Remember when we launched nukes into space to see what would happen? Or when the U.S. government lost $21 trillion?
Let's start with the nuke. On July 9, 1962, Operation Starfish Prime saw the United States launch a nuclear bomb 900 miles west-southwest of Hawaii and detonate it 250 miles above earth. The 1.4 megaton blast was roughly 100 times more powerful than Hiroshima.
Who payed? Naturally, taxpayers did. Every hard-working American funds a cornucopia of crazy shenanigans in dark corridors of the world. The U.S. government continues to research all sorts of off-the-wall things like dark-ops, psychic communication, paranormal activities, and even UFOs if you believe in that sort of thing. Apparently, the Pentagon does, as it recently declassified UFO videos acknowledging their unidentified origins. And the taxpayers who fund such projects often don't know where the money goes.
This bring us to the missing money. On September 10, 2001, U.S. Defense Secretary Donald Rumsfeld disclosed that he couldn't account for about $2.3 trillion. The next day, the Sept. 11 terrorist attacks changed the world, and Rumsfeld's shocker was forgotten by the public.
Economics Professor Mark Skidmore at Michigan State University combed through public data and found that $21 trillion in missing money was reported by the departments of Defense and Housing and Urban Development between 1998 and 2015. That's about $65,000 for every American.
The powers that be think some things are better left unknown and that the masses are better blissfully unaware. But the point here is: major stuff happens right in front of us that we are not meant to see.
This is especially true in the stock market. The media is rigged up to keep you plugged in under the guise of keeping you informed. News outlets make it seem like the everyday trader is responsible for daily price moves. While that may be true on any given day, the big moves over time happen from one place: big money. Of all daily stock trading volume, 70% to 90% is institutional. If you're not focused on where the big money goes, you're just blissfully unaware of what really moves markets.
I know I beat up on the news media a lot, but their business model is one of entertainment as content with revenue from ad sales. They make money when you're tuned in and the companies behind the annoying commercials pay them. It's that simple. If they let you figure it all out, you won't watch, and advertisers won't pay. So they have to keep viewers on a hamster wheel.
That's why it's a new story every day. Some days they’re bulls; some days they're bears. Stocks that were hated yesterday are loved today. Getting your guidance from mainstream financial news media can feel like you had two chili-dogs and just got off the merry-go-round.
It's the big money that moves markets. And the key to making money is to watch when the big money buys outlier stocks. Just 4% of stocks account for all net stock market gains above Treasuries since 1926. The formula is simple: follow big money buying the best stocks. That's what my research company focuses on.
We start by looking at whether money is moving in or out of the stock market. It's no secret that February and March found massive outflows. But when the market bottomed and my data said that oversold conditions couldn't last, bullish sentiment was scarce. I called for a bottom on March 20, and it came one trading day later on March 23. Since then, the markets have skyrocketed.
The Big Money Index measures all big buying and selling over a 25-day moving average. It helps us identify overbought and oversold markets. This is what allowed me to call a bottom in March.
However, overbought conditions are trickier. Keynes said, "Markets can stay irrational longer than you can stay solvent." And we now enter the record-longest period of overbought markets in 30 years. Today's market beat the mid-'90s record of 65 days. This is why I don't try to predict outcomes. I only surf the wave and prepare for turns.
Next, to narrow down where the money goes, we look for which sectors collect capital. While all sectors got bought, some are clear winners from the bottom. Technology, discretionary, and materials stocks have benefited most from the big bounce. Everyone is wondering when this will come to an end.
We look at big money buy and sell signals on a weekly basis to get an accurate view of which actual stocks they are buying or selling. This is also split into sectors. We can see clearly that sellers are scarce. Technology, staples, materials, discretionary, industrials, health care, and communications all collected cash last week. The buying frenzy continues.
The final piece of the big money puzzle is knowing the best stocks getting the money. Discussing individual stocks is beyond the scope of this article, but the formula remains simple. One must focus on stocks with great sales and earnings growth, healthy profits, low debt, and unique businesses that are positioned well for future continued growth. It helps lead to me to stocks like PayPal Holdings, Inc. (PYPL), which I own. Outliers look like this:
Making money in stocks is really not that complicated. It's just that the secret lies just out of reach of most, just beneath the surface. The powers that be prefer it that way, just like whoever is benefiting from your missing $21 trillion. Do they want you to find out who and where it is going to? No!
Look: our visible universe – stars, galaxies, planets, and everything we can see – accounts for only 4% the mass-energy of the universe. The other 96% is stuff we can't see but we know is there. Other than that, we know very little, but odds are that 96% exerts most of the influence.
It sounds a lot like the stock market to me. We all imagine a world of honesty and transparency, but we all know it's a myth. Why? Mark Twain had the perfect answer: "Honesty is the best policy – when there is money in it."
The Bottom Line
We (Mapsignals) are bullish on high-quality U.S. equities in the long term, and we see market pullbacks as areas to pick up great companies.