For as long as there have been markets, big money has been the key driver behind them.
“Operators,” as they were known back in the 1920s, could sling around huge amounts of money on leverage and impact stocks at will. Back then, it was perfectly legal to spread misinformation. You could even pay reporters to print false stories to influence prices.
It was a big money man’s game. But over time, it’s served the big money to perpetuate the idea that anyone can make money in stocks. After all, big players needed an ever-revolving door of new traders to manipulate.
So through the 1980s and ‘90s, stocks became an “everyman’s game.” Day trading sparked the dream of taking a small grubstake and turning it into millions. By the 2000s, anyone with $5,000 could open up a brokerage account and trade stocks globally.
Nowadays, we have Robinhood and other online, commission-free brokers which can give anyone instant access to the markets from their smartphone.
Therefore, the perception may now be that big money is the quiet, gentle whale in a huge sea of aggressive fish. But three years ago, J.P. Morgan estimated that just 10% of stock market trading volumes are regular stock picking. The media – and more importantly, the brokers they help advertise – would have you believe that you’re in control. But that couldn’t be further from the truth. Big money still moves markets, and it’s not changing.
But if you know what to look for, big money is there in plain sight. And it’s influencing prices perhaps more than ever…
An Unusual Appetite
For those new to Palm Beach Insider, my whole investing strategy revolves around figuring out what the big money is doing, and following it to profits. So much so, I’ve spent the last decade building a market-reading algorithm to help me do just that.
While it does help me select individual stocks that wind up being the big winners of tomorrow, it also gives me an excellent gauge on the broad markets.
For example: In September, the big money was selling. And that was consistent with expectations. (Remember, every election year since 1992, the big money reduced risk by selling into an election, and increased risk by buying right after.) So when markets softened in September it seemed right on schedule.
It appears, however, that buyers have returned early for this cycle. At least for now.
This indicates that the big money are more confident about the election outcome, and have an unusual appetite for risk with the election so close. Remember, the big money doesn’t like uncertainty. So when it comes around, they reduce risk. Increasing risk – like what we’re seeing now – indicates confidence and certainty.
So, how exactly has the big money returned? Which sectors do they see as the best bets as we get closer to November 3?
For the past couple weeks, the big money’s been buying into nearly every sector at the recent discounted levels.
More recently, though, buying has slowed across the board. We still saw big buying in industrials, financials, and utilities stocks. But for a clearer, broader buy signal, I’d rather see buying in the tech and discretionary sectors.
The big money’s lack of interest in these sectors tells me that, despite still buying ahead of the election, it’s taking a more conservative approach.
You see, just because buying is back doesn’t mean volatility is over…
There’s still two weeks to go before the election dust really begins to clear. And even though the big money seems convinced of what will happen – likely guided by the latest polls – there’s no reason we can’t see an upset come election day.
But there’s one thing I am sure of: If the market draws down, that means it’s time to buy quality stocks – the kind the big money love and that our system identifies – when nobody else will.
Despite the rags-to-riches dreams being sold to you, the whales still drive markets. And they move with the most confidence that their money can buy.
It makes sense to place your bets alongside them.
Patience and process!
Editor, Palm Beach Insider
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