Market Sentiment Alert: It’s Time to Track Big Money’s Latest Stock Moves

“You want to be greedy when others are fearful.”
– Warren Buffett

I’ve used this quote before in these columns, and I’m sure I’ll use it again. It remains one of the most important maxims for investors to keep in mind.

Many years of experience in this business have taught me that swings in market sentiment often influence the market’s direction as much as shifts in market fundamentals like interest rates and earnings growth.

In fact, the cycle of investor psychology is without doubt one of the most powerful cycles that exists. And it frequently swings to extremes – first of optimism, then of pessimism.

Markets move higher when the news is positive, and investors get greedy. On the other hand, when the news turns negative, investors grow fearful, pushing markets lower.

Unfortunately, investor sentiment usually swings to these extremes at exactly the wrong time.

Today, we are witnessing extreme bearish investor sentiment. And after stocks have fallen for six of the past seven weeks, who can blame folks for being fearful?

And recent data from the American Association of Individual Investors (AAII) – a good proxy for retail investor sentiment – confirms this: Sentiment has hit extremes we haven’t seen in years.

As you can see, above nearly 60% of investors currently identify as bearish – an extreme level of market-wide bearishness last seen during the 2022 bear market.

In fact, AAII-tracked investor sentiments are reading even worse now than they were during the COVID-crash in 2020! And as you can see below, investor sentiment in the previously-leading Nasdaq 100 Index (NDX) currently sits at multi-year lows as well:

So yes: Investor sentiment, by many measures, is extremely bearish right now…

But as a contrary market indicator, that’s bullish.

Going by Buffett’s maxim, this is the time when you want to be greedy, not fearful – because quality stocks are on sale for a limited time, trading at cheaper prices.

And historically speaking, that’s when stocks perform best!

As you can see above, when investor sentiment has been this bearish in the past, the S&P 500’s average forward returns have turned positive across all time frames, from two weeks to over two months (12 weeks)… with average gains of about 5% at the two-month mark.

And while an average return of 5% may not sound like much, it’s more than twice as much as the S&P 500’s average returns when sentiment is extremely bullish!

Plus, 5% gains in just two months adds up to an annualized return of 30%.

In other words, today the odds are stacked in your favor as a buyer!

With that in mind, I’ve put together a simple TradeSmith Screener to find high-quality stocks that – despite the recent market selloff – are attracting positive money flows.

Put simply, that means big-money investors are buying these stocks as the market declines.

Get Greedy with a Fearless TradeSmith Screener

To put this screener together yourself, log into your TradeSmith Finance dashboard, then navigate to the Invest page at the top of your screen. Open up the Screener tab – and go ahead and click the green + Create new screener button.

To find the stocks that will benefit from big-money investors following the Oracle of Omaha’s advice, we’ll need to search out significant cash inflows – which should be easy, given the weeks of selling we’ve seen from the market recently.

To do this, I rely on a few simple but powerful TradeSmith screener filters shown below:

Naturally, we’ll want to set the Asset Type filter to screen for Stocks, and since we’re looking for quality, we’ll set the Health Status filter to find names that are still in our Health Indicator Green or Yellow Zone.

Next, I also look for those stocks that qualify for our TradeSmith Money Movers Up Strategy – stocks with positive money flows from insiders and institutional investors.

Simply click on Money Movers in the TradeSmith Strategies filter dropdown menu, and select Money Movers Up.

To help screen for quality, I add our Business Quality Score (BQS) filter, setting it to more than 70. This step eliminates all but the top 30% of stocks we rank by quality.

Then for an extra layer of conviction, I also filter by my colleague Jason Bodner’s powerful Quantum Score.

To add these filters, click on +Manage Filters in the top left and select both Business Quality Score and Jason Bodner’s Quantum Score.

Like the Money Movers strategy, Jason’s Quantum Score identifies stocks with recent big-money buying. The sweet spot of his scoring system are stocks with a Quantum Score between 70 and 85, so I set my filter to more than 70.

Keep in mind, you’ll need to be a TradeSmith Platinum member to access the Quantum Score filters. If you don’t see the options (or the TradeSmith Screener tool) in your TradeSmith Finance dashboard – but would like to – call us at 888-623-0858 to discuss.

When I ran this screen yesterday, I got just 10 results – with the top five stocks displayed below:

The low number of results isn’t surprising, considering the relentless selling in recent weeks – fewer stocks are seeing consistently strong money inflows.

But if you have the courage to buy this dip, then you’ll want to focus on quality stocks that the big-money movers and shakers of the market are also buying.

Mike Burnick’s Bottom Line: I don’t blame you if you’re scared to look at your investments right now. That’s just the natural reaction to a stock market correction, and I’m right there with you. But the historical data tells us that at times like this, when sentiment is so lopsidedly bearish, it’s time to be greedy when others are fearful!

Good investing,

Mike Burnick
Senior Analyst, TradeSmith

P.S. History has shown us one undeniable truth: In times of extreme bearish sentiment, you’ll find the best opportunities hiding in the shadows. While fear dominates the market, big money is quietly flowing into high-quality stocks, setting the stage for the next big rally.

The TradeSmith screener we put together today can help us follow those big money moves. But what if the biggest opportunity of the moment isn’t just in individual stocks – but in an entire market shift?

Louis Navellier, my colleague at our corporate partner InvestorPlace, believes that’s exactly what’s coming down the line. He’s been following the AI trade since long before ChatGPT’s debut supercharged the market, and he’s certain that we’re on the cusp of a massive change.

In fact, back in 2016, before NVDA was the household name and AI titan it is today, Louis recommended it because it was a leader in the GPU chip industry.

At the time, NVDA was trading at just $1 split-adjusted, and most folks knew nothing about how powerful these GPUs were…  

But of course, you already know what happened next: Nvidia went on to soar more than 7,000%.

And the whirlwind that Louis sees coming could be even bigger than his last NVDA prediction.

But with events such as these, there’s little time to act before you’re left in the dust.

By tomorrow morning, the markets could be moving – and the opportunity may be gone along with them.

Don’t wait – this is your last chance. Click here to catch Louis’ presentation now.