Back when I still worked on a trading desk at Cantor Fitzgerald in the late 2000s, my coworker and I liked to play a prank on our fellow traders…
You see, we had an intercom system that let us talk to hundreds of traders across thousands of hedge funds around the world.
These traders needed to tell their clients why the stocks they were buying were rising or falling. Whether it was a bad earnings report or an SEC investigation… they were desperate for any reason that made a lick of sense.
So whenever a stock saw a big rise or fall, they’d inevitably get on the horn and ask everyone for any ideas on what triggered the move.
Sometimes, my partner and I would get on the loudspeaker and ask everyone if they had heard a reason for why XYZ stock surged that day. We’d laugh to ourselves as the answers came flooding in:
- “Baird released a positive report.”
- “Jim Cramer hyped it up.”
- “I’m hearing a sovereign wealth fund is buying it.”
Here’s the thing: All their answers were wrong. And we already knew it.
The reason the stocks were going up was because we were buying them for our big-money clients. It’s that simple.
You see, when the big money buys a stock, it’s different from you and me buying a stock.
When we buy, we might place an order for a few shares, click buy, wait till the stock shows up in our brokerage account, and then call it a day.
But institutions are buying millions of shares at a time. For instance, if XYZ stock usually trades about 500,000 shares in a single day… and I place an order for a Wall Street firm to buy 2 million shares… that can send the stock higher.
I’m telling you this story because right now, the market is seeing demand like this. Big orders are rocketing stocks to the moon.
But that doesn’t mean you should stay away from this market. It just means you have to be more selective in which opportunities you pursue. And below, I’ll go over which ones you should take advantage of…
The Brakes Are Off
There often isn’t an obvious reason for why stocks rise and fall. That’s why those traders we pranked were often left scratching their heads whenever it happened.
But over my nearly two decades of experience working on Wall Street, making multibillion-dollar trades for firms like Cantor Fitzgerald and Jefferies, I was able to peek behind the curtain and realize what really makes the markets move.
And it’s big-money buying…
That’s why I developed my “unbeatable” stock-picking system to track their behavior. 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 through the Big-Money Index (BMI).
And here’s what it’s telling us right now:
Now, when the index level 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.
The market’s set a record for the longest overbought period in the 30 years since I started tracking this data. While the previous record was 65 trading days, set back in 1995, this current market has been overbought for 70 and counting.
So why has it been overbought for so long? Because there are only buyers and no sellers.
While big-money buying has seen ups and downs, the lack of sellers means there’s no downward pressure on the broad market. That’s allowed stocks to climb higher with little resistance.
So it’s unlikely we’ll see a pullback in the short term. Big money has the momentum, and there’s not much that can slow it down until sellers return.
But that doesn’t mean you have to be trapped on the sidelines. If you look closer, you can take advantage of these market conditions…
If You Can’t Beat ‘Em…
We also use my system’s data to find out which sectors are seeing the most big-money buying.
And once again, the tech and health care sectors are at the top of the list.
I know I’m starting to sound like a broken record. But it’s foolish to ignore what the numbers are saying.
If you don’t follow the data, then you’ll end up like the traders we used to prank so easily back in the day. They were searching for any reason behind the market’s moves – except for the one right under their noses.
So if you can’t beat ‘em… join ‘em.
You can get exposure to tech and health care with the Invesco QQQ (QQQ) exchange-traded fund. It holds a basket of more than 50 tech and health care stocks. It’s up about 28% since I recommended it in April… but there should be plenty more upside ahead.
However, if you really want to capitalize on this market… there’s another strategy you need to consider.
My system’s helped my Palm Beach Trader readers benefit from big-money buying with stocks like The Trade Desk (TTD), up 427%… SolarEdge Technologies (SEDG), up 289%… and Paycom Software (PAYC), up 182% – all over an average of 21 months.
But while those gains are nothing to sniff at… what if I told you there’s a chance at even higher returns?
In my time at Cantor, one of my most lucrative trading methods involved options. While they’re a little riskier than regular stocks, their potential is much higher.
For example, if we had bought certain options on TTD, SEDG, and PAYC, we could’ve made 3,207%, 1,331%, and 2,170% gains, respectively, in a fraction of the time.
And with the big money still flowing into stocks, there are more opportunities to strike for profits than ever.
Patience and process!
Editor, Palm Beach Insider