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Finally, capitulation is starting. Luke

breaks down what you need to know about yesterday's selloff and what to expect going forward.

He is not convinced the lows are in. More importantly, he gives you the 2 signals to pay attention to when it's time to bet big.

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Two Sectors are Seeing Forced Selling
Prepare for more downside.

Two sectors are seeing forced selling.

Turn on the TV and you’ll assume stocks are doomed. I don’t recommend watching the tube. But if you’re inclined to do so, here’s a brief rundown of the bear-tinged headlines you’ll find:

  • looming government shutdown
  • rising interest rates
  • UAW strike
  • student loan repayment

Truthfully, the list goes on and on. Afterall, it’s the news. Pundits’ jobs are to explain why markets bob and weave.

Storylines sell…

Just don’t buy it.

These doom-loop narratives are commonplace during weak markets. Bearish tales engulf the crowd, setting off growling echo chambers.

Searching for bright spots appears fruitless. That is, until you look at data.

While the overall picture of money flows suggests more pain ahead, two defensive areas are triggering levels of selling that forecast big gains ahead.

My job isn’t to parrot the popular headlines. It’s to inform you on the flow of money. Following the money is where you’ll find clues to the market’s next move.

For months the trend has been one way: DOWN. Just last week I alerted you to the weakest breadth reading in months.

Then, the Big Money Index (BMI) sat at 41%. Today it’s at 39%.
A freefalling BMI tells you all you need to know.
Institutional bids for stocks are fading:

While the BMI appears to have stalled recently, chances are we’re not out of the woods. One look at the 10-Year yield signals we could be in for more near-term weakness.

As of this morning, the 10Y yield reached 4.47%, levels not seen since 2007:

Higher yields can anchor stocks near-term. Rising interest rates can put downward pressure on equities. But as we wrote recently, history says rising rates won’t kill stocks.

That’s the main takeaway. In these murky macro environments, it’s critical to spot the opportunity.
When the tide is coming out of stocks as a whole, some areas are under immense sell pressure… pressure that rarely lasts. This is where data shines.

Under the surface of the BMI are thousands of stocks. Plotting the money trends offers you a real-time view of institutional appetite.

When you dive deeper and view sectors, you’ll find where pain points exist. The first of which is Utilities stocks.

Below plots the daily count of buys and sells in our Utility universe. Earlier this month we saw forced selling.

On September 5th, 26 discrete Utility stocks were sold. Out of a universe of 49, that’s a high sell ratio of 53%. That’s uber rare as you can see in the chart below:

On the morning of September 6th, we alerted our MAP PRO members to expect a bounce in the group. As you can see in the above chart, a monster surge occurred.

Since then, Utility stocks ripped, as evidenced by the 4.73% gain in the Utilities Select Sector SPDR Fund ($XLU).

Back to 2013, whenever the daily sell ratio is 17.5% or greater, outperformance is seen. Below shows this beautifully as the blue bars represent forward XLU returns post forced selling episodes.

When you compare these returns to the expected average returns (Black Bars) it’s like comparing 2 different sports:

But we can’t stop there. Another defensive area is under attack: Health Care stocks. On September 15th, 39 discrete companies were sold.

This clocks in at a sell ratio of just under 19% given the universe size is 209.

The 1-year sector chart shows how rare this capitulation is:

Like Utilities, forced selling offers a tremendous opportunity. Look how the sector ramps after prior risk-off events.

Below shows that since 2013, whenever the daily sell ratio reaches 7% or more, the Health Care Select Sector SPDR Fund ($XLV) zooms relative to its expected returns:

Folks, this is why having data is so important. Media buzz words are there to paralyze you. They distract from what’s really taking shape: OPPORTUNITY.

The overall selloff in markets is not over. Capitulation can already be seen.
Two sectors are seeing forced selling.

Based on history, defensive groups like Utilities and Healthcare stand to outperform in the sea of red.

There are bright spots out there… use a map to find them.

Let’s wrap up.

Here’s the bottom line: Money flows point to more downside ahead. As the media feeds the endless bearish narrative, two sectors are seeing forced selling.

Health Care and Utility stocks reveal that institutional investors are tapping out… crying uncle.

That’s the opportunity.

Historical data shows that not only are these selloffs short-lived, they also offer a solid risk/reward setup.

Odds are we’ll see other sectors capitulation in the days ahead.
Instead of crying, I’ll be buying.

