by Jason Bodner
January 30, 2024
I had a dream recently, one in which a group of us discovered an apparent probe from another world.
Otherwise boringly round, it had some inscriptions. There were some symbols not of this world and it had a map of stars, made by laser-like cuts in relief. The only problem was that this map of the stars didn’t match any of our constellations, or our understanding of the arrangement of stars from our perspective. It begged so many questions: Who, when and where is it from? Why did they send it? How did it get here?
We knew nothing about it; we only knew we were not alone in the universe. My dream must have been taken from reality. In September of 1977, NASA launched the $250 million Voyager 1 into space to study the outer solar system. It is the first man-made object to leave our solar system. Today, it is more than 15 billion miles away from home, and it took a bit of our home with it: Voyager 1 and 2 were each equipped with a Golden Record, which Carl Sagan prepared for potential extraterrestrials who might find it. The record has inscribed symbols to show the location of Earth relative to several pulsars. It also has greetings in 55 languages, sounds from earth and my personal favorite, music by Mozart and Bach.
Imagine that Voyager 1 or 2 lands safely on some remote planet and quietly sits undiscovered for a million years or so. Would any discoverers even know what to do with it? Perhaps not – but they would at least know that they are not alone, so my dream ended in mystery. No answers – only questions.
There is a point for investors. You care about profiting from markets. Anyone who tells you that it’s easy to invest is either lying or could be an inter-galactic alien. Deciphering market questions can be utterly exciting, frustrating, or very confusing, much like it would be if deciphering a probe from another galaxy.
The way I make sense of this market is by using quantifiable data and stripping out emotion. Despite calls for a crash and the usual doom and gloom talk, the bulk of the data is encouraging. Don’t underestimate the negative human mind. I heard someone yesterday say that they agree that the market is in for good times, “but the only problem is that everyone agrees.” That’s one’s emotions talking. Not “everyone” agrees that good times are ahead, if you read most news reports. I find it better to consult the data.
First, the Big Money Index (BMI) remains overbought.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The BMI can stay overbought for a long time. The BMI went overbought 72 times since 1990, and the historical average staying overbought is 22 days. It went overbought on December 14th – 28 trading days ago, so we are over average, yet the longest overbought period was from June 6 to September 2, 2020, or 84 trading days. No matter, because forward returns have been positive, on average:
Remaining overbought is not bad news. Overbought is constructive for markets, long-term. Still, when the BMI falls from 80, we can expect near-term volatility. Logically, if demand outstrips supply for any duration, it’s a good sign, as the BMI grinds along after vaulting higher in November and December because of one underlying reason: There is more unusual buying than selling. And we can see that healthy buying by looking at stocks and ETFs. Since November, you will see much more green than red.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The Big Money trading activity chart (amber bars, above) shows the uptrend is sustained on substantial volume. Markets that shoot higher on thin volume can be suspect. This chart shows the uptrend is real.
Next, let’s look at what is getting bought. On the left, below, we see a breakdown of buying by market capitalization. We can see that demand was heavy in small-, mid-, and large-cap stocks. This is a healthy and bullish sign as the engines of growth for economies and markets are healthiest when smaller stocks can rise. The chart on the right shows that this is not a new trend. Since November 1st, we see that same pattern. And notice that unusual buying outnumbers selling by more than 5-to-1 since the rally began:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That’s strong and healthy. Now, let’s look at what has been bought. Again, let’s look at last week versus the span since November 1st. On the left we see last week, and on the right since 11/1/2023:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The symmetry is lovely and tells a story of growth in demand. We see that echoed in the sector strength:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Growth sectors – like Technology, Industrials, and Discretionary – are in the top 5. Meanwhile defensive sectors (like Staples, Communication, Materials, and Utilities) are at the bottom.
We can also see that the only sectors experiencing recent selling are Energy and Utilities.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, if we step back and analyze our very own “market-probe from outer space,” we can answer these questions:
First, the inflation rate and interest rates are inverted – not a normal relationship. And the spread between the two is huge: Interest rates are about 2% above inflation (the effective Fed funds rate is 36% higher than the Consumer Price Index). Historically, that doesn’t tend to last long, meaning rates will fall.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Secondly, there’s a record amount of cash sitting around.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Also, when rates fall and the market has already run 20% higher, Fear of Missing Out (FOMO) will kick in. Smart money likes to get ahead of this. This, along with seasonality, has powered the market higher.
The BMI will eventually fall from overbought – when, we don’t know. For now, the playbook is to ride the wave until the BMI falls below 80.
If we discovered a probe from another world – would we know what to do with it? Would the other world know what to do with our Voyager probe if they discovered it? For now, we can answer a more pressing question: Can we use a market probe to help us navigate this market successfully? The data says: “Yes.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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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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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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