overbought BMI doesn’t guarantee an imminent pullback

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Overbought BMI doesn’t guarantee an imminent pullback


I also programmed my system to calculate what I call the Big Money Index, or BMI for short. It is the 25-day moving average of unusually big buys and sells for stocks and ETFs. The Big Money players are mostly hedge funds and other institutional players who account for 70% to 90% of all trading volume most days.

Just last week, the BMI popped above 80, which put it in overbought territory for the first time since last August. Both the BMI and the SPDR S&P 500 ETF Trust (SPY) sold off – before rebounding and surging higher in October.

I want to be very clear that an overbought BMI doesn’t guarantee an imminent pullback. In 2020, as the markets and economy were rallying after the COVID-19 shutdown, the BMI stayed up in overbought territory for nearly three months. And yet, there was a lot of money to be made in that time.

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