If you’re a professional money manager or are serious about investing in this tough environment, get going with a MAP PRO subscription.
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Solutions MAPsignals is the pioneer in connecting the universe of technical and fundamental market data with the institutional trading flows that drive market movement. It’s a unique, proprietary data analysis platform that transforms the way individual and professional investors look at the market. MAPsignals’ volume and price analysis tools enable investors to identify unusually large

Equities are suffering.

Most stocks are breaking lower daily.

In fact, our data signals the weakest breadth reading in months.

Let’s be honest, watching stocks bleed day after day gets old. The muted -.9% month-to-date performance of the S&P 500 masks the reality of markets right now.

While a handful of mega-cap Tech names thrive, the lion’s share of stocks are under relentless sell pressure. You’re probably hearing this on the lips of the media recently.

BUT this trend isn’t new. It’s been a big theme at MAPsignals for nearly 2 months.

Let me be clear, the data hasn’t flashed the green light… yet. That may sound like unfortunate news.

The more compelling story though, is this – most stocks are incredibly cheap. There are plenty of undervalued names out there.

Today we’ll dive into the data, revealing the true picture of markets. Then I’ll show you where you should be hunting for value. Deals are here!

Want to know the true health of the market? Follow the money.

Since going overbought on July 28th, the Big Money Index (BMI) dropped like a rock. This indicates that demand for stocks has ground to a halt.

As of this morning, the latest BMI reading sits at a fresh 5-month low of 41%:

While pundits proclaim that now’s the time to get bearish, we view that as a late call. Circled in red to the right is when we rang the alarm to prepare for a summertime pullback.

The evidence then pointed to a poor risk/reward setup near-term. Buying into a blistering late-stage rally is rarely a good idea.

Since that prescient call, we see a more favorable environment for one crushed area. One look at the recent outflows points squarely to weakness in small-caps.

Below plots the buy and sell signals in equities for the month of September. The weakest breadth reading in months is due to nearly 2:1 outflows in companies under $50B market cap:

This is the sole reason our data is anchored. The higher-for-longer rate narrative has punished many groups, including Utilities, REITs, and Consumer stocks.

Seeing a lot of red can make one queasy. But it shouldn’t. This level of selling has pushed valuations to attractive levels.

Consider this: The market cap weighted S&P 500 has a 12-month forward P/E of 18.4. That’s in the upper end of the valuation scale… not that exciting.

When you view the equal-weighted S&P 500, the P/E drops to a more favorable level of 14.8.

It gets better. Smaller companies offer the real value with a rock bottom forward P/E of 13.1. That falls in the lower end of the valuation spectrum.

Under the hood, most stocks are cheap:

When you think about it, low market breadth shouldn’t be a reason to frown. Rather it’s a reason to celebrate. It isn’t often that we see prior leading stocks sitting at attractive levels.

As Alec Young pointed out recently, when small caps have been this cheap relative to large caps, they’ve outperformed nearly 80% of the time over the next year.

The weakest breadth reading in months means it’s time to go shopping for deals in the small cap space:

Today’s big message is simple. A lot of equity destruction has already taken place, so it’s time to sharpen those pencils and get the shopping list ready.

Making superior stock selection is paramount.

Don’t be like most folks and wait until the coast clears to start grabbing stocks. By the time money flows begin plowing back into small-caps, you’ll miss the parade.

You want to fish when they’re biting.

As I’ve said numerous times, the September pullback is a great time to buy into weakness. A likely seasonal rally in Q4 suggests market breadth is set to increase in the coming weeks.

Buy the dip.

Ride the rip.

Let’s wrap up.

Here’s the bottom line: We’re in the midst of the weakest market breadth in months. The Big Money Index, aka the market’s North Star, has been signaling outflows since early August.

While the near-term environment points to weakness, valuations for small-caps are uber attractive. History shows that when smaller companies underperform large-caps by this magnitude, they outperform 78% of the time the next year.

This is where MAPsignals shines.

Our Top 20 lists auto-update signaling the top-ranking names under institutional accumulation. Many of the biggest winning stocks out there reside here.

If you manage money or are a serious investor, don’t wait for the media to blow the bull whistle for stocks. Rather, use a map! Get started with a MAP PRO subscription today!
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Solutions - MAPsignals
Solutions MAPsignals is the pioneer in connecting the universe of technical and fundamental market data with the institutional trading flows that drive market movement. It’s a unique, proprietary data analysis platform that transforms the way individual and professional investors look at the market. MAPsignals’ volume and price analysis tools enable investors to identify unusually large

How to Play the September Pullback | Historical Study of S&P 500 (SPY)
History points to weakness in September.

