by Jason Bodner
November 26, 2024
Have you polished your crystal ball lately? Because it would come in handy right now.
Some say crystal balls came from Celtic Druids from roughly 800 BCE, although it was likely much earlier than that. Their documented use has been seen as far back as the Babylonians, Ancient Egyptians, Hindus, Greeks, Mayans, Incas, North American Indians, and Australian Aborigines.
Whether or not they worked is a whole other matter. The good news is that, while I may not have an actual crystal ball or tea leaves to read, I do have a crystal ball – of sorts – my treasure trove of market data, which allows me to suggest the future. “Suggest” is a word data scientists love, so I’ll use it, too. It lets them (and me) off the hook if something doesn’t go according to prediction.
So, let’s peer down into my crystal ball of historic data and see what the future may bring.
After a choppy ride, the BMI looks poised to – pardon the term – puke out its guts, based on its chart, and history. If it does, that usually doesn’t bode well for stocks. But will it plummet into an abyss (red line)?
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
First a refresher: the Big Money Index (BMI) is a wonderful indicator of big institutional money flowing in and out of stocks. It measures all unusually large buying and selling of stocks on a 25-day moving average. Generally, when it rises, money is moving in, and when it falls, money is moving out.
So how can we figure out if it will fall, or stabilize, or rise? The first thing we should do is deconstruct it. Here is a table to show you how the BMI works. Each day there are unusually large buys and sells. They form a daily ratio. Then we calculate the 25-day moving average.
This is an example of the last 25-day’s tabulations:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
A few things should jump out. First, there was monstrous buying the day after the presidential election. It was decisive, and Wall Street likes certainty, so Big Money plowed into stocks.
Next, you’ll see that buying dwindled after a few days, and selling picked up. That may seem weird, but in reality, it’s normal. Rotations began as large investment firms began building and trimming positions based on what they see the Trump administration doing to certain sectors. Then you see buying suddenly picking up again. The charts of Big Money buying and selling of stocks and ETFs reflect the same thing:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If I extrapolate the buying based on the last three days of trading as I write this (on Friday, November 22nd), I can tell you that the BMI should begin rising again soon. And it should do so steadily.
It’s still too early to tell, but there’s another data point that the crystal hall is screaming at me, as something rare happened recently. The dates above in yellow (November 5-11) displayed action only seen 242 times since 1990. For context, 242 days out of 8765 trading days is 2.8% of the time.
Those five post-election days of buying accounted for 50% or more of all unusual buying for the month. In other words, more than half the unusual buying for the rolling month occurred in just five trading days.
Here are what the forward returns look like when that has happened in the past:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That’s a lot of Green! On top of that, from nine months on, returns were positive over 94% of the time.
Checking in with sectors, we continue to see strength in Financials, Utilities, Technology, and Industrials. Staples, Communications and Health care round out the three weakest sectors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Looking at the unusually large buying and selling at the sector level, I see only one major area of concern: Health Care. But even in that pain point, there is good news. My colleague Luke Downey did a great study of what happens when the Health Care sector goes oversold. Let me summarize briefly…Trump won and investors worried how he will treat vaccine makers and hospitals. So, they crushed Health stocks. That selling peaked on November 15th, with some of the highest Health selling seen in four years.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We studied the history of such extreme Health stock selling and the forward returns were “juicetacular”!
Have a look:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, we have our Crystal Ball telling us that things are reversing higher, in terms of buying.
And we also have seasonality on our side. We are in the strongest stretch of the year for stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Interest rates are falling, the economy is strong, and we have a business and tax-friendly administration coming in January. So, looking into all corners of my Crystal Ball, I see things looking good for stocks.
We never know what will happen for sure, but we can have a plan, no matter what happens. Mine is to focus on the highest quality stocks seeing unusual institutional buying. We can buy those no matter what the market does.
“Prediction is very difficult, especially if it’s about the future.” – Niels Bohr
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Super News on Super Micro Computer and Nvidia
Income Mail by Bryan Perry
The U.S. Dollar Is Retaking Its Kingly Throne
Growth Mail by Gary Alexander
Celebrations, Cautions and Calculations in the Crescent City
Global Mail by Ivan Martchev
Shortened Trading Weeks Tend to be Positive
Sector Spotlight by Jason Bodner
Polishing My Crystal Ball for the Holidays
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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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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