by Jason Bodner
January 18, 2023
Markets were wild in 2022. It may feel similar so far in 2023, but the trend has changed under the surface. This is certainly the case in terms of unusual buying versus selling.
Today, we will explore unusual institutional money flows, where they are going, and we will look at a new bullish data point that suggests we have even more room for optimism.
You may think I’m crazy to be bullish, based on all the volatility we’ve seen, and the after-burn from the stock market’s scorched earth policy last year. You might even think my bullishness is without warrant and I’m just dressing things up. That would certainly fit history: After all the word “mortician” is just a 19th century Public Relations term invented to replace “undertaker,” because no one wanted the job.
But as I’ll show you below, the bullish undercurrent is very real. First off, the S&P 500 is starting 2023 up 3.5% thus far. The naysayers will point out an abysmal December just past. While it’s true that the S&P 500 fell nearly 6% in December, it still ended the fourth quarter north of +7%.
What caught my eye is what is happening under the surface of those aggregate numbers. Here’s the bottom line: We’ve seen increased buying and decreased selling uniformly across the market and sectors.
Let’s start with the Big Money Index (BMI), which is the simplest visual cue of how money has been moving. It’s a 25-day moving average of all buying and selling. When the blue line trends up, it means inflows. As you can see, October through mid-December was a clear uptrend. After nearly kissing overbought territory, the index pulled back. But recent action in January shows a resuming trend upward:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Seeing as the BMI is essentially a compact view of all stock and ETF unusual buying and selling, the same should be visible in those charts. As we can see in the chart of stock buying and selling, it’s been a powerful lift. Buying has been intensifying while selling is dissipating thus far in January:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The same can be seen in ETF unusual buying and selling. Looking at this chart, we do see one near-term flag to take note of. When ETF buying reaches extreme levels, it usually indicates a near-term pullback. That’s not to be confused with a change in the broader trend, just a pullback from recent highs, as was the case in early December. Regardless, selling is virtually nonexistent:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This snaps even clearer into view when we zoom out for a 1-year look:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Overall market buying doesn’t necessarily mean balanced general buying. Naturally, it could be focused on only one sector, like last January when only energy was under accumulation. But that’s simply not the case this year. The following charts show unusual buying and selling for each sector mapped against their appropriate index ETF:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In these sectors, there’s a healthy amount of blue and not a whole lot of red to worry about! This means buying has been nicely distributed across the sectors. It’s not a perfect distribution, but a positive balance.
That’s the big new positive in 2023, so far – evenly-distributed love among sectors.
We can see that here in the sector buying distribution chart:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What’s also constructive is that buying has taken place in small and mid-cap stocks. I’m going to show the same chart for three different periods. This is buying and selling sliced up for company size. You’ll notice something clear here: Buying is heavily focused on small and mid-cap stocks. This is true over the past week, since the beginning of the year, and since November 1st:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
“That’s great,” you may say, “but it’s just the January effect.” Well, I have more good news for you. I went into my data and looked for days where buying and selling were increasing over a multi-day period. It goes like this: If there were 50 buys on Tuesday followed by 60 buys on Wednesday, that’s an increasing buying day. Same for selling. Then I wanted to find instances when there were 5 consecutive days of increases of either buying or selling. What I found was visually striking:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
You can clearly see that green periods, where five or more consecutive days of swelling buying happened, concurred with a rising market. Unsurprisingly red coincides with a falling market. Now, you may say: “I see some red there for the most recent days!” And you’d be right. But here’s what’s interesting about that: January 10th, 11th, and 12th were 3 consecutive days of increasing buying. And last Friday looked like a deal-killer at first, but markets shook off any earning concerns and added another day in the plus column.
That means, we could be on the precipice of more sustained increasing buying, which is a bullish push.
The market rallied on the latest CPI data. The market storm seems to have mostly passed. I don’t want to minimize any bad news – firms are coming out and announcing job cuts at a disturbing rate – but it’s important to contextualize. Let’s take a bellwether stock, Amazon for instance. Earlier this month they announced 18,000 job cuts. It’s remarkable to think that one company can even employ 18,000 people, let alone eliminate their jobs. That seems crazy until you consider that in 2021 and 2022 Amazon hired 800,000 people. So, the recent cuts only amount to 2% of their added work force over the prior two years!
It’s important to tune out the noise of the media and the energy of emotions. Looking at the data in a clinical manner shows a fairly encouraging picture. Naturally, anything can change at any time, but I see 2023 as a year rife with opportunity – and we are only two weeks in.
I like to follow in the footsteps of winners. Michael Jordan was a habitual winner. He said: “Always turn a negative situation into a positive situation.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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Swift Change in Sentiment Sparks Hot Start To 2023
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Sector Spotlight by Jason Bodner
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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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