However, going back to 1980, when the S & P 500 is up 10% or more YTD through August, the rest of the year tends to see more gains. The average is 4.90% from September through December.

History favors the bulls.

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How to Play the September Pullback | Historical Study of S&P 500 (SPY)
#Pullback #September #LucasDowney As markets feel the pressure, here’s how to play the September pullback:

US Consumer Spending Expected To Shrink for the First Time Since the Start of the Pandemic | Survey
“The likelihood of a soft landing, falling inflation, an end to Fed tightening, a peak in interest rates, a stable dollar, stable oil prices — all those things helped drive the market up,” Alec Young, chief investment strategist at MAPsignals, told Bloomberg.

“If the market loses confidence in that scenario, then stocks are vulnerable,” he added of stocks, which have already slipped from late-July highs.

New York Post
US consumer spending expected to shrink for the first time since the start of the pandemic: survey
More than half of the respondents to Bloomberg’s latest Markets Live Plus survey said personal consumption in the US will turn negative come the new year, while another 21% said the reversal …

Rising Interest Rates Won’t Kill Stocks
After a great run, stocks are finally seeing healthy profit taking. Last month, we enforced our pullback narrative after the BMI hit a scorching 83.9 on August 1.

Stocks never do well in the short-term when the BMI gets that hot.

Today, we’ll show you why rising interest rates won’t kill stocks. We’ll cover what’s driving this sell-off and… why it’s a buyable dip.

Then we’ll use the Big Money Index (BMI) to signal when to buy stocks and which sectors to lean into.

Several macro headwinds have combined to shake investors’ confidence. The consensus soft landing view helped lift the S&P 500 to its recent high of 4607 on July 27. But that narrative has begun to shift.

Here’s a run-down of the latest bear-du-jour worry list:
  • Inflation Jitters: Mixed inflation readings alongside oil’s 23% rally to $87 since mid-July have sparked renewed fears that cooling inflation is over. Some see inflation’s rapid decline to 3.2% from its 9.1% peak will either slow down or reverse course.
  • Rising rates: The 10-year Treasury yield recently hit 4.36%, a 16-year high, amid solid economic data. A flood of looming Treasury and corporate bond issuance doesn’t help matters.
  • Fed Tightening: 2-year Treasury yields are back above 5%, as the odds of a November Fed rate hike are up to 60%.
  • Strong Dollar: Rising rates are boosting the dollar. The Dollar Index is up 6% since mid-July. A stronger dollar broadly tightens financial conditions. With 40% of S&P 500 sales coming from overseas, a firm greenback also depresses foreign revenues while making those sales worth less when translated back into US dollars. All in, stocks favor a weak dollar a lot more than a strong one.

This is a lot to unpack. Now, let’ see if the bear case holds water.

Stocks are being marked down as investors worry that falling inflation will stall out, forcing the Fed to keep rates higher for longer. This would make weaker economic and earnings growth all but inevitable.

Sounds pretty convincing right? Let’s dig deeper.

Sticky inflation is at the heart of the bear case. It’s why the Fed may have to keep tightening. It’s also the primary reason interest rates are rising again. And it’s why the dollar is up.

Here’s what the bears miss about inflation.

Even if inflation stops falling and stalls out at 3%, or even ticks back up to 4%, history says It’s unlikely to be derail this bull market.

Since 1955, the S&P 500 has gained an average of 11% in the 12-months following inflation readings between 2% and 4%.

Inflation has to be north of 6% before equity returns go negative.2022 was a case in point. The S&P 500 fell 20% as the CPI shot up to 9.1%.

This is why sticky inflation won’t break the stock market. But let’s keep going.

The other big boogey man the bears are uber-worried about is rising interest rates. What the rate bears miss is that long-term interest rates have historically been very stable when inflation is running between 2% and 4% (chart).

Inflation needs to exceed 6% before we see big jumps in 10-year bond yields. That’s the tipping point when high inflation really starts hurting asset prices. 2022 was a case in point. Rates soared with inflation at 9%.

2022 proves this point. Rates soared with inflation at 9%, sending stocks cascading lower.

This is why interest rates probably won’t go up too much more and why they won’t kill stocks.
OK so the macro is expected to remain supportive for stocks. Let’s check in on institutional positioning via the Big Money Index (BMI).

The BMI peaked at 84 on August 1, two trading days post the S&P 500 peak on July 27. When the BMI rises above 80, it’s telling you stocks are overbought and ripe to fall. The BMI was dead right! It’s an excellent tactical timing tool.

