ETFs Offer Glimpse into the Market’s Future

Palm Beach Daily

ETFs Offer Glimpse into the Market’s Future

By Jason Bodner, editor, Palm Beach Insider

In the 1998 movie Rounders, John Malkovich plays a Russian mobster and ace poker player named Teddy KGB.

The movie is set in the underground world of high-stakes poker in New York City. And Teddy KGB is the best player in the circuit.

In the first act, a young law student named Mike McDermott (played by Matt Damon) loses his life savings in a poker game to Teddy.

After the defeat, he quits rounding the circuit (hence, the name Rounders). But his best friend Worm starts rounding and ends up owing Teddy, too. Worm has a five-day deadline to pay the $15,000 debt.

So Mike returns to the circuit once more to help Worm. And to beat Teddy, he needs to discover his “tell.”

You see, Teddy was always a master at bluffing. When he had a weak hand, he’d raise to make it appear it was strong. But there was one constant with Teddy…

No matter what, he always brought Oreo cookies to his poker matches. When he wasn’t bluffing, he’d break open the Oreos and eat them. But when he was bluffing, he’d break open the Oreos – without eating any.

Once Mike identified this “tell,” he was able to ignore Teddy’s bluffing act. It’s how he wins enough to pay off Worm’s debt.

Sure, it’s cliché. But it’s how the market works, too. It tries to bluff you out of your money.

The Hottest Money-Making Opportunity In The Stock Market Today

Right now, the stock market is near an all-time high, IPOs are doubling on the day of their debut, and vaccines are right around the corner. Things have never seemed more bullish.

Meanwhile, plenty of market commentators are looking at the worsening situation with COVID, the lack of stimulus, and the general sense of greed in the air. They point to these realities as a clear sign of trouble to come.

So which is it? Bearish or bullish?

Trying to make sense of the conflicting headlines is mind-bending. Fortunately, the market has a tell, too. And today, I’ll share what it’s revealing…

The Market’s “Tell”

There’s no doubt about it… The market is overheated.

I’ve been saying this for the past week now. And my data continues to back it up. Remember, my “unbeatable” stock-picking system scans nearly 5,500 stocks each day. It uses algorithms to rank each one for strength.

And to make sure it’s highly accurate, comprehensive, and effective, I used my experience from nearly two decades at prestigious Wall Street firms – regularly trading more than $1 billion worth of stock for major clients.

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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 its Big Money Index (BMI).

And here’s what its data looks like right now…

chart

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.

Currently, the BMI has surged to over 90% – overbought for the third time in 2020. So we’re in extremely overbought conditions… and due for a pullback.

This brings us to the question: When? Well, that’s where the market’s “tell” comes in…

Take a look at the graph below. It shows the volume of big-money buying in exchange-traded funds (ETFs) since November 2019.

chart

ETFs offer broad exposure to the market. So big-money buying and selling activity in ETFs is a strong proxy for the market’s movements.

Notice the two circles at the far right of the chart. The green circle highlights the record amounts of ETF buying last month – a high for the year. But the smaller, red one indicates the plunge in ETF buying at the beginning of this month…

That’s a huge drop-off. And this data gives us a clear “tell” of what’s next for the market: Expect lower prices in the near term.

Playing Our Next Hand

Remember, don’t get caught up in the market action. They’re like poker players trying to bluff you out of your money.

Instead, follow the data. It can tip the market’s hand in your favor. And right now, we know a pullback is coming.

So how do we play our hand? We’ll follow our win-win game plan – by sitting tight and being ready to buy once the selloff arrives.

Look, I love to grab great stocks on sale when everyone else is afraid to own them. That’s how you win at the stock market. But you have to be patient.

It’s how Mike McDermott beat Teddy KGB. And it’s how we’ll beat the market, too.

Patience and process!

signature

Jason Bodner
Editor, Palm Beach Insider

P.S. Following the activity in ETFs is a great way to get inside the mind of the market. And it’s something I check before every new recommendation to my Palm Beach Trader readers.

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That’s no bluff. It’s thanks to an “unbeatable” system that longtime Palm Beach Insider readers already know has crushed the market. Even if you’re still skeptical, the data speaks for itself. Two of our more than a dozen winners, The Trade Desk (TTD) and SolarEdge (SEDG), are up 935% and 404%, respectively…

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