Stock Market Dump Before the Pump

Stock Market Dump Before the Pump

by Lucas Downey All, Big Money Insights Weekly, Stocks

Markets stall before they fall.

Planning ahead is the key.

Here’s how to play the likely stock market dump before the pump.

Consider this: The Red Car Theory, believed to have originated with Charles Cooley, suggests that opportunities are around us but only once we have a conscious awareness.

A common example is noticing red cars. How many red cars did you spot the last time you went to the grocery store? Maybe 1 or 2?

Chances are there were more.

How about the next time you go shopping, for each red car you notice, you’ll receive $250? Where there’s opportunity involved, you’re likely to recognize many more red cars at the store.

This is because when you are incentivized to spot red cars, suddenly they appear all over the place…

Opportunity is everywhere when you’re focused.

The stock market offers these easily missed red car moments too… where a healthy pullback is likely ahead. Most won’t notice it because the market appears to keep chugging higher week after week.

However, once you analyze the data, and focus on historical evidence, suddenly this assumed market challenge transforms into a buying opportunity into yearend.

Stock Market Dump Before the Pump

You need to have a well-rounded approach to investing. That means, understanding macro drivers and market mechanics.

Just 2 short weeks ago, Alec Young, laid out the fundamental case for stock market choppiness before a pop. It’s a great macro playbook on why you’ll want to buy the dip.

Today we’re going to echo that message with our proprietary Big Money data. Last week, we noted how stocks sputter once the Big Money Index (BMI) falls out of overbought and sinks below 75%.

Here’s a recap of that revealing study. Since 2014, both small and large caps offer lackluster returns in the 2-months following a break below 75%:

Large Caps & Small Caps Suffer Overbought Big Money Index (BMI) breaking below 75% | MAPsignals

At first glance, this could make the hairs on your neck stand up. Seeing potential market declines ahead isn’t usually a welcoming feeling.

That is until you shift your focus. You see, there’s a red car driving by… you just need to be aware of it.

There’s evidence that you’ll want to buy the stock market dump before the pump.

Let me show you what I mean.

2024 is off to a sizzling start for equities. The S&P 500 is about to end the month of February with a year-to-date gain of 6.29%.

I went back in history and singled out all instances from 1979 where the S&P 500 gained 5%+ or more through the first 2 months of the year.

There were 15 prior instances.

Here’s the red car situation. Whenever stocks are up 5% or more in the months of January – February, the remainder of the year sports market-beating returns.

Below compares the average forward performance of the S&P 500 in the months of March – December vs. years when the first 2 months are up 5%+.

In average years, the remaining 10 months show an average lift of 8.82%. But when the year starts off with a bang, those average returns pump to 11.3%.

Our very own Maria Maple, is laser focused on the market red car zooming by:

Jan - Feb S&P 500 gains set year's Outperformance | MAPsignals

Our bullish stance back in mid-October, when we yelled that a massive rally was coming soon, was grounded in this same data-driven approach.

Back then we highlighted 10 single stocks for subscribers to own including NVIDIA Corp. (NVDA) and Super Micro Computer (SMCI).

Here’s how the latter performed afterwards. The white line signifies when we outlined SMCI as an oversold stock to own in October:

Oversold Big Money Index (BMI) prior to Super Micro Computer (SMCI) moonshot rise | MAPsignals

If your portfolio is idling by, jumpstart it today.

There are opportunities when you tune out the noise…big opportunities.

Let’s wrap up.

Here’s the bottom line:  A falling BMI spells near-term pain. A juicy start to the year spells longer-term gain.

The S&P 500 should be up 5% or more through February. Based on history, that indicates a market-beating gain for the remainder of the year.

Don’t miss the stock market dump before the pump.

There’s a red car zooming by…

If you’re a serious investor looking for market-beating insights, join many Registered Investment Advisors (RIAs) that enjoy our cutting-edge research.

Get started with a MAP PRO subscription, which will give you access to all our proprietary indicators and prized Top 20 list.

Lucas Downey
Lucas Downey
Lucas is co-founder of MoneyFlows. His full bio can be found here. Prior to MoneyFlows, he was Head of ETF Sales at Cantor Fitzgerald & SVP of Derivatives at Jefferies, LLC.

2 Comments

I subscribed to your individual service because I read the report on PLTR. But I did not find PLTR on the list. Why? Also, you featured SMCI recently, but I did not find in Top 50. Why? Also, what are the difference between Top 20 and Top 50? Thanksl
Hey Andrew, thanks for joining. The MAP 50 is created by taking the prior 6-months most recurring Top 20 stocks. As you can imagine, it has a bit of a lag effect. PLTR as an example hasn't made the MAP 50 simply due to more stocks being repeatedly on the Top 20. SMCI also for the same reason. It was a heavy hitter in our data for well over a year, but it fell off the MAP 50 for a bit while others stayed. The Top 20 is an updated list each week, so it's brand new whereas the MAP 50 is built over a 6-month lookback period.

Leave a Reply

Your email address will not be published. Required fields marked *.