Hear that? That’s the sound of large institutions and big investors selling over the past two months. The Wall Street Journal reported Sunday that “there have been more than $24 billion of ‘follow-on’ share sales since the end of April, boosted by the rebound in stocks.”
That “whoosh” is a dire warning, and we need to pay attention, because something big is happening, and it could impact your money more quickly than anyone realizes.
$24 billion in two months is a big number and a frantic pace. We haven’t seen those levels of outflows in years. Funds are heading for the exists. Sure, markets have moved higher on the back of artificial intelligence (AI) and renewed “bull market” optimism.
But remember something: The purpose of a market is to sell, to profit, to take gains, and leave others holding the bag.
Buy for a dollar… and sell for two.
So, when the music stops, you don’t want to be the only person left without a chair.
The good news is, we know exactly when the music may stop, and we are prepared.
What You Need to Do Right Now
There are three important signals that you need to watch…
First is the relative strength index (RSI) and the money flow index (MFI). These “technicals” are price strength indicators that can tell us when a stock or broader index is overbought or oversold.
Look at the chart above. Both the RSI and the MFI are near overbought levels on our daily readings. On the S&P 500 alone, the RSI is reading above 66 and the MFI reads above 55. Ahead of the Fed meeting this Wednesday, we could see some additional selling due to questions about the economy and the highest levels for the S&P 500 since August 2022.
The second signal is insider buying and selling. Insider buying and selling is a critical indicator to tell us whether S&P 500 executives think that stocks are cheap in this environment. Over the last six months, buying is almost entirely linked to the banking sector. Meanwhile, executives have been selling shares in recent weeks in a strong trend. Ask yourself this one simple question: If executives are selling their stocks right now, why would you want to buy them?
And the third signal is my momentum indicator. We’ve seen strong momentum over the last two weeks. Over the last 18 months, momentum moves higher don’t tend to last very long. In fact, the buying trend appears to have peaked last Wednesday, when all 11 sectors were in green territory. Since then, we’ve seen some profit taking across the entire universe of stocks.
If momentum turns negative, I’ll be recommending that my members of Flashpoint Elite take their wins and turn their focus to inverse exchange-traded funds like the ProShares Short S&P 500 ETF (SH)
Now, a negative turn in momentum doesn’t mean you dump your entire portfolio. But if you’re holding a lot of stocks trading at high price-to-sales multiples that are unprofitable (the dreaded Zombie Stocks), you might want to run (Don’t walk) from these names.
Stay tuned: I’ll show you a list of stocks to avoid in this environment later today.
June 12 2023