Money Moves Markets; Is Mr. Market Moving Upstairs Or Into The Basement Apartment?

Includes: SPY
by: Peter F. Way, CFA


We daily monitor where Big-Money expects the prices of over 2500 widely-held, actively-traded stocks and ETFs to go in the next few months.

Likely price moves, within extremes seen by Market-Makers [MMs] helping execute volume block trades ordered by portfolio manager clients at huge funds.

Moves likely enough to invoke hedge-protections for MM capital put at risk when balancing buyers and sellers to get the trades filled.

Hedges vetted by protection-sellers in derivatives markets separate from, but directly related to the equity markets.

Where is Mr. Market residing now?

Our metric of the Range Index [RI] tells where the current market prices are. It measures what percent of the between-extremes range of price expectations lies below the market quote at the time of the forecast.

Figure 1 shows Friday's distribution of RIs, with cheap (low RI) issues on the left and expensive ones on the right.

Figure 1

(used with permission)

Hmm. Mr. Market doesn't seem to have much present concern over covering today's rent check.

A 50 RI stock has as much downside prospect as upside. This profile has only 9% of its members at or above that concern. Not shown, those off to the left have upside prospects of +16% gains, while the more dodgy items to the right reflect only -9% risk forecasts.

Those equities with more upside than down have reward-to-risk ratios of 2.5 to -1. The others have risk-to-reward ratios of -1.4 to 1.

So, what does a scare look like?

Here is May 19 of 2008, with SPDR S&P 500 Index (NYSEARCA:SPY) at its high of 143.05 on its way to 68.11 in March, 2009.

Figure 2

Click to enlarge

(used with permission)

Two-thirds of the stocks then still had more upside potential than downside exposure prospect. But their Reward-to-Risk proportions were only 1.7 to -1, compared to the current 2.5 to -1.

But the troubled issues now are a full one-third of the population, with a Risk-to-Reward ratio of -1.8 to 1 instead our now -1.4 to 1.

What to do?

In the above illustration, the warning came in Mid-May, while the eviction notice was not filed until October.

Mr. Market could remember those carefree late summer days in 2008. Now with no sign of anything ominous, he might decide to take a limited-term rental on the penthouse apartment. He has been known to sometimes overdo.


It would be a good idea to keep a close watch on that Market Profile. The warning of impending problems may give ample time to redress the portfolio. In the meantime there are likely to be many more opportunities in individual issues for further capital gains.

So far in 2016 the MMs identified 2,226 stocks and ETFs, at the rate of 20 a day, which met their discipline targets and limits to score CAGRs averaging +36% while SPY only gained at a rate of 11%.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information (earlier) helping professional and [now] individual investors discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations. We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for their guidance what the arguably best-informed professional investors, through their own self-protective hedging actions, believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided. Our website, has further information.