Jesse Livermore was one of the greatest traders who ever lived.

He was famous for his amazing timing on his short trades, in which he would bet against the market.

In fact, he shorted the market just before the Great Depression hit, netting him about $100 million in profit once the market tanked – equal to about $1.5 billion today.

A lot of Livermore’s tactics amounted to market manipulation and are outlawed today. But we can still learn a lot from one of his legitimate practices.

You see, he liked to do small test trades to see if the market could absorb his order. For instance, he would put in a small sell order to see how strong the market was.

If it was executed immediately, he knew that there were plenty of buyers. And if it wasn’t, then he knew that the lack of buyers meant sellers were in control.

This gave him a sense of which way the market was headed, so he could adjust his bets appropriately. It’s how he cashed in on the market’s huge up-and-down swings.

And just like Livermore, we can tap into which way the market is headed today… by following the big money’s moves.

(If you want to learn more about Livermore, I suggest you read Reminiscences of a Stock Operator by Edwin Lefèvre. I’ve read this book many times. In fact, I’ve even coded some of Livermore’s lessons into my “unbeatable” stock-picking system.)

Below, I’ll get into what signals the market is sending us right now… and which sectors are poised to benefit in the short term…

Today’s Market Is Still Overheated

I drew plenty of inspiration from Livermore’s trading style when I built my “unbeatable” system.

Even back in the early 1900s, Livermore knew how much of a role the big money played. And the same is true today.

That’s why I created my system to give us a sneak peek at how the big money is affecting the markets.

Regular readers know it scans nearly 5,500 stocks every day and ranks them for strength using algorithms. But it also looks at the big-money buying and selling in the broad market today.

And here’s what it’s showing us right now:

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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.

As I’ve mentioned before, we’re currently in a record overbought period of 71 days. That tells us that the market is incredibly overheated. But which way are we headed next? For that, we have to dig a little deeper…

Sellers Have Disappeared

Take a look at the graph below. It shows the volume of big-money buying and selling in exchange-traded funds (ETFs) since January 2018.

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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.

Here, we can see a correlation to big buying in ETFs (the green lines) and near-term peaks in the market. But what’s really telling are the sell signals (the red lines).

Look how perfectly those sell signals lined up with the troughs in the market in December 2018 and this past March. This was how my system was just one trading day off in predicting the market bottom five months ago.

Now, look at the far-right side of the chart. Notice how there’s no red even as big-money buying has dipped. That means sellers have almost completely vanished, and buyers are in control.

If we dig deeper, we can see which sectors are seeing the most big-money buying. Take a look at this table of buy and sell signals by sector.

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For months, tech and health care have benefited from big-money buying. But you can see that both sectors are starting to see increased selling.

In contrast, industrials and discretionary stocks are taking the lead. It’s becoming apparent that while the big money is still flowing into broad stocks, it’s starting to rotate out of tech and health care and into these sectors.

If you want to take advantage, consider buying the Industrial Select Sector SPDR Fund ETF (XLI). It’ll provide some exposure to industrials as the big-money buying ramps up in that sector. Just remember to position size appropriately.

Patience and process!

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Jason Bodner
Editor, Palm Beach Insider

P.S. To know where the market’s headed, you have to follow the big money. It’ll show you the way to profits, even through volatile conditions.

And my job is to find these gains for you using my system.

It pinpoints the best outlier stocks that’ll rocket higher. In fact, it’s already identified several winners for my Palm Beach Trader subscribers, including gains of 420%, 279%, and 183%.

So don’t miss out on the next wave of big-money gains. You can join us right here.

Picture this: You’re a car salesman, and your boss tells you that you have to make $100,000 in sales before the end of the day, or you lose your job.

What’s the best way to go about it? You could try to make it all in one go by focusing on the Cadillac in the lot, which costs $100,000.

But the customers coming into your lot aren’t looking for a Cadillac. Because they know they can’t afford such an expensive car.

So you change up your strategy. Instead of trying to sell one car for $100,000, you sell 10 other cars on the lot for $10,000 each – which still adds up to $100,000.

You recognized that demand would be higher for the cheaper cars. So you adapted to what your customers wanted – and managed to rake in the dough.

As it turns out, the market is taking the same approach…

Recently, Apple (AAPL) announced it will do a 4-for-1 stock split at the end of this month. That means that every AAPL share will be split into four shares.

So if Apple is trading at $400 a share on the day of the split, each share will split into four $100 shares.

And it’s not the only one.

Not long after, Tesla (TSLA) announced it would be doing its own 5-for-1 stock split at the end of the month, too.

