by Jason Bodner

November 23, 2021

Don’t underestimate the power of the mob. We may be far removed from high-school cliques and the cool kids. As liberating as that may feel, we’re still social creatures who often need and seek acceptance.

For example, maybe a friend does something cool, and you envision yourself being just like them. Others might follow, and a new trend is born. Such was the case in Victorian England when Alexandra of Denmark, bride of the Prince of Wales, had a genuine limp. Young women fancied themselves the next princess and went around doing the “Alexandra Limp.” Shopkeepers even sold pairs of shoes with one high heel and one low heel to enhance the fake limp.

History’s road is littered with less innocent stories of tragic trend-followers. Trends can become manias. It can become illegal or downright heretical to not fall in line. Remember the Salem witch hunt and trials?

Manias can go the other way, too, to giddy euphoric heights, only to crash and burn. Such was the case with Dutch tulip bulbs in the 1630s. At one point, a single bulb was worth more than a fine Dutch house.

That might remind some of the modern-day cryptocurrency craze. Whether you agree with the bitcoin theory or not, in this day and age it’s easy to see how things can go viral with instant communications.

Right now, there’s a lot of focus on inflation. That dirty word has become the new buzz word in nearly all discussions about anything. And with the holidays beginning in earnest this week, many worry how much they’ll have to pay to buy a turkey or the gifts they want to buy. That assumes they can get them at all, somehow sidestepping this supply shock we’re seeing. Some think inflation is here to stay.

Is it? Or is “rising inflation forever” just the latest example of “crowd think”?

It’s hard to say for sure but focusing on the data in the stock market can provide a tentative answer, while watching the daily news grind is like sitting in a big-top circus with many rings, acts, and razzle-dazzle barkers calling your attention to each ring. You can follow stories in the news and try to make sense of conflicting opinions. Whether or not that’s an effective use of your time, it’s certainly exhausting.

The media doesn’t exist to help you figure out the game – it exists to keep you watching. So their mantra is… the bigger the show, and the brighter the dazzle, the better it is for their advertising dollars.

That’s why I prefer to look underneath all that noise. I observe what the biggest, best, and smartest investors on the planet are doing with their money. Not only is this more practical, but the big money is usually early to the party. By the time the news of their buying hits CNBC, these big investors are likely getting out and counting their profits – just when the media tells you this stock is a new sexy story.

I look at what Big Money is buying and selling each week. Sector action can tell stories that aren’t on the mainstream wires. Here are a few things I think you should know about:

1)  Since October, there has been a focus on buying higher quality stocks. Data from October to the present show something interesting: 126 companies showed buy signals since then (after removing duplicate signals). That means the same stocks are appearing each week as money pours into them. That’s a good sign. Out of those 126 stocks, 44 had MAPsignals fundamental scores above 60%. (That’s good.) That means 35% of the stocks bought have desirable fundamentals.   MapSignals Table

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

2)  After a liftoff in November for stocks, we now see a return to some frustrating rotational action of the prior months. Here we see last week’s buying and selling activity. You’ll notice right away that three sectors have both higher than average (yellow) buying and selling: Tech, Discretionary, and Staples.

MpaSignals Sector Table

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

3)  This sector action shows some cooling happening. Here we see the three sectors with buying and selling overlayed. You can clearly see a pause in buying frenzy and some distribution. But the Tech and Discretionary sector indexes are still climbing:

Technology vs XLK Discretionary vx XLY Charts

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

4)  Staples, however, have clearly seen recent selling: Staples vx XLP Chart

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

5)  You may be thinking: “What does this have to do with inflation?” Let’s look at a sneaky sector that didn’t show any flags in weekly buy and sell data: Energy. Here we see daily buy/sell activity for the XLE (the S&P 500 Energy Sector Tracking ETF). Notice that sell signals have just started appearing? That little red bar off the right is the first selling we’ve seen in energy since late September.

Energy vs XLE Chart

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

This says to me that the recent “pain at the pump” might ease soon. XLE rallied 25% from September 20th to its peak on November 9th. Early indications say that the energy rally is over for now. Since that peak, XLE has fallen 8%. Lower energy prices mean more money in consumers’ pockets. Lower gas prices deliver some wins in the war against inflation. The energy inflation issue is a Biden administration “top priority,” they say. That little red bar, seemingly innocuous, may just be the signal for peak inflation.

And just when we thought it was safe to get back in the water – COVID restrictions are ramping up in Europe, sparking some protests and jitters in markets.

The bottom line here is that inflation is an easy story to sell. It is definitely affecting all of us.

While it’s true that the Thanksgiving meal is certainly going to exact more of a budget bite than last year, as that story hits fever pitch in the media, notice how Big Money quietly exits stage left. That’s the market magic act I’ve talked about before. At least in energy and pockets of tech, discretionary, and staples; big money is selling into the story. They are doing the opposite of what the headlines say.

To me, that’s a good indication of the tail wagging the dog. Remember the words of Lewis Grizzard: “Life is like a dogsled team. If you ain’t the lead dog, the scenery never changes.”

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

Please see important disclosures below.

About The Author

Jason Bodner

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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