by Jason Bodner
October 17, 2023
I got my wrist X-rayed as a kid. I wondered how the doctor could see what I couldn’t see. Nonetheless, X-rays can illuminate what would otherwise be in the dark. And that can be super useful in health care.
Believe it or not, X-rays helped us learn about the structure of DNA. In the 1950s, Rosalind Franklin took the first picture that revealed the DNA helix structure using X-rays. Think of all the benefits from seeing the unseen. As an investor, I wondered, what if there were an X-ray machine for the stock market….
It turns out there is – and it’s highly reliable and accurate. It can peer beneath the proverbial skin, muscle, and sinew to get down to the heart of the market. It’s called the Big Money Index (BMI) and the latest X-ray film reveals that the market is showing classic signs of bottoming out. To a market radiologist like me, this reveals some solid data to inspire hope for a broad-based rally in the coming weeks – or even days.
First and foremost, the big picture from X-ray machine says the BMI “oversold” indicator was triggered.
As a quick refresher, Institutional money flow drives most market prices. Firms like Morgan Stanley and JP Morgan estimate that between 70% and 90% of all daily trading volume is institutional. When those big boys and girls do something unusual, that catches my eye. When their money floods into a stock or ETF with unusual volume and volatility, that can issue a “buy signal” in my data. The same goes for a stock or ETF. Certain considerations must be met, but when we measure these buy or sell signals across 25 days and plot a moving average, we see the BMI’s reading of the overall money flows in the market.
Here’s the current BMI X-ray picture for the last 12 months:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
To the uninitiated, this looks like some random ups and downs, but to the trained eye, it’s a stunningly accurate market barometer. The amber line looks like an EKG. In a sense, it is: It’s the heartbeat of the market. Big money flows in and out, like blood pumping through our veins. As the line rises, money is flowing in. As the line falls, money drains out. But like your own heartbeat, too much or too little blood flow isn’t a good thing. And unless it’s your last heartbeat, things need to (and will) get back in line.
Too much money flowing in pushes up to that red zone, above 80%. This means the market is overbought – a lot like high blood pressure. There are drugs you can take, but typically if you avoid excesses and start exercising, your body will naturally bring high blood pressure under control. The same goes for low blood pressure. When money drains out of the market too fast, the patient either crashes and burns, or things get back in line. It’s when we overlay the skin (market prices) that the BMI’s X-ray snaps clearly into view:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The latest X-ray shows that we are oversold (under 25%). And like a doctor who has seen a thousand X-rays, I can tell you that the patient’s prognosis is good. This is a common and healthy flushing out of risk. At worst, an oversold condition is like a wrist-break after bracing for a fall – it should heal quite nicely. Your nerves may need some physical therapy, though. I suggest a glass of wine and studying great stocks on sale. I took the liberty of showing the last few years of instances like today on the following X-ray:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
You’ll notice that each of the four or so prior times that the BMI went oversold, prices went higher very shortly thereafter. If I were a doctor, I would try to make people feel better about what they are seeing, hearing, or feeling, meaning I would show the patient the long history of how things work out over time.
So, check this out: Since 1990, the BMI went oversold 24 times, and the 1, 3, 6, 9, 12, and 24 month returns of the S&P 500 after being oversold are spectacular – way better than average.
Here’s a sample:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In fact, as your market doctor, I am here to tell you that in a vast majority of cases over the last 33+ years, things looked great after the market turns oversold:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If you need more reassurance, I’d say that the market is about to recover from serious inflammation. All 11 sectors have sustained heavy selling. A handful are still swollen and raw, like Discretionary and Health Care. But all in all, I like what I’m seeing. Too much selling (inflammation) is going away, and I see small signs of buying (healing) in sectors, especially energy, tech and industrials, but I see small green appearing in all sectors after the violent selling. Here they are, ranked in order of strength to weakness:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What you’re looking at, above, is a battery of X-rays of the market’s broken body sectors. But it doesn’t stop there. To further reassure you, the market’s high-level functions look fine – even though the body has suffered some trauma. Stock selling is calming down and ETF selling has suddenly stopped:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, here’s the deal: The market suffered a nasty injury, but underneath, it’s healthy and resilient. Over 33 years of history tell me that everything will be just fine, and we can expect a nice rally (a healthy recovery) very soon. My advice? Relax, have a drink, and identify some great stocks to buy.
Be like Groucho Marx, who said, “I’m not feeling well. I need a doctor. Ring the nearest golf course.”
At least you’re not like this unlucky bride-to-be, whose engagement ring was hidden in a milkshake:
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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The Present Explosive Geopolitical Situation is Impossible to Predict
Sector Spotlight by Jason Bodner
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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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