by Jason Bodner
November 29, 2022
It’s the most wonderful time of the year
With the kids jingle-belling
And everyone telling you, “Be of good cheer!”
–Andy Williams’ Christmas song from 1963
Merry-time has begun. That’s the name I just decided to call the end-of-year cheer – from Thanksgiving to New Year’s Day, when people are generally focused on family, fun, food, and gearing up to say goodbye to the old year… and hello to the next. With Thanksgiving behind us, Jingle Bells will probably start blaring in stores by the time you read this. Ironically, that classic Christmas tune wasn’t meant to be about Christmas. Originally titled “One Horse Open Sleigh,” the 1857 song was meant for Thanksgiving.
Regardless, Cheer is here. And with a low-volume holiday week last week, I figured it’s a good time to check into the overall trend of the market. The SPY (S&P 500 tracking ETF) bottomed on October 12th. Since then, the index is up 12.8%. The Big Money Index (BMI) has been rising too, but it didn’t rise from oversold until October 24. (History suggests that’s often an “all clear” sign for a more sustained uptrend):
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We can see that recovery clearly reflected below in the unusual buying of stocks and ETFs. Aside from the notable increase in blue (buying), pay special attention to how selling (red) has dissipated:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now, if we look into what has been getting bought, we see a very encouraging picture. Small and mid-cap stocks have dominated the buying. This is indicative of investors finding value in downtrodden smaller businesses. If one were to believe the headlines, we are spiraling into a protracted recession of misery and woe. But the recent buying activity of stock investors suggests that they aren’t buying into the headlines:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If we dig another layer deeper, we find that sector strength and weakness are still heavily skewed in favor of energy. Most of the technical strength in the market remains there, while the fundamentals are still consistently gaining in strength. This is because energy has the strongest sales and earnings growth of the entire stock market. Even with crude oil’s recent volatility, the margins made by energy companies are astounding, especially when compared to recent years.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Defensive groups still populate the top of the sector strength list. Industrials, Staples, and Utilities are not areas one would normally associate with a strong bull market. Maybe that makes sense because we are not yet in a strong bull market. The growth engines of a big bull are often tech and discretionary. They indicate a strong consumer and vibrant economy. While they are in the lower third of the rankings, they have been steadily rising. This is certainly encouraging, but what really should cause more holiday cheer is the strong uptrend of all sectors, not just in terms of price, but in terms of buying.
To see what I mean, below we will take another look at the sector rankings. We will see each sector individually in a chart. But please focus on the recent trend-lines for each sector – the right-most portion.
While each chart may look complicated at first, it’s fairly simple. The navy-blue area is the sector index ETF (price). The bright blue and red bars are daily logs of unusually large buying (blue) and selling (red), a great measure for unusual institutional accumulation and distribution. Then we have a trend channel of two lines: amber shows the 25-day moving average of buying, while turquoise shows the same for selling.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Without even having to think too hard, one thing should become crystal clear in these charts: all 11 S&P sectors are participating in the lift from the bottom. This is important, because many of our market rallies during this volatile year have been marked by dispersion, which means “sector rotation.” While overall markets may have risen, there were vast sector rotations underneath. One of the more common themes since this time last year has been that energy rises while tech falls or staples rise while discretionary falls. But as we plainly see here, not only has everything been rising in price, but trend channels are all positive.
You can even see it in the weaker-ranked sectors, such as communications and real estate. Even though there isn’t significant buying, the heavy selling vanished. This alone can cause the trend-lines to rise but couple that with a rise in price of the sector, and this shows weak sectors building a base for recovery.
This tells us “Merry-time is here.” I have been predicting this since last summer, saying regularly:
- Expect an ugly September
- October should begin rocky and end strong
- October, November, and December are seasonally strong historically, since at least 1990
- The market is even stronger in mid-term election years, like this.
- We are closer to the 9th inning than the first in terms of clarity from the Fed on interest rate policy
So far, things are playing out as I foresaw. Time is the ultimate judge, but we have history on our side and strong indications that this rally is real. Bull markets are always recognized after they have been going for a while. It may be too soon to call this a bull, but the price and technical indicators are encouraging. With any sort of clarity from the Fed, the clouds of uncertainty can part – paving the way for new worries!
Such is the way of markets. But markets are emotional, as they are made up of millions of people. And people like to worry. The news media profits off this, so don’t expect any changes anytime soon.
Let our minds echo the words of Seneca: “We suffer more often in imagination than in reality.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
2022 Will Be Remembered for the Collapse of ESG…and FTX
Income Mail by Bryan Perry
The Global Tech Shift from China to India Is On
Growth Mail by Gary Alexander
Ten Trends to Be Thankful For (Part 2)
Global Mail by Ivan Martchev
Here Comes Another S&P 500 “Line in the Sand”
Sector Spotlight by Jason Bodner
The “End of Year” Rally Has Begun: Welcome to “Merry Time”
View Full Archive
Read Past Issues Here
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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