Now, I know there’s still plenty of uncertainty surrounding the markets. After all, the coronavirus pandemic is still a threat, and the economy hasn’t shaken off some of the negative effects, like the dismal unemployment and GDP figures.

But these splits are a terrifically bullish sign.

Below, I’ll get into why this is just the beginning of a new trend… and what it means for investors going forward…

More Splits Are Coming

Stock splits used to be all the rage back in the 1990s and 2000s. In 1997, there were 102 splits among S&P 500 companies.

But they’ve become rarer. Last year, there were just five.

While this is Tesla’s first stock split, Apple hasn’t done a split since 2014. Before that, it last split in 2005.

But now, I’m betting that other big-name companies, like Amazon (which hasn’t split its stock since 1999), will join the party and announce splits as well.

What’s behind this prediction? It’s simple: Retail investors are creating a new source of demand in the market.

Over the past few decades, stock prices have become so inflated that they’ve shut out a lot of mom-and-pop investors.

For example, take TSLA, which is trading at around $1,900 a share at writing.

That may be pocket change for the big-money institutions on Wall Street… But for the average investor, that’s equivalent to the Cadillac on the lot that they can’t afford.

This has been getting more and more extreme. Take a look at this chart of the average stock price in the S&P 500 over time:

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Now, if you were the head of an S&P 500 company over the past few decades, you didn’t mind that the average Joe couldn’t buy your stock. Because you had the big money on Wall Street backing you.

And that’s still true.

But if there’s one thing you can count on in the markets, it’s greed. Companies like Apple and Tesla realize retail investors are flocking to the market.

With most brokerages cutting their fees, and apps like Robinhood making trading easier and more popular than ever before, there’s now a whole new group of eager investors just waiting to buy their company’s shares. Back in May, Robinhood revealed that it had added 3 million users so far this year (half of which had never opened a brokerage account before), for a total of 13 million users.

So why not lower the nominal price of your shares to make them “cheaper” for ordinary investors to buy? Remember, splitting a stock doesn’t change a company’s value. It just makes it easier for mom and pop to invest in it.

And here’s why that matters…

It’s Time to Prepare

Regular readers know I focus on outlier stocks. These are companies that thrive in any market… and could rise 10x, 100x, or even 1,000x.

In fact, a 2017 study by an Arizona State University professor found that over the past 100 years, 4% of stocks made up 100% of the gains in the market that exceeded Treasury bills.

So if you’re not buying these stocks, you’re wasting your time.

And now, with more stock splits possibly on the horizon, there’s never been a better time to buy them. Not only will these splits make them more affordable… but the influx of more retail investors will drive their prices higher over time.

After all, on the day after AAPL and TSLA announced their splits, their stocks went up 10% and 13%, respectively.

And that’s just the beginning.

According to two separate studies, split stocks outperformed the market by 8% the year following the split… and by 12% over the following three years.

So now’s the time to get in on the outliers. These splits will entice more investors to pile in, pushing these companies higher.

By the way, there’s another way for small investors to buy phenomenal companies with high nominal prices: fractional shares.

Fractional shares are simply a fraction or part of a full share. This means you can invest whatever dollar amount suits your portfolio best when it comes to certain companies with higher nominal share prices. Sometimes, it could be as little as $5–10.

This practice is still relatively new and not available to all investors, which is why companies such as AAPL and TSLA still deem it worthwhile to do stock splits.

But some online brokers, like Fidelity and Interactive Brokers, make it easy nowadays to purchase fractional shares. In fact, I’ve bought fractional shares for my kids on my Fidelity app. Be sure to consult your individual broker to see what options are available for you.

Patience and process!

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Jason Bodner
Editor, Palm Beach Insider

P.S. Stock splits are hugely bullish for outlier stocks. But how do you find them? That’s where my “unbeatable” stock-picking system comes in.

It scans thousands of stocks every day and uses algorithms to rank them for strength. And it’s already led my Palm Beach Trader readers to five picks that have doubled or tripled in value since we bought them.

It’s already flashing on the next outliers set to soar. You can learn more about how my system finds them right here.

I like to approach picking stocks just like I handle hiring someone for a job.

When you’re looking for someone to fill a position, you have to consider what type of hire you want to make.

Some people might be looking to hire someone for cheap. They may look past things like a terrible résumé and a poor interview if they think they can hire a person for pennies on the dollar.

I go about it the opposite way. Salary isn’t the biggest factor. I want the top candidate for the job – the person with the spotless résumé and the numerous accolades. That’s the one who will benefit the business.

And in the long run, I’m usually right.

The worst candidate, who was hired to save the company some cash, usually ends up costing it more money due to their poor performance… while the best candidate ends up being worth the extra money because they make the business profitable.