So, what can the BMI tell us regarding when to buy stocks?

Readings between 20 and 30 signal extreme selling conditions. Those rarely last long. That’s when you want to back up the truck!

Check out how stocks rallied hard last October after the BMI dipped below 25 (the green line). The same thing happened in March when the BMI dipped under 30.

Today the BMI is down to 45 and selling is picking up steam. A nice buying opportunity is near. This pullback should end over the next couple of weeks.

How to Play It

MAPsignals’ top 2 ranked sectors, energy and technology are both outperforming bigtime. Here’s why:

Energy is seeing increasing institutional accumulation because the pros know that owning energy is a great portfolio hedge whenever inflation jitters run high.

Positive EPS revisions are the most important fundamental driver of sector performance. Energy earnings are being revised up as oil rallies.

Plus, energy is the cheapest sector in the market trading at only 12X 12MF EPS. It’s the only sector trading at a discount relative to its 20-year average P/E. Lastly, it still offers a juicy 3.5% dividend yield vs. the S&P’s paltry 1.5% payout.

The tech rally is taking a healthy breather after a monster YTD run. But it’s holding up relatively well. That’s why the S&P 500 is only down a few percent from the late-July peak. Tech is 28% of the S&P. It’s resilience is supporting the market.

Big tech is benefiting from its fortress balance sheet. The magnificent 7 that dominate the sector’s market cap are self-financing. They all generate tons of free cash flow. Put simply, that’s what’s left over after expenses are covered. They don’t need to borrow money. They can handle 5% interest rates just fine.

As for their customers, it’s going to take a lot more than mid-single digit interest rates to keep Americans, Europeans, Canadians, Australians, the Japanese and just about anybody else from using Apple, Google, Amazon, Meta, Netflix, and Microsoft’s products.

They’re just way too enmeshed in everyone’s everyday lives. These products and services are indispensable, rates or no rates! PS – Nvidia’s chips power it all!

Note how Technology and Energy stocks tower in terms of sector rankings:

On the flip side, MAPsignals’ 3 lowest ranked sectors, real estate, utilities and health care, are all lagging badly.

Bond proxies with high dividend yields like utilities and real estate have been hit hardest as rising bond yields make their 4% payouts less attractive.

Defensive, counter-cyclical sectors like staples and health care have also underperformed as the economy continues to hold up well and dodge recession. Their relatively high dividend yields are also undermined by rising rates.

Oversold buying opportunities are approaching in all these rate sensitive sectors but we’re not there yet.

Bringing It All Together

Stocks are being marked down as investors worry that falling inflation will stall out. This could force the Fed to keep rates higher for longer, making weaker economic and earnings growth all but inevitable.

But here’s what the bears miss about inflation and rising rates. Since 1955, when inflation runs anywhere from 0% to 4%, the S&P 500 has chalked up 11% gains in the following 12-months while long-term rates remained stable.

Inflation has to be north of 6% before equity returns go negative and interest rates shoot up a lot. Today CPI is only 3.2%.

Again, historical evidence makes a clear case of why rising interest rates won’t kill stocks.
That’s why this correction probably won’t last much longer. MAPsignals’ BMI will soon be signaling a tactical buy signal if it reaches oversold.

So, there you have it. The macro isn’t all doom and gloom and the BMI approaching the green zone agrees! That’s a powerful 1, 2 punch!

Don’t fear rising interest rates. Buy into it!

If you’re wanting to get specific tech and energy stocks ramping with Big Money support, get started with a MAPsignals PRO subscription. It’ll get you access to our portal that updates every morning, showcasing the stocks getting bought and their scores.

There are plenty of energy and tech names outperforming right now. Use a MAP to find them!

Invest well,

-Alec Young
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Potential Revenue & Earnings Headwinds Part of Market Calculation | Alec Young – Bloomberg Technology 09/07/2023
Is Tech in trouble?
In the year of AI, the Fed, & valuations – is Geopolitics in China an equal weighted risk factor?

Alec Young, our chief investment strategist, explains: potential revenue & earnings headwinds are part of market calculation. – in an interview Bloomberg Technology.

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MAPsignals - We map big money.
Alec Young – Bloomberg Technology 09/07/2023 - MAPsignals
Is Tech in trouble? In the year of AI, the Fed, and valuations - is Geopolitics in China an equal weighted risk factor? Alec Young - Bloomberg Technology 09/07/2023 Alec Young explains, potential revenue and earnings headwinds are part of market calculation. - in an interview with Bloomberg Technology. (5:00 min. - 11:00 min.) Watch

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