by Jason Bodner

January 26, 2021

CLICK-CLICK-CLICK…

I remember that sound on my first roller coaster ride. I’m glad I wasn’t on Kingda Ka. At 456 feet and 128 miles per hour, it’s the tallest and fastest roller coaster in the world. This was nothing like that, but the sound was agonizing. Each click brought me closer to the inevitable peak. For years, I watched from the ground, afraid to buy a ticket. My sister was always braver. I couldn’t stomach the screamers once they started to drop. The clicking made me squirm. I knew the fall was coming, but just not when…

Sound familiar?

Six Flags Kingda Ka Roller Coaster Image

This market is like everyone is sitting in the same coaster car with me. We have one eye in front for the peak, and one ear out for when the clicking stops. We all know that the drop is coming, but not when.

If only someone could tell us when!

I’m not one for crystal ball predictions, especially when they’re all about “feelings,” with no basis in fact. I don’t even like making predictions, but when I do, they’re always based on current data in light of history. That way, predictions are grounded in precedent. But that doesn’t mean precedent becomes law.

On December 20th, I issued several bold predictions. Among them, I said that the S&P 500 would likely peak January 18th at 3828.50, forgetting that the market would be closed for MLK day, hence the 19th) So far, it peaked January 21st at 3853.07. If that ends up as the near-term peak, close enough for rock n’ roll.

To get a better feel of what’s to come, we should take the temperature of the market in terms of being “overbought.” In that sense, it’s burning up! But that doesn’t mean the fever will break right away.

Let’s take a look at our Big Money Index (BMI), a 25-day moving average of MAPsignals’ buy and sell signals for stocks and ETFs. A rising BMI means buyers have the helm; a falling BMI means sellers rule.

When the BMI pops above 80% (i.e., 80% of all signals for 25 days are buys), that historically signals an “overbought” condition. I interpret that as: Buying will become unsustainable at some point, and we can expect softer market prices in the near future. But in order to know when prices will fall, we need to see the BMI fall first. That confirmation comes when the BMI falls out of overbought territory.

Market indexes can still drift higher when that happens, but it means Big Money is getting out. When that happens, a big market support beam is removed, and logic states that we could expect weakness ahead.

The market went overbought on December 2nd and the BMI has been flatlining for about six weeks:

MapSignal Big Money Index Chart

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

As the BMI seemingly doesn’t want to fall, it means the clicking sound keeps going, so how high are we?

A good strategy, again, is to look at history. I decided to look back to when this monster buying started – on election day. I told you about how we should expect a softer BMI (and market prices) ahead of elections, and a boost thereafter. The 2020 election played out that way to a “T.” So, I wanted to start looking from November 3rd (election day), 55 trading days ago. I found something amazing….

Looking back over five years of my data (1,525 trading days), the average daily signal counts are 64 buys and 54 sells per day. For the 55 trading days leading up to the election (starting August 17th, 2020), the average daily signals were 57 buys and 39 sells, but since the clicking of the sheer rise started November 3rd, the average daily signals were 147 buys and only 12 sells. That’s shocking, because it’s 2.3x the 5-year average of Buys, and 2.58x the average Buys for the 55 days before the election.

55-Day Average Daily Signals Table

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

What’s more impressive, or alarming, is that the 147 average buys for 55 days is the all-time-high average for my 30-year data set. Here’s a look going back 15 years, since ETFs pushed market volumes higher:

55-Day Average Buy Signals - 15 Years Chart

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

Zooming in, we can see how high this is relative to the last five years. Notice that when that average gets stratospheric, the roller-coaster drop is not far behind:

55-Day Average Buy Signals - 5 Years Chart

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

Just to hammer home the intensity of recent buying, the sector buying rarely shows yellow. The yellow box means that 25% or more of the available sector universe is bought or sold in a given week. Since election day, we have multiple yellow boxes each week. Last week, we saw 7 of 11 sectors bought Big.

MapSignals Sector Rankings Table

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

Now let’s take a quick look at each sector to see how intense the recent buying is:

MapSignals Big Money Sector Charts

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

CLICK-CLICK-CLICK…

Can you hear it?  We’re getting up there, people. Buying like this can last for a while, but it certainly will not last forever. The scary thing is, the more clicks you get on a roller coaster, the more terrifying the drop usually is. This market has been clicking for seven weeks – ever since December 2nd last year.

Everyone wants to know when the clicks will stop and when we’ll drop. I can only frame my views in the eyes of the 30 years of daily historical data. That said, last week could be the peak. Whether or not that holds true will be borne out this week, or later. But I can confidently say, we’re not going up forever.

The real question is what type of scream you will hear feeling gravity fall away from your body. I hope you will scream in delight from being well-prepared. That may be alarming to those next to you not so used to this. Like me on my first ride… I was terrified, others were gleeful. The unprepared will likely be the retail crowd, piling into stocks mindlessly. They’ll probably get burned and have to lick their wounds.

The veterans will scream their delight because they are ready with sideline cash – like those kids I know waiting at the bottom of the roller coaster for all those wallets and sunglasses to rain down.

Let’s all enjoy the ride but also remember what Neil Young said:

“As you go through life, you’ve got to see the valleys as well as the peaks.”

Neil Young Quote Image

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Markets Assume a Best-Case Scenario

Sector Spotlight by Jason Bodner
When is The Big Drop Coming?

View Full Archive
Read Past Issues Here

About The Author

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

Important Disclosures:

Jason Bodner is a co-founder and co-owner of Mapsignals. Mr. Bodner is an independent contractor who is occasionally hired by Navellier & Associates to write an article and or provide opinions for possible use in articles that appear in Navellier & Associates weekly Market Mail. Mr. Bodner is not employed or affiliated with Louis Navellier, Navellier & Associates, Inc., or any other Navellier owned entity. The opinions and statements made here are those of Mr. Bodner and not necessarily those of any other persons or entities. This is not an endorsement, or solicitation or testimonial or investment advice regarding the BMI Index or any statements or recommendations or analysis in the article or the BMI Index or Mapsignals or its products or strategies.

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