by Jason Bodner

October 13, 2020

A Mouse with a helmut on attempting to rob a trap

Being timely is one thing but being clever is better. Take Aberdeen Seagulls for example. They don’t need punctuality in the rainy northeastern Scottish city of Aberdeen. These bright birds mimic rain by tapping their feet on the ground. It makes vibrations similar to those caused by rain. Unsuspecting worms come up to the surface believing that it is raining. Presto: Effortless snacks are delivered to your table.

How might all this relate to stock market investing?

I won’t sugarcoat it: It’s tough to make a market call right now. On the one hand, we have dread-filled (dreadful) headlines; sadly, that’s nothing new, but an uncertain election looms like a fast-approaching angry cloud as my young son used to say. I’ve already documented well-established Big Money patterns during election years. We already saw that pattern self-fulfill in September, with sellers in firm control.

On the other hand, we have the only thing I have come to trust in analyzing markets and stocks: ongoing big money data. Currently, the two are in a bit of a conflict, making looking forward a little tougher. But in the end, I have to go with cold, emotionless hard data. And that data says that the buyers are back. That may not fit the expected game plan of a post-election bump, but … the early bird catches the worm.

Every election year since our data began in 1990 has exhibited a clear pattern: The Big Money sells ahead of uncertain elections, and then buys thereafter. This year looked to be setting up the same way, but recent buying has suddenly appeared. And it’s shifting the tides:

BMI Line Chart

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

But there’s buying, and there’s buying. By that, I mean: We can see big money plowing into previously unloved stocks as a safe haven. They might run and buy Utilities, Staples, Communications, or high dividend stocks – namely, safety plays. Money managers that earn fees on capital deployed and not sitting in cash will chase the safest investable corners ahead of uncertainty, but that’s not what I’m seeing here. I see real juice. First, let’s look at which sectors are attracting recent capital (hint: It’s almost all of them.)

S&P 1400

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

Big Money buying is noticeably in Tech, Discretionary, Financials, Materials, Industrials, and Healthcare, while “defensive” sectors like Staples, Real Estate, and Communications saw noticeably less buying. Utilities were an interesting anomaly with significant buying last week, but don’t forget: That universe is small. I look at how many stocks can be easily traded by big institutions without impacting the prices significantly. Utilities comprise the second smallest universe at 43 stocks, behind only Communications.

The last interesting thing to note is that Energy, while not seeing huge buy signals, is not seeing huge sell signals. The absence of sell signals on the most hated sector of the past few months is in itself bullish.

Next, I’d like to go into which stocks are floating to the top of the rankings. Mapsignals ranks all 5,500 stocks in terms of strongest to weakest. It factors fundamentals like sales and earnings growth, profit margins, and debt levels while also looking at the technical strength of how stocks are recently trading. Once all stocks are graded, it looks for Big Money buying, which reduces the pool to about 100 per day. By looking at the top-ranked stocks being bought, we can see leadership emerging at market pivot points.

The seismic shift in buying is clear in the last week or so, and it’s not defensive stuff. The juicier names are catching the attention of Big Money. That is a very bullish sign. The top 20 stocks of Big Money buying are often where we find tomorrow’s winners. Here is an analysis of my 20 top-ranked stocks Big Money bought last week out of a pool of 318 (removing duplicates from 561 stocks):

Sector Percentages Stock Genre

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

What’s fascinating is that the top 20 stocks boasted some stellar average metrics:

  • 1-year sales growth of +35%
  • 3-year sales growth rate of +38%
  • 1-year earnings growth rate of +71%
  • 3-year earnings growth rate of +37%
  • Profit margin of 16%

The picture that is emerging is this:

  1. Buyers are back and they are buying top quality stocks.
  2. This is an offensive move, not defensive action.
  3. Election uncertainty is becoming less of a hurdle for Big Money.
  4. The earning season shopping spree shows us that earnings are working, and Big Money expects them to continue to work.

Sometimes great stocks can report great numbers and guidance and still get sold if the trend is not expected to continue, but that’s not what we’re seeing here. Although past performance is not necessarily indicative of future results for earnings season, the same can also be said for Big Money election data. In the past several election years, buying occurred just after the election. This year some buying seems to be coming early – at least for now. Tomorrow may bring different data, but the trend is reversing higher.

SPY Table

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

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

This means that small caps are catching a bid and we see it with relative out performance recently. This is another bullish item to add to our list. In a big bull market, you want big volume up days and light volume down days. That’s just another something to keep your eye on.

There’s good stuff going on data-wise, so watch and wait. It’s better to be the second mouse than the first.

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

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