by Jason Bodner

October 1, 2024

Hurricane Helene just slammed into northwestern Florida as a powerful category 4. I hope everyone is OK. The forecasting was spot on, but weather forecasting accuracy decreases as the time-span increases:

  • One-day forecasts are 96%-98% accurate
  • 3-5-day forecasts are 90% accurate
  • 7-day forecasts are in the 80% accuracy range
  • 10-12-day forecasts are about 50-50.

Interestingly, we have a very accurate market forecasting tool for both near-term and a longer time range. The Big Money Index (BMI) is an elegant and simple measure of unusually large money flow trends that gives us a picture of future market direction. Since 90% of all daily stock volume comes from institutions, it pays to focus on when we can see from what we call “unusual” institutional buying or selling.

The BMI differs from other methods because the traditional measures use conventional metrics, such as overall volume, historical fund flows, and holdings disclosure filings such as 13D, 13F and 13G filings.

These are great ways to find out which huge investors own what securities, historically speaking. If you’re not familiar with these terms, here’s a quick breakdown on what those filings are:

  • Schedule 13D (aka “beneficial ownership report”) is required for investors who acquire 5% or more of a voting class of a stock. It must be filed within 10-days of exceeding 5% ownership.
  • Schedule 13G is like a 13D but this filing is required for any individual or group acquiring 5% or more of the voting rights of a stock. It also must be filed within 10-days of acquiring 5%+.
  • Form 13F is a quarterly report filed by institutional investment managers with at least $100 million in assets detailing all of their long holdings in their portfolio. (Short positions are not required.) This is filed at the end of the quarter by up to 45-days after the end of the quarter.

You can see the problem with these money flow indicators: Using these metrics can be very stale. For example: In a prior trading life, I bought stock for large clients in small amounts over several weeks, intentionally staying under 5% ownership, only to rapidly accumulate stock in the final days to get to a larger stake. Then the investment manager just waited 10-days to disclose it, within the legal allotment.

By that point, the stock had already risen massively.

Also, the 45-day lag time for quarterly ownership positions is way too long for any value to investors.

My research method sidesteps all that delay and measures unusually larger money flows daily on roughly 6,000 stocks. We then accumulate a 25-day moving average of each day’s unusual buying and selling signals on those stocks (usually about 100 signals each day) and generate the BMI.

What are these signals? Put simply, each of the roughly 6,000 stocks that my research firm tracks each day, has an expected “bubble,” which includes average price range (volatility), volume, and direction. When trading occurs outside this bubble, it’s “unusual.” When stocks trade within the normal price range but exceed average volume, it gets an amber bar (left chart). Taking it further, when stocks break out of the bubble while violating volume, it gets a green bar, while stocks breaking down get red bars (right).

Big Money Trading Chart

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

If you smooth those signals out over 25-days, you get the BMI. Here’s what it is telling us today: Money flows have returned to the market in a big way. The latest BMI uptrend started in mid-July:

Big Money Index

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

We’ve seen a volatile few months, but the Dow and S&P 500 are hitting fresh highs again. The weight of high interest rates is starting to lift with the Fed’s sweeping 50-basis point cut on September 18th.

Here, we see September 18th marked as a clear line in the sand. In this chart, we can see that since Fed Chair Powell gave us what we wanted, money has been gushing into small and mid-cap stocks:

Big Money Buying-Selling Market Cap

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

What’s more fascinating is that money is flowing into virtually every sector. Of the 11 S&P 500 sectors, nine have made new six-month highs recently. You can see that with the yellow circles below.

Utilities vs XLU

Technology vs XLK

Discretionary vs XLY

The only two notable exceptions are Technology and Energy.

Health Care vs XLV

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

Technology, however, is trying to rally towards its six-month highs, bolstered by the semiconductors industry, rising fast. The VanEck Semiconductor ETF (SMH) is up roughly 17.5% since its recent low on September 6th.

Energy continues to lag, largely as a function of crude oil’s continued price slide:

Crude-Oil-Chart

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

The interesting thing is that the BMI wraps up all this information into a single money-flow indicator.

That said, all the above can seem overwhelming, so, I wondered, is there a super-easy thumb in the wind guide for the BMI?  I asked the question this way: What happens when the BMI is over 50 or under 50?

Why 50%? Because when the BMI is above 50%, it means that unusual buying made up more than half the signals over the past 25-days – meaning the buyers were in control. This makes the results simple and easy to grasp. I decided to quickly look at the past 20-years of data. Since 2004, this is what I found…

That 20-year span encompassed 5,219 trading days. The BMI was above 50% for 74.2% of that time, or 3,873 trading days. Logically, the BMI was below 50% (sellers in control) only 25.8% of the time (1,346-days). The average return of the SPY (S&P 500 tracking ETF) when the BMI was above 50% was +0.051%. The average return of SPY with the BMI below 50% was -0.001%. Here’s the summary:

BMI Table

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

This means that, based on the past 20-years, as long as the BMI is above 50%, we can expect higher stock prices on average. This really gets hammered home once we visualize this trend in another way. Below, I have mapped the days the BMI was above 50% in green, and days where it was below 50% in red.

Four points pop out pretty clearly:

  1. Green periods line up with periods of market strength.
  2. Red periods line up with periods of market weakness.
  3. Currently, we are in a green period, meaning market strength.
  4. We are not in a red period, so I don’t anticipate market weakness.

SPY vs BMI

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

Despite a tight election and expected volatility, the market strength is gaining momentum on the latest Fed cuts. This should continue with fourth quarter seasonal strength.

Hunter S. Thompson said it best: “Buy the ticket. Take the ride.”

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

Please see important disclosures below.

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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