by Jason Bodner

October 26, 2021

Einstein said the “happiest thought of his life” happened in 1907, when he was 28. He wasn’t thinking of a first love, or a puppy. He was thinking of a man falling from a building. He realized that if the man were falling next to a ball, he wouldn’t perceive gravity’s effect on the ball, no matter how fast they fell.

Strange what makes people happy.

Relativity was a concept Einstein spent much time and energy analyzing. It’s elegantly simple but not always simple to grasp. What hammered it home for me was the bouncing ball on a train example.

A child inside a train bounces a ball up and down. But to an observer outside the train, they see a sine wave shape of the ball because the train is moving. Here’s a graphic representation:

Thought Experiment Images

Here’s another experiment in relativity. A fly lives its whole life in two weeks. To us, it’s lightning fast compared to our roughly 80-year average lifespan. But our 80 years are small compared to a tree’s average 500 years. The tree is a blip compared to the Earth’s 4.5 billion years (so far). But let’s be honest, all we care about is our 80-some years. We care about our seat on the train, or on the bench watching the train.

We care about here and now, and ourselves. That’s how we’re wired and it’s hard to move beyond that.

What got me thinking about this was when I was at my mother-in-law’s for dinner the other night. She knew I studied markets, so she asked in her thick French accent: “The stocks dropped a lot this week, no?”

I was surprised she thought that, so I showed her charts of the indexes at or near their all-time highs:

All Time High Indices Charts

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

I could only think she may have heard of NASDAQ’s small drop last week. The circled section of the QQQ chart above captures it, but that’s a slight V formation we saw from September through October.

Your perspective from inside or outside the moving train is all relative, so she made me realize that it’s tempting to give into one’s instinct and ignore relativity and just focus on the here and now. Those who do so might unknowingly become traders who often speculate on quick profits and losses. Investors, however, conjure (to me) images of older, patient people like Warren Buffett – but it’s hard to be patient.

When we start investing, we’re taught to think of acorns growing to large oak trees over time. But along the way, many get sidetracked with stories of pool cleaners becoming stock-market millionaires, fast-money features on the financial news, and commercials touting the ease of trading: even a baby can do it.

Everyone has their own objective. Timing markets is more akin to trading than investing. Investors might even root for lower market prices today, because they think about higher markets 10 years from now.

But maybe there’s a way to combine both. Let’s try…

First let’s use the Big Money Index (BMI). It tracks what MAPsignals sees as unusually large money flows in and out of stocks and ETFs. It’s been range-bound since March. I’ve already pointed out that the S&P 500 has risen during that time, but most of that rise is due to the five largest stocks.

Looking at the Russell 2000 small cap index, which eliminates those five stocks, we see closer tracking:

Russell 2000 versus Big Money Index Charts

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

What I like about the charts above is that the BMI is suddenly rising fast:

Big Money Index Chart

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

One might see the range-bound action before and think more of the same is to come, but we also see significant buying of stocks coupled with shrinking selling. That should keep the BMI lifting for a little while, especially should the trend continue. Here we see 1-year and a zoom of the last month of buying:

Big Money Stock Buys and Sells Charts

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

Now, if we embrace relativity and think on a scale of not days, but months, years, and even decades – we start to see an encouraging pattern. Looking at monthly performance of the major stock market indexes for the past 10+ years, we see that the fourth quarter is generally one to look forward to:

Average Monthly Performance of the Major Indices Bar Chart

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

Perhaps even more interesting is that the BMI shows similar strong November and December results:

Average Monthly Change of the Big Money Index Bar Chart

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

Encouraging as that is, look at the fourth-quarter performance all the way back since 1990:

Thirty Years of Fourth Quarter Main Indices Average Monthly Performance Bar Chart

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

Lastly, if we look at the seasons of the year and how they correlate to stock market performance for the past 30 years, we see we’re about to leap into a historically, seasonally fun time of year:

Average Seasonal Performance Table

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

This is a sample of what’s to come in a larger study I am completing about seasonality, stock market returns, and the Big Money Index. The idea is that if we think along the lines of relativity (longer timelines rather than immediate gains), we can frame a theory of what might come.

We all know that winter will come, but when it’s 105 degrees in the sweltering summer, it’s too far away to give comfort. But if we think about stocks decades from now, we can go where bargains abound now. When we grab acorns in the depth of despair, the shady leaves will be larger and thicker in years to come.

Einstein was able to bend his mind beyond the observable world around him. He was able to see what most couldn’t because he saw it in a different way. I see the stock world through the lens of Big Money. By observing its behavior not as an effect but a cause of market action, we emerge with a different view.

What I see is money pouring into high-quality stocks at the onset of a seasonally strong time of year. We have 30+ years of history to guide us to a bullish view.

There are no guarantees in life, of course, but all we can ever do in life is take our best guess. The data just helps us focus on the right actions just a bit better. It’s all in how you see reality: bull or bear?

“Reality is merely an illusion, albeit a very persistent one.”- Albert Einstein

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

Please see important disclosures below.

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Also In This Issue

A Look Ahead by Louis Navellier
The Global Economy is Rapidly Slowing Down

Income Mail by Bryan Perry
Inflation Sensitive Income is Back in Fashion

Growth Mail by Gary Alexander
Winter is Coming…Even in Sweltering New Orleans

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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