by Jason Bodner

October 5, 2021

Whenever we think we find a routine in the market, something unexpected happens to shake us up, like at the end of 2019, when the toy company Hasbro (HSB), makers of My Little Pony, NERF, Transformers and Furby (all of them successful) made a bold move, acquiring eOne, which includes music label Death Row Records. So, little kids could play with their toys while quietly jamming to albums by artists such as Tupac, Dr. Dre, and Snoop Dogg. What a winning idea – add “death lyrics” to your children’s toys!

Then came COVID, and nothing has been predictable in the markets so far in the 2020s.

This market has been frustrating all year long, to say the least. I’ve pointed to many layers of conflict in the market recently. The main one is that the only thing we have been able to predict is unpredictability.

The three major indexes have been rising all year, giving the appearance of a strong, healthy market:

SPY SPDR & QQQ Charts

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

While it certainly looks convincing, we must remember that cap-weighted indexes place more importance on bigger companies. Remember that the top five mega-stocks are worth $9 trillion dollars or so, meaning that just 1% of the stocks in the S&P 500 account for 25% of that index’s value.

The fact is, looking beyond the mega-cap influenced indexes, we see that under the surface, stocks have been gyrating wildly but are net flat. A look at the Russell 2000 tracking ETF (IWM) illustrates the point: iShares Russell ETF Chart

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

Ever since February, unless you just bought and held “the big five,” investing in stocks was likely very frustrating. Rotations have been constant. Growth has been in fashion one week, only to be sold in favor of value the next week. Tech was loved then unloved. Energy was down and is now up. Reopen stocks were bought then sold then bought then sold. About the only thing we could expect is the unexpected.

Last Friday, it looked like the recent trend of choppy intraday trade would continue, but over the course of the day it seemed the market had a chance to digest some interesting news: The pharma-giant Merck (MRK) and Ridgeback Biotherapeutics announced a new drug, molnupiravir. They said it reduced hospitalization and death by half for people with mild to moderate symptoms from COVID-19 in trials.

CNN said it was big news but no “game-changer” What’s interesting is that the trial only included unvaccinated patients. (Bear in mind that the same media outlet also promotes vaccination).

It’s anecdotal, but I remember living in New York in 2006 when “bird flu” had everyone freaked out. Tamiflu, another antiviral drug, showed promising early results. People stockpiled the drug – good luck getting any at the time, as it seems that people have a more accepting attitude towards pills than shots.

In short, I think it’s big news. If the drug gets approved, it offers vaccine-resistant people a treatment, should they get sick, and should trials on vaccinated people show efficacy for treating breakthrough infections, that would also be big. – and judging by what happened Friday, investors agreed.

After a faded intraday rally, all four indexes rallied nicely for a strong finish to a weak week.

This sets up nicely for a good start to a seasonally strong time of year: 27 of the last 30 years saw positive markets for the fourth quarter (October through December), which debuted last Friday.

Since July 23rd, as usual, the market went exactly nowhere (see table, below), so Friday’s rally might just seem like it’s another day of up-volatility. But if we dig and look at what stocks were bought and sold, we can see a pattern potentially emerging (as much as one day can tell us, anyway).

Daily Return Table SPY & IWM

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

As for the full week, there was more selling than buying. That makes sense, given the market action we saw. Tuesday September 28 was a -2% day, with 130 stock sells and Thursday September 30 saw 141 sells with a -1.22% day. But when we come to Friday October 1st, we saw big buying: 111 stock buy signals.MapSignals Sector Table

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

Friday tells a story of demand for reopen stocks and selling of defensive stocks. There was notable buying in discretionary, energy, and financial stocks. Selling was seen in staples and healthcare. If we dig further and look at stocks bought, we see hopes of a fully functioning economy in the near future.

Casinos and gaming stocks such as Boyd Gaming (BYD), Caesars Entertainments (CZR) and MGM Resorts (MGM) showed up. I would imagine in coming weeks other notable casinos such as Las Vegas Sands (LVS) and Wynn Resorts (WYNN) wouldn’t be far behind. We also saw buying of cruise liners like Royal Caribbean Cruises (RCL) and Carnival (CCL). Hotels like Hilton (HLT), Hyatt (H), Marriott (MAR), and Wyndham (WH) also appeared in the buy column. Rounding out the reopen buying was Six Flags Entertainment (SIX), Live Nation Entertainment (LYV) and Eventbrite (EB)

The truth is that it’s a little too early to tell if this new development has legs, but a seasonally strong time of year and big buying on the first day of the last quarter lines up nicely. Add to that story, the types of stocks we saw bought, and it sets the stage for an interesting story to come.

Naturally, we very well may continue with our predictably choppy undercurrent, but every now and then something unpredictable happens, like adding a rapper’s record label with the word “death” in it to a toy company. But as Oscar Wilde said, “To expect the unexpected shows a thoroughly modern intellect.”

Navellier & Associates does own Merck (MRK), but does not own Hasbro (HSB), Boyd Gaming (BYD), Caesars Entertainments (CZR), MGM Resorts (MGM), Las Vegas Sands (LVS), Wynn Resorts (WYNN), Royal Caribbean Cruises (RCL), Carnival (CCL), Hilton (HLT), Hyatt (H), Marriott (MAR), Wyndham (WH), Six Flags Entertainment (SIX), Live Nation Entertainment (LYV), and Eventbrite (EB) in managed accounts.  Jason Bodner does not own Merck (MRK), Hasbro (HSB), Boyd Gaming (BYD), Caesars Entertainments (CZR), MGM Resorts (MGM), Las Vegas Sands (LVS), Wynn Resorts (WYNN), Royal Caribbean Cruises (RCL), Carnival (CCL), Hilton (HLT), Hyatt (H), Marriott (MAR), Wyndham (WH), Six Flags Entertainment (SIX), Live Nation Entertainment (LYV), and Eventbrite (EB) personally.

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

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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