January 29, 2019

President John F Kennedy said: “Those who dare to fail miserably can achieve greatly.”

That should be the mantra for those who choose to invest in financial markets. The image of “easy riches,” by making money at your poolside, is the dangled carrot cruelly offered by brokerage-firm advertisers. We all know that the market is fraught with danger and difficulty. Last year’s finish was testament enough of this fact. Making money in the market is hard…unless of course you have an edge.

Some edges are from expertise or lifelong careers built on experience. Others can be less savory. While JFK was a tragic and beloved historical figure, it may surprise you to learn that his dear-old-dad built the family fortune on insider trading. In 1919, Joseph P. Kennedy joined the brokerage firm Hayden, Stone & Co. and quickly became an expert in the then-unregulated stock market. He used tactics that are now considered insider trading and market manipulation. Among other things, he bribed reporters to spread stories in an information-starved age of stocks to drive prices up for his investment pool. He also participated in organized “bear raids” to crush prices when he was short. He supposedly said it was time to get out of the crazed speculation-fueled market when he got stock tips from a shoe-shine boy. He then shorted heavily in 1929 and made a fortune worth $4 million (about $60 million in today’s money). Then he invested heavily in real estate and grew his wealth to $180 million (about $3 billion today).

As if all that wealth weren’t enough reward for insider trading, President Franklin D. Roosevelt made Joseph Kennedy the head of the SEC from 1934 to 1935! When asked why he did it, FDR said, “Set a thief to catch a thief.” Kennedy went on to outlaw the very practices that made him rich.

While we’re on the subject of profiting handsomely from the market, let’s focus on the right way to profit. Since January 4th the market has rocketed higher, with only a glance or two backwards. Looking below you can see that the major indexes’ 1-month performance looks more like what you would expect to see for a normal 24-to-36-month performance. The small- and mid-cap space got most of the love.

This is consistent with what our data shows: Of all the signals we are seeing over the last 14 trading days – 81% are buys!  While this is not sustainable forever, our MAP-IT ratio just popped over 50%. (Remember that study we put out that showed that’s very bullish for 1-to-12 months’ forward returns?)

We’re Seeing Exceptional Gains in Semiconductors

The strongest sector performance for 1-month belongs to Consumer Discretionary, Energy, Financials, and Industrials. The least-strong sectors were Consumer Staples and Utilities, so we are definitely witnessing a 1-month rotation out of defensive sectors and into growth. The real winner – as we’ll delve into more detail in a second – is the PHLX Semiconductor index, up 18.6% in the last month!

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

Last week showed a little slowing of upward momentum, but only at face value. What we actually saw last week was strength under the surface. While Real Estate and Utilities saw a decent pop last week, the average return for all 11 sectors was flat. This is one of those times when drilling down a level further in your analysis is fruitful. Once again, we see strength in Semiconductors last week, at +4.3%!

This makes sense. I believe traders were heavily short in semis. We saw a ton of selling late last year. But now, we see stocks like Apple (AAPL) guide down, only to recover quickly. For instance, Apple CEO Tim Cook’s letter to investors on January 2nd had the CEO guiding down, citing lower phone sales than expected. Obviously, this hit Apple, but it also pressured semis and Apple suppliers.

But now, Apple is back to where it was before their CEO turned all negative. Notice how buying picked up significantly late last week in Semis: top names in the space were stocks like Lam Research (LRCX), which reported solid earnings and also announced a $5 billion-dollar buy-back. This is significant, given that LRCX has only a $22 billion market cap, so $5 billion in buying sent the stock up in a big way.

Navellier & Associates owns AAPL in managed accounts and or our sub-advised mutual fund but does not own LRCX. Jason Bodner does not own AAPL but does own LRCX in a personal account.

I believe the negative sentiment (reflected in the news) is getting shrugged off more and more, so as the market moves into a more bullish tone, I expect to see more upbeat headlines. That’s when you should be watchful, as eventually we will see another correction. But what we see here is unusual institutional buying picking up, focused on some growth-sensitive areas like semis and consumer discretionary.

The fear is dissipating after the massive washout last year. As I’ve written a lot lately, I’m confident that December was just a big, ugly, hairy washout due to forced selling by ETF managers. I think we are moving into a new phase of the bull market, which is more selective. The headlines are still rife with uncertainty over trade, government shutdowns, and North Korea, to name a few, but these stories have kept the Mueller investigation out of the news until last Friday, when Roger Stone was dramatically arrested at his home in Fort Lauderdale. The truth is, the market doesn’t seem to care about this soap opera material the way it supposedly cared last fall and winter.

As we move out of darkness, we will continue to tell you where we see the market going, and what that may mean going forward. Right now, buyers have firm control once again, and we foresee higher prices.

JFK’s dad made his loot breaking rules that weren’t written yet, only to become the one to write them. The current state of the market makes me think of his son JFK’s fitting quote: “We are not here to curse the darkness, but to light the candle that can guide us through that darkness to a safe and sane future.”

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*


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