January 22, 2020

I remember how much I loved the original movie, “Willy Wonka and the Chocolate Factory,” starring Gene Wilder. Seeing it as a child, it simultaneously fueled my imagination and freaked me out.

The movie was ahead of its time in so many ways. For instance, Wonka’s boat, the SS Wonkatania, has just enough seats on it – and not a single to spare – but Augustus Gloop was sucked up into the chocolate pipe before the ride, so Wonka was either a bad counter or he knew that one of the kids would meet a nasty fate before the boat sailed. Another memorable scene (you may remember) is the super fizzy lifting drink scene where Charlie and his grandpa stole a sample. They floated up and up until they almost got shredded to bits by the ceiling fan. They had to burp to get back down to ground level.

That’s like this bull market – a market that simultaneously fuels the imagination and freaks people out!

Willy Wonka Image

We are seeing off-the-charts buying persisting right through the middle of January. Last week saw an astonishing nearly 700 buy signals against only 58 sells. Ten of the 11 S&P sectors (all but energy) saw more than 25% of their institutionally tradable stocks log buys. Buying is not just persistent; it’s massive.

Map Signals Table

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

As the sectors go, they are all cooking with gas, with virtually no selling in sight. And as the market goes up day after day, you may wonder “when is a good time to get in and where do I put my money?”

The first question is easily answered by looking at the Big Money Index (BMI). It is now at 87.6%, which is wildly overbought. This means the level of buying now is unsustainable. It may be hard to fight the feeling of wanting to get in if you’re on the sidelines, but you’d be buying at an unsustainable top.

The reality is that this is not Main Street buying. It’s not you and me. I haven’t heard people at the gas station raving about stocks. The office watercooler doesn’t have people clamoring to compare their Schwab statements. This buying fever is more like Bitcoin and Cryptocurrency fever-fueled speculation. When the Coinbase comparisons peaked, so did the crypto market. We’re nowhere close to that.

That’s the good news. This bull market has loads of room yet to run. But timing-wise, this market is overheated and due for a pullback. When the BMI starts to fall, that’s the signal that a top has likely been hit and a pullback is imminent. I can’t, in good conscience, recommend buying into a setup like that.

Map Signals Overbought Indicator

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Looking for Life’s Outliers

As for where to put your money, I’ll answer that with a story about football. Last week, I went to New Orleans to watch the LSU/Clemson National Championship game in the Superdome. It was awesome. I don’t even particularly love football. I’m more of a hockey guy myself, but what I do love is an outlier.

Luke and me at the LSU/Clemson Football Game Image

An outlier is someone or something that clearly deviates from the pack. Babe Ruth was a baseball outlier: he skewed home run statistics for the last 100 years. Michael Jordan was a basketball outlier, establishing long-held records that only LeBron James may come close to breaking. Wayne Gretzky was the hockey outlier. There was Gretzky, then everyone else. You can easily grasp an outlier in this Gretzky graph:

Outlier Gretzky's Stats Graph

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

For me, the LSU/Clemson game was less about the championship and more about seeing Joe Burrow, the college football outlier. He threw for more touchdowns this season (60) than the prior four LSU seasons combined. He led the NCAA with 5,671 yards passing this year. He has become a legend in college football. I couldn’t pass up the chance to see an outlier. If you want to know what an outlier looks like after he caps off an ultimate achievement, I took this picture of the screen after the game:

Quarterback Joe Burrow Image

Outliers are where to put your money. In a sea of 5,550 stocks, I focus on the Joe Burrows of the world: only the best. That means I am super-picky. It means I don’t care about 99% of stocks. Let Cramer and the other pundits battle about which ones could be turnaround stories or could get a new lease on life. I only want to find outliers. There is heavy evidence that those outliers – about 4% of all stocks – are responsible for all the gains in the market for the last 100 years (see “Do Stocks Outperform Treasury Bills?” in Journal of Financial Economics, 2017, revised June 3, 2018, by Hendrik Bessembinder).

Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447

While we stay patient for a Charlie-like burp buying opportunity, make your outlier shopping lists. Look for stocks with growing sales and earnings, great profit margins, low debt, and unique businesses. Look for those types of stocks that big money investors are loading up on.

Once you win, you can get that face. Gene Wilder had it. Joe Burrow (called Joey Burreaux in Cajun-land) had it. MJ, the Babe, the Great One, they all had it. They knew they were outliers. When you look for when and where to invest, play the odds, and bet on the outliers. They are the ones that keep winning, that keep shattering records. But then again, I’m not telling you anything new… You already know it.

Get in the winning habit. According to Vince Lombardi: “Winning is habit. Unfortunately, so is losing.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Jason Bodner

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

Important Disclosures:

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.