by Jason Bodner

January 5, 2021

French writer Jean-Baptiste Alphonse Karr said, “Plus ça change, plus c’est la même chose.”

English translation: The more things change, the more they stay the same.

Take flight for example. On December 17, 1903, the Wright brothers made history. Their first human flight changed us forever. That 12-second air-hop paved the way for global air travel and moving freight.Vectorstock.com Image

Flight is one of the most significant human advances we have ever made. But the principle of flight hasn’t changed. Nor has the method of how air traffic is controlled. Decades ago, air traffic controllers loosely standardized commercial flights by elevation level. For most of the world, eastbound planes fly at odd elevations (i.e., 33,000 or 35,000 feet), while westbound planes fly at even levels (i.e., 34,000 ft.)

So it goes for stocks, too; The more the market changes, the more it stays the same.

Long ago, I discovered an inescapable truth: Big Money is the biggest market-moving force. The number of big-money players is small relative to the whole market. Tens of thousands of professional investors – hedge funds, pension funds, and asset managers – control the market. While that may seem like a lot, there are tens of millions of small investors, but I have found that the muscle is in the few, not the many.

As stocks grew in popularity through the 1990s, the market changed dramatically. It grew, listings came and went, operators and investors engaged in a never-ending tug of war. Players changed. Technology advanced. Commissions shrank. Competition grew. The landscape was dynamic and ever changing, but the underlying principle remained unchanged, like the principles of lift and drag in airline flight: Big Money players had and still enjoy an advantage which the little guy has little hope of matching.

Discovering and understanding this truth has changed my investing outlook forever. It also immensely impacted my investing success – for the better.

Boiling down the complicated subject of flight into simple concepts allowed us to fly, based on a strong foundation of knowledge. The same is true for stocks: We reduce complexities into a simple concept.

Decades ago, I realized that all I had to do was learn how to sift the thousands of available stocks, weed out the ones with unwanted qualities (thereby removing 90% of all stocks). Then I look for how and when I think Big Money investors are plowing money into the best quality stocks. That simple formula has allowed me to win in stocks year after year. That formula is unchanged.

Big Money’s Successful Track Record in The Wildest Market Year

The universe is a yin-yang balance. Therefore: the more things stay the same, the more they change. Take 2020, for instance. The first major pandemic year since the Spanish Flu of 1918-19 saw an immensely volatile market. And Big Money was so wildly active last year that records were broken.

Let’s start with the Big Money Index (BMI), a 25-day Mapsignals moving average of buy and sell signals. It spent the most time in “overbought” territory since 1995. It also reached the most oversold level since 2009. Reflect on that: We saw two 30-year extremes in the same year! And March of 2020 resembled March of 2009 – an emotional low point, as the severity of the Great Financial Crisis peaked.

Big Money Index

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

Big Money has been active in ETFs since they began, but 2020 saw record activity. March saw record ETF selling. February and March saw monstrous ETF selling. Later in 2020, we saw record-breaking ETF buying. November saw the largest equity ETF inflows on record, echoed by ETF buy signals:

Big Money ETF Sell Signals

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

Stock buying and selling also saw extremes in 2020. Look at the monthly stock buy and sell signals:

Year of Big Money Extremes

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

You can clearly see that when selling spiked, it coincided with market lows. The liquidation pain point means that all sellers have done their selling. When the sellers vanish, markets can rally.

Now, let’s see what sectors Big Money liked last year. Looking at 2020’s cumulative buy signals, the top three were Tech, Healthcare, and Discretionary. Communications, Utilities, and Energy were least bought.Big Money ETF Sell Signals Sector

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

It’s wild to think of seeing such manic buying during a year of pandemics, economic whiplash, and a controversial presidential election, but tech was humming along all year. Prior to COVID-19, tech was the winning sector, attracting big capital. When everyone was forced home, tech got even more love, that is, until we got what we were waiting for – the announcement of a vaccine. As we see, since November 9th, the date of the first vaccine announcement, there has been a huge rotation out of tech. Capital moved into “re-open” stocks: small cap companies poised to benefit from a more normal economy. When people re-emerge to go to restaurants and movies, or take cruises, these battered sectors should see a big revival:

Tech and Healthcare

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

Since airline flights began, principles of lift haven’t changed. Since stocks began, supply/demand hasn’t changed. The dynamics, players, and technology of stock trade has, however, changed immensely. From year to year, we can see extremes of buying and selling. Last year brought us many extremes, but one thing likely won’t change: Big Money moves markets and sectors. It always has, and it likely always will.

The more things change, the more they stay the same, but the opposite is also true: The more things stay the same, the more they change.

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
This is “The Fed’s Rally”

Sector Spotlight by Jason Bodner
The Calendars May Change, But Most Things Stay the Same

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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