In business, you get what you pay for. And the same is true with investing.

The S&P 500 just hit an all-time high, despite the economic calamity caused by the coronavirus pandemic. But as I’ve told you before, I still think stocks have room to run higher.

But this is a dangerous time to be an investor…

You see, with nominal stock prices rising every day, retail investors start looking for “deals” in the market.

They’d rather buy stocks that trade in the single- or low double-digits range… than “expensive” but phenomenal companies like Amazon and Tesla (which currently trade around $3,285 and $2,050, respectively.)

Buying companies solely because they trade at low nominal prices is like trying to save a few bucks on a subpar employee – in the long run, it won’t be worth it.

Watch Out for Value Traps

Sometimes, a company can look cheap… but isn’t. It’s actually a “value trap.”

A value trap is a company that appears cheap because of a large price drop in its shares. But it’s actually expensive compared to its future growth.

For the perfect example of a value trap, look at what happened with General Electric (GE) a few years ago.

At the end of 2017, GE’s price-to-earnings ratio – how much investors are paying for $1 of earnings – was a low 14.7. That was about 50% lower than the stock market average at the time.

So it seemed like a good deal to buy one of the most admired businesses in the world for cheap.

But if you took a look at its past performance, you would’ve known that GE’s résumé wasn’t up to snuff.

Back in 1999, GE was the largest company in America. It reached a market cap of $594 billion in 2000. Toward the end of 2018, it fell to about $100 billion. It lost almost a half-trillion dollars in value over 18 years.

And sure enough, GE’s stock has fallen to about $6.30 a share from $16.77 in December 2017. That’s a 62% drop.

Now, if you had bought GE’s stock on a dip back in 2017, do you think it was worth getting a “deal”?

That’s why I take the opposite approach when it comes to selecting stocks…

Passing the Test

Regular readers know I’m a numbers guy. I let the data lead me to profits, instead of blindly following the headlines to losses.

That’s how I’ve managed to avoid these value traps.

I look at the underlying data instead of scouting for companies trading at nominally “cheap” prices. And I identify companies with good “résumés” – meaning they’re growing sales and earnings year-over-year, in sectors that are booming.

Just ask my Palm Beach Trader readers. It’s how we’ve scored triple-digit winners like The Trade Desk (TTD)… Nvidia (NVDA)… and SolarEdge Technologies (SEDG). Our latest one, Veeva Systems (VEEV), is already up 119% in just five months.

But there’s another ingredient to our success: big-money buying.

You see, I’m not the only one who looks at stocks this way. The big-money institutions do, too. I know because I spent nearly two decades on Wall Street using this same strategy to make our clients rich.

And what I learned is that when a solid company sees interest from the big money, that means it’s a great money-making candidate.

You see, these guys employ armies of researchers and spend hundreds of millions of dollars per year on research. So they’re basically doing the “interviewing” for us. We just need to follow their lead on the best candidates out there.

That’s why I developed my “unbeatable” stock-picking system. It scans nearly 5,500 stocks every day and ranks them for strength using algorithms. But it also looks for the movements of big-money investors.

When it sees them piling into or getting out of a stock, it raises a yellow flag. Then, I put these yellow flags through another filter.

If the flag turns red, it means the big money is selling. If it turns green, it means the big money is buying…

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It’s that simple. So, when I see green, I know a stock has “passed its interview.”

Now, my system also looks at the broad market as well. And while it’s still signaling that it’s overheated, it also says that the big money will continue to push this market higher.

So it’s not the time to look for cheap “deals.” They’ll land you into value traps. Instead, buy the candidates that the big money is interviewing. They’re the cream of the crop – and they’ll be worth much more to you in the long run.

And if great companies with high nominal prices still seem out of your reach, there’s another way for small investors to buy them: fractional shares.

Fractional shares are simply a fraction or part of a full share. This means you can invest whatever dollar amount suits your portfolio best when it comes to certain companies with higher nominal share prices. Sometimes, it could be as little as $5–10.

Some online brokers, like Fidelity and Interactive Brokers, make it easy nowadays to purchase fractional shares. In fact, I’ve bought fractional shares for my kids on my Fidelity app. Be sure to consult your individual broker to see what options are available for you.

Patience and process!

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Jason Bodner
Editor, Palm Beach Insider

P.S. Thanks to my system, we don’t have to worry about timing the market to pick up the best deals. It can identify winners in any type of market, bear or bull.

It’s why our Palm Beach Trader portfolio has a win rate of 70% right now… with an average gain of 47%. That’s the power of piggybacking off of stocks with big-money buying behind them.

And my system is already zeroing in on the next batch of winners. You can go here to find out more.