by Jason Bodner
November 15, 2022
Thursday’s market surge seemed to make all of us winners. But there are always losers. Anyone short shares in tech, materials, industrials, financials, staples, and discretionary felt the sting of defeat.
It reminds me of the National Hockey League…
I generally don’t care for sports, but I follow hockey. It’s the oddball of the major team sports, but at 12 years old, I muted the TV with what I thought was boring monotonous stuff, like hockey. This way I could practice the guitar but with “company.” This birthed my addiction to the New York Rangers. Any sport that features a 118-mph slapshot rifling a 1/3rd pound puck through the air is for me.
Like most sports, hockey has several divisions, and the standings within each division constantly shift over an 82-game season. Eventually winners rise to the top and losers fall to the bottom. When your hockey team wins, they earn 2 points, so they can rise fast in the standings provided your big rivals lose.
Stock market sectors are a lot like that. Sectors rise and fall throughout the year. But the way I look at them, it’s not only about performance. While that’s part of it, I also look at the fundamentals of the sector (the quality of the roster), and who is buying or selling the team member (the quality of team ownership).
Energy has been at the top of the standings for the entire year. Looking at the table below, you see that energy not only is #1, but it has the widest margin in Map Score between it and the next one on the list:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This year’s winner, Energy, should still have tailwinds from seasonality and supply chain issues, as President Biden is draining the Strategic Petroleum Reserves at an unsustainable rate. Production must rise to meet demand. That usually pressures prices higher and fattens bottom lines. Energy may well continue to be king, but a huge shift happened Thursday, which may make the future more interesting.
A cooler-than-expected CPI report came out showing inflation running at 7.7% vs. expectations of 8.0%. Core inflation rose 6.3% for the lowest 12-month reading since January (along with July). It’s important to note that year over year comps will make it easier to come in lighter. The CPI news pushed the markets higher with a monstrous stock rally. Here is how the major indexes performed Thursday November 10th:
November 10 (Low Inflation) Gains Vs. November 9 (Post-Election Day) Loss
- NASDAQ +7.35% -2.48%
- Russell 2000 +6.11% -2.68%
- S&P500 +5.54% -2.08%
- DJIA +3.70% -1.95%
Those eyepopping returns came on the heels of the previous down day. For example, most of the same indexes fell 2% or more Wednesday after the mid-term election yielded up-in-the-air results. It’s like when you think your team will win the game, but instead get handed a tie or a narrow loss. Since September 1st, the average daily return of the SPY is zero, but the CPI data was enough to erase that and then some.
When monstrous buying rushes into sectors, we see that in the form of Buy signals. When signals pile up in the same sector you can see the big inflows. But sometimes the signals tower above everything else preceding it. That’s a clear sign of a shift. Looking at the MAPsignals sector buying and selling charts, we clearly see massive buying in Materials, Technology, Industrials, Financials, Staples, and Discretionary:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Energy snuck into the list of stocks bought despite not seeing immense buying last Thursday. It has seen consistently strong buying for so long that it needs to be in there.
It’s as if the “all-clear” signal finally came for investors to pile into some unloved sectors. It might be too soon, though: We still need to hear what Jerome Powell says in regard to the data and how it translates to interest rates. Whether yesterday was loading-up, short-covering, or both, a visible change has come.
Not all sectors saw big inflows. Utilities, Communications, Real Estate, and Health Care saw virtually no unusual buying. In fact, Health Care saw selling on such a huge overall buying day for stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Breaking down buying and selling by market cap, we see something very interesting. The chart left shows buying and selling for the week sliced by company size. But looking at Thursday alone, we see more than half the buying took place in one day. And most of that buying was focused in small to mid-cap stocks.
To me that screams value hunters finding smaller beaten-down stocks at attractive prices:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Looking at the top level now, we see a huge spike in buying. Stocks and ETFs saw immense buying on November 10. I zoomed the stocks chart (right) to show you just how big that blue stick is:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Finally, let’s view MAPsignals’ proxy for unusual volume. The amber chart shows when institutionally tradable stocks trade on unusually large volume. There are ~1400 stocks big investors can trade easily daily. On November 10th, over 85% of stocks traded on big volume, or almost 2.5 times the daily average.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Finally, we look at an upward trending Big Money Index (BMI). With recent pressure on stocks, it paused after rocketing from oversold, but buying like Thursday will only send it higher:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Days like these usually signal a shift in trend going forward. It may be too early, but investors were looking for an excuse to buy stocks. The CPI may have been an early indication to do so.
Time will reveal all, but like Dinah Washington sweetly sang, “What a Difference a Day Makes.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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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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