by Jason Bodner
January 17, 2024
Every day, our computers fire up and the emails start flying. Given our reliance on computers, it’s wild to think that the computer isn’t all that old. In January 1946, the first computer was built in Pennsylvania at the Moore School of Engineering. Moore’s law says the number of transistors in an integrated circuit (IC) doubles about every two years. By the law of compound interest, that means that if the first computer started with a single transistor, we’d be looking at computers with two to the 39th power, or 550 billion.
Sure enough, the M1 Ultra by Apple is in the statistical ballpark: It has 114 billion transistors on a dual-die system on a chip with a density of 171 million transistors per square millimeter.
That type of growth can easily be seen reflected in long-term charts of the best tech stocks as well.
Stock trading in the second week of 2024 is behind us. It was an important week because the first week is often characterized by lower liquidity and higher volatility. But capital must be deployed per the charters of investment firms. Investment managers don’t get paid for just holding cash. So, these early moves in the year are great fodder for understanding the broader views of the investing professionals and public for the year ahead. Naturally, my research relies heavily on computers. The joy is that computers never sleep. They ran all through the holiday season, too. What they told me is interesting…
First of all, the Big Money Index (BMI) remains heavily overbought:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
At risk of redundancy, the important takeaway here is that the BMI can stay overbought for a long time. Right after COVID, it was in overbought territory for a shocking four months. There’s no telling how long it will stay overbought this time, but the important thing is to watch when it falls from overbought: that’s the sign of a weakening market. So, until we see that, I am not sounding any alarm bells.
After an initial bump of volatility in the first week of January, last week shows us what a more “normal” week looks like. Markets rallied, and buy signals are starting to crop up. That makes sense as capital gets deployed from investment managers. ETFs are also seeing mild buying.
What interests me even more is the unusual trading activity. After a new year lull in volume, we see a healthy spike in volumes with a rising market. The amber bars below show that inflows are lifting markets: i.e. the rally is not based on soft volume.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If we look at the buying and selling since January 1st to see how it is distributed, we see constructive bullish activity. First off, we see small and mi-caps getting significant inflows. Large caps also attracted capital. Notice the low levels of selling, too:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now, for a quick breakdown as to where the money has been flowing, we can consult our charts of sector buys and sells. Here we see that since January 1st, Health Care stocks have been bought more than any other sector. This is interesting because we are in an election year. Health Care has been one of the strongest performing sectors since the October lows. But in election years since 1980, Health Care stocks have performed very well, especially in 1st quarters. This is following the script:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The chart on the right depicts selling activity in a pie chart. There have been only 94 unusual sell signals since 2024 began. Despite the pie cart looking ominous for energy stocks, there have been only 24 energy stocks sold in unusual volume, and 100% of a small number is still a small number. Compare this to 514 unusual buys over the same time. Nearly 40% of those have been health care stocks.
Next, let’s review the sector strength and weakness. Again, January is a tumultuous time for the sector ranking table. This is because there is a year-to-date performance component in stock scoring which resets each January 1st. As the year rolls on, things stabilize. Already we are seeing things fall in line with the end of last year. Technology rose to the top spot. But look how strong Health Care has become:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
As I scanned each sector for how industry groups were performing, I saw the following trends:
• Miners are weak.
• Insurance and equity REITs are strong.
• Home builders are strong.
• Department stores and retailers are weak.
• Software and networks are strong.
• Telecoms are weak.
Looking at individual sector performance, my big takeaway was two-fold: There is light buying across the sectors. This makes sense as in order to generate new unusual buy signals, new highs must be breached.
The second takeaway, is that the only sector that saw any selling was Energy. And given the US and UK airstrike response to the Houthi attacks, energy stocks firmed up on oil’s sudden price spike in reaction.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So far so good in 2024. Buying is stable, selling is low, and we remain in a strong overbought market that can stay overbought for a while. I expect volatility. But for now, we sit back and enjoy the ride.
Risk to profits and capital is always part of the game. But if you hope to avoid risk altogether, remember Flip Wilson advises, “You can’t expect to hit the jackpot if you don’t put a few nickels in the machine.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Why the Fed Follows the PCE, not the CPI or PPI
Income Mail by Bryan Perry
Bracing For More Volatility Ahead
Growth Mail by Gary Alexander
Why the Fed Lost Over $116 Billion in 2023
Global Mail by Ivan Martchev
U.S. M2 Money Supply is Still Shrinking
Sector Spotlight by Jason Bodner
How Long Can This Market Stay Overbought?
View Full Archive
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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