by Jason Bodner

November 17, 2020

Whether you’re happy or sad with the results, the 2020 presidential election is over. Lawsuits may alter the totals, but the verdict is in. The big news is that a vaccine is getting closer. I suspect even some anti-vaxxers might make an exception this time. The reality is that vaccines prevent 2.5 million deaths yearly.

I don’t care much for politics; I care more about big money stock data, and once again big money knew beforehand how markets would behave. We found that in each election year, Big Money sold before election day and bought after the election.

Big Money Behavior at Election Time Charts

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

Like clockwork, the 2020 pattern repeated history, with big buying slightly ahead of election day this time:

Big Money Index at 2020 Election Chart

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

Markets hate uncertainty, and the election removed a lot of uncertainty. Then, on Monday November 9th, stocks woke up to news of promising COVID-19 vaccine results from Pfizer and Biontech. At first, all stocks looked set to benefit. But as the day unfolded, a massive rotation emerged.

Navellier & Associates owns Pfizer Inc. (PFE) but not Biontech in managed accounts. Jason Bodner does not own Pfizer Inc. (PFE) or Biontech personally.

Growth stocks got hammered and value stocks and small caps juiced higher. All the unloved stocks since COVID began – like energy, transport, and financials – were suddenly on fire. And by the close of the day, “stay at home” stocks were dumped. It was a huge rotation out of growth and into value stocks.

The Big Money Index (BMI) is a 25-day moving average of net buy and sell signals among 5,500 stocks. More buying causes the BMI to rise, like we see now. In our model, stocks must display huge trading to become a buy or sell signal candidate. I monitor 5,500 stocks, but only a handful of those stocks trade unusually big each day. Those stocks that “trip” the model average 497 stocks daily over the past 10 years. Out of those, an average 66 trigger buy signals, and 34 are sell signals. So from 5,500 stocks, only 9% trip the model as big money signals, and only 20% of those (1.8% overall) become a buy or sell.

Visualize the stock funneling process like this:

Stock Funneling Process Image

When markets meander along normally, my analysis focuses on buys and sells. They tell us sectors and specific stocks that Big Money traffics in. But when big rotations happen, useful information is hidden in which stocks trip the model – the “yellow flag” stocks. Last Monday saw 3 times the normal model trips and Tuesday saw 2.4x normal. The counts dwindled as the week progressed, as this table shows:

Big Money Signals (Trips) Table

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

This is important because we see rotation in terms of Big Money. If growth stocks had such a bad week, then why don’t we see that reflected in a rising BMI?

The Big Money Index measures buying vs. selling in all stocks. Growth stocks have led markets higher for months, so when they get sold, it takes a lot to generate Big Money Sell signals.

There are few sell signals, and buy signals were off-the-charts. Every sector was yellow (more than 25% of the universe bought). In all cases, buying was nearly double or more the selling last week:

MapSignals Sector Rankings Table

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

Technology stocks logged the most trips of any sector: 534 stocks flagged yellow, but only 96 were buys. Huge volumes traded on tech stocks, yet most weren’t buy signals, meaning heavy volume selling.

Another way to see sector dispersion is looking at buying velocity. A rising green line means quickly increasing buying. A rising red line means increasing selling.

As noted, tech and growth are the main weakness in this rotation. Notice below: Tech buying isn’t falling! This is because some small-cap tech stocks are heading higher while some of the larger ones are falling:

Big Money Technology Buy Index Chart

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

Now, let’s compare this with the rate of selling:

Big Money Technology Sell Index Chart

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

The selling in tech isn’t alarming, it’s only giving back gains after a long rise, but we do see a sudden buying uptick in previously unloved sectors:

Big Money Financials Buy Index Chart

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

Big Money Utilities Buy Index Chart

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

Big Money Real Estate Buy Index Chart

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

Discretionary, some Healthcare, Industrials, & Materials are also seeing buying. Their rising green lines will appear in the coming days.

Now, why do I believe that jumping on this rotation is premature?

Pfizer’s potential vaccine ignited value, but the vaccine isn’t even FDA-approved yet. And the drug is a logistical nightmare, needing storage at -70-degrees Celsius. Most medical facilities aren’t equipped for that, at least not at scale. Also, the vaccine must be administered in at least two or three stages per patient.

So, even if rushed through approval and somehow widely distributed on the fastest schedule imaginable, the general public won’t have it anytime soon. The more likely scenario is another lockdown with cases and hospitalizations surging countrywide, plus a continuing search for other, alternative vaccine options.

That means all the suddenly-loved stocks last week – like airlines, travel, energy, and financials – still won’t make any more money for at least a few quarters. That’s why I think this big rotation is premature.

Ask yourself: Will you (and millions of others) suddenly stop working remotely or using cloud storage? I doubt it. I’d argue our reliance on these services will intensify after this pandemic. Will millions start flying again soon? So, once reality sets in, tech and growth stocks will quickly come back in vogue.

So, when a sudden stock market rotation rocks tech and growth, you must remind yourself that they are companies, not just ticker symbols. They’re businesses that grow earnings through higher revenue and profits – a winning formula regardless of their industry.

Buying great businesses that make a lot of money and will likely continue to do so is the long-term recipe for success. Investors rushing into embattled sectors like energy, financials, and transport clearly forgot this. And if investors are forced to dump great stocks, should you run away or look for discounts?

Growth stocks will continue to power higher markets. For now, they are caught in a quake and getting sold. It could last days or months No one knows. But in my opinion, growth stocks are long-run winners.

“In the long run, men hit only what they aim at. Therefore, they had better aim at something high.”

-Henry David Thoreau

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
It Looks Like Another COVID Shutdown is Coming

Sector Spotlight by Jason Bodner
Should You Buy Into the Value/Growth Rotation?

View Full Archive
Read Past Issues Here

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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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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