show the market is in overbought territory… it’s also indicating a subtle shift in Wall Street’s big-money behavior.
Most people won’t notice what’s going on (that’s why you turn to me)… but it’ll have a dramatic impact on the direction of the market over the coming weeks and months.
So below, I’ll explain what’s behind the market’s unstoppable rise… and how we’ll adjust our approach as this trend plays out…
Approaching a Record
Big-money buyers can trigger huge shifts in the market. In fact, they drive up to 90% of the market’s big moves.
And while they try to keep their actions secret, they leave clues about their next move. If you can sniff them out, you can make handsome profits by following their lead.
That’s why we turn to my “unbeatable” stock-picking system. As you know, it scans nearly 5,500 stocks each day. And it uses algorithms to rank each one for strength.
But my system does more than just look at individual stocks. It also looks at the big-money buying and selling in the broad market.
Here’s what it’s showing us right now.
Now, when the BMI dips to 25% (the green line in the chart) or lower, sellers have taken the reins, leading the markets into oversold territory. And when it hits 80% (the red line) or more, it means buyers are in control and markets are overbought.
Currently, the BMI is at 87%. So while it is trending down, it’s still firmly in overbought territory.
Now, the market’s been in this range since May 6 – a total of 60 days. If it stays overbought through next week, it’ll set a record for the longest overbought period since my system started tracking this data.
But if we dig deeper, the numbers clue us in to what’s really going on behind the scenes…
Adjusting Our Strategy
Generally, markets don’t stay overheated this long. Based on my data, overbought conditions like these last an average of three weeks.
But not only has the market not pulled back yet… it continues to grind higher.
So what’s going on?
Let’s take a look under the hood.
You see, while big-money buying is slowly pumping the brakes, sellers are nowhere to be found. And that’s why the market hasn’t taken its foot off the gas. When there are no sellers, stock prices don’t fall.
In the 13 sectors we track, selling has flatlined in all of them. Which means there’s no downward pressure on the market. Until the sellers arrive, they’re free to climb.
This subtle shift in big-money buying and selling means we need to adjust our strategy.
Before the buying started to slow down, I suggested riding out your winners… taking some profits… and holding plenty of dry powder to buy on the pullback.
But now, my data suggests the market will likely break its record for overbought days.
So we’ll still wait for the inevitable pullback. But in the meantime, we can take advantage of the market’s short-term moves by buying on dips in tech and health care.
Big-money buying in these two sectors has slowed for a few weeks. So stocks in these sectors are susceptible to some short-term weakness.
However, many of the biggest tech and health care companies have been reporting positive earnings this week. And we think that’ll continue. So expect to see some sharp rises in this sector.
If you’re looking for some short-term action, consider buying the Invesco QQQ (QQQ) exchange-traded fund on its next drop. It holds over 50 stocks in infotech and health care.
Any dip in QQQ should be short-lived. And it’ll likely pop on more positive earnings reports in the health care and tech sectors. Just be sure to position size appropriately, and don’t bet more than you can afford to lose.
Patience and process!
Editor, Palm Beach Insider
P.S. My subscribers have used my unbeatable system to add triple-digit winners like The Trade Desk… SolarEdge Technologies… and Veeva Systems to the Palm Beach Trader portfolio.
And now that the market is giving us a new opportunity to buy the dips, we’ve targeted five more stocks we believe can do even better.
If you want to profit from this overheated market, click here to learn more…