November 5, 2019

Are glasses half full or half empty?  Maybe the answer lies in sleep. Did you know that if you sleep on your left side, you are more likely to have nightmares than if you sleep on your right side?  According to studies released in scientific journals on sleep, your physical position impacts your subconscious attitude.

When it comes to opinions on the market, most people must sleep on their left side, as they seem prone to nightmares. I sleep on the right. And here’s the deal: All signs point higher, despite the headlines desperate to get our attention. The news is trying to bring everyone down. They write catchy headlines like: “This is why the market could be 30% lower next year.” Or something similar. I’ve seen so many negative and shocking headlines that I have to remind myself that the market is at all-time highs.

Here’s what I see now: Big buyers are back. And that’s bullish. Demand for equities is driving the market higher. I see evidence of big money investors buying up stocks. Below is a chart put out by Mapsignals showing their net buy/sell signals each day. A green bar means more buys than sells on a given day. Red bars are days when sells outnumber buys. For example, 90 buys and 50 sells yields a +40 green bar.

After seeing big red sticks, I look for green, which means higher prices ahead to us.

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

Last week, we saw a big imbalance in signals for the third week in a row. The average buy-to-sell ratio had been 2.6-to-1 for the prior two weeks, but this past week it rose to 3.5-to-1. That will boost our Big Money Index in the coming days. A rising BMI (more buying than selling) usually means a higher market, and this flood of money coming into stocks can already be seen in quite a few places:

Each of the yellow-shaded buy columns (below) are sectors seeing unusually large buying. Notice how even Health Care, previously unloved, is coming back and attracting capital. The slaughter of Software seems to be over for now and tech is seeing continual buying in Semiconductors & Hardware. Elsewhere in the sectors, every sector save Consumer Staples and Energy saw huge buying. Industrials shot to our top Map Score last week. Tech was also strong, as mentioned. Financials are seeing buying in banks. And Healthcare is collecting some love, too. But I’d say the biggest story of this past week is the 68 buy signals coming from Real Estate. This demand from yield-hungry investors is healthy for the market.

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

Energy stocks continue to be the weakest link. We saw 29 sells vs. only 20 buys this past week.

On the subject of semiconductors, we have a great set-up in the industry. Look at the chart of semi buying vs. the SMH (below). Notice that when the buy-signals vanish, the SMH falls, like in July of 2015 (first circle). Then when the buying picks up (green arrow), it’s off to the races. The SMH rallied +150% over the next three years. Then the buying vanished again (second circle), and the index fell, followed by another short spurt of buying. Well guess what? The buying just picked up again in a big way…

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

Ignore the External Noise and Focus on the Internal Data

As far as the market as a whole, I’d advise you to ignore the noise and focus on the real deal. Thankfully, the real underlying stories amidst the annoying news/noise corroborates the bullish case.

  • The Fed lowered its benchmark funds rate by 25 basis points last week to a range of 1.5% to 1.75%, as expected. This keeps pressure on the 10-year Treasury, now yielding 1.73%, while the S&P 500 dividend yield is 1.87%. When stocks yield more than bonds, that’s bullish.
  • The best six-month period for stocks begins now. This is a table for the past nearly-70 years. The last 10 years look even better: November to April is up nine times out of 10, +8.8% on average.

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

  • U.S. employers added 128,000 jobs in October, the Bureau of Labor Statistics said in its monthly jobs report. That is a strong number, and it helped rally shares in a positive reaction on Friday.
  • Factory activity in China expanded at its fastest pace in more than two years in October as export orders and production rose, according to a private business survey released on Friday.
  • “Seeking Alpha” pointed out that there is a monstrous amount of capital on the sidelines. Money market inflows have been climbing in 2019, with assets now totaling $3.49 trillion.

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

  • According to FactSet, with 71% of S&P 500 companies reporting, as of November 1, 76% of those companies beat earnings expectations and 61% beat sales expectations.

To sum up, interest rates are historically low, as are corporate tax rates. There’s also oodles of money on the sidelines, with many previously unloved sectors catching some juice. China is showing some much-needed signs of life, our economy is strong, and too many people are still stubbornly bearish.

This sounds like a nice bullish set-up to us.

Maybe tonight, if you’re bearish, sleep on your right side. Apparently. Ernest Hemmingway did. He said “I love sleep. My life has the tendency to fall apart when I’m awake, you know.”

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

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