by Jason Bodner
November 21, 2023
Independent thinking is respected, but despite striving to be independent, being with the crowd feels safest, for most. Even though crowds make us feel better, they are not necessarily better for us in the end. In fact, crowds can contort our memories of events, and they can spell disaster when crisis strikes.
Psychologists describe “memory conformity” as how group memories cloud an individual’s ability to recall events clearly. It’s like the game of “telephone.” Even when you hear me tell a story, it’s normal for you to contort what I say when you relay it to another person. Social events are often the most distorted. Given enough reinforcement, you will remember things you never saw and events that never happened.
As if this isn’t enough proof that “crowd think” can hurt you, consider the common misconception of “strength in numbers.” A recent study of 108 teams of volunteers found crisis can taint a crowd. Each team was tasked with deciding how to handle a certain fictitious crisis. Only one individual knew what was going on, but the rest had to talk it out. Invariably, the crowd devolved into unfounded speculation. This caused rumor and innuendo. The bigger the group, the more they sought reassurance, while they also stifled any opinions contrary to the group. This study showed that the group often just stayed paralyzed in their crisis when evacuation was warranted. In essence, strength in numbers led to “analysis paralysis.”
One needn’t look too far to find real life examples. I submit to you the month of October this year, when the stock market was, at least in part, dragged down by paralyzing group think. Of course, the media is often the ringleader when such things happen – and I believe this time was no exception. Throughout most of October, we talked ourselves into a crisis, led by negativity, fear and uncertainty. Sound familiar?
What a difference a day (and month) makes, because as October came to a close, November saw stocks blossoming. Oversold talk flipped to overbought. Selling the peaks turned into buying the dips. This all happened at such breakneck speeds that it made me wonder: “Where did all the bears go?”
This was an inside joke at my research firm. When people get bearish, they love to find reassurance with fellow bears, even in our firm. And the worse things got, the louder they got! Then suddenly, relief came, out of the blue – in late October. And the bear growls just stopped. Where did all the bears go?
In a word, the bears went into hibernation, apparently starting over the weekend of October 28-29.
The latest economic data has all but assured us that the Fed has stopped raising rates. The Fed funds watch probability of no further hikes rose from 85% to 100% last Tuesday, the day the latest CPI data came out. The market screamed higher, led by growth and small caps.
Do you want to see how quickly bears can go into hibernation? Let’s look at some charts.
First, we see the Big Money Index (BMI) vaulting north out of its oversold condition – just as I said it would. From a low of 17.4% on October 30th, we’ve risen to 36.1% on November 16th. And with that came a rally of 9.6% in the SPY (the S&P 500 ETF) since its October 27th’s low:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
For clarity on these charts, the bears are in red. And in the next two charts you can literally see them scurrying away at top speed. When the market lows were put in, the bears were at their peak, selling everything they could. Then, suddenly, the red gave way to green, indicating new bulls.
You can see this pattern in both the charts of Big Money Buying for stocks and ETFs:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
And just to let you know that the volumes were immense on the upside rally, the next chart shows you each day’s cumulative trades of unusual volume (in amber yellow). Normally, huge bearish action sees a ton of volume, just like October. But we also notice that November volumes have been very big, with a pause when the market paused briefly. The rally has been stunning, on big volume, scattering the bears:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What is also interesting is to see that small- and mid-caps have been scooped up in huge amounts.
In the following chart, we see unusual buying for November thus far, distributed by market cap categories. You can see how much buying has taken place in the smaller stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now for the fun part: What sectors are leading us higher? For much of the sloppy summer, energy was the only sector propping us up. Energy had strength, while most everything else had weakness.
Now, suddenly, tech and discretionary sectors have overtaken energy on the ranking list:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We see runner-up support by industrials, financials, and materials. We can see how that breaks down when we look at the individual sector buying and selling. Technicals and discretionary saw notable buying, while energy saw recent distribution. Energy is the only sector that saw November selling.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We can see little green shoots in all the remaining sectors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What really stands out in red is that utilities went oversold in late September and early October.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The tide has turned for stocks. Seasonally strong November and December are here. Rate hikes are done, and cuts may be closer than we think. Either way, it’s time to stop worrying. The bears are snoring.
Oscar Wilde said: “Some cause happiness wherever they go. Some whenever they go.” Like bears.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Consumer Inflation is Fading Fast – and Producer Prices Turned Negative
Income Mail by Bryan Perry
A Technical Take on Where Mr. Market Stands Now
Growth Mail by Gary Alexander
The Market Shrugged Off the Worst Shocks of the Last Century
Global Mail by Ivan Martchev
The Stock Market is Pushing Against Statistical Extremes
Sector Spotlight by Jason Bodner
Where Did All October’s Bears Go (After Halloween)?
View Full Archive
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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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