by Jason Bodner
December 17, 2024
Visualizations can help our brain contextualize things. One vision I saw recently was the pattern of commuting in and out of Manhattan. The pulsing of human masses in an out looked eerily like lungs breathing in and out. Another amazing image is viewing the earth – using satellite imagery – moving in and out of seasons. As seasons come and go, ice ebbs and flows, along with the color of the globe.
As we near the winter solstice, this image helps us realize that winter ice also means spring is coming.
It’s impossible to not see the similarities between our own human lives – the cycle of life – and the short-term act of breathing in and out or the long-term image of the four seasons of our lives on earth.
As poetic as that may seem, we can witness the same behavior in the stock market. After all, the market is just an expression of all the hopes and fears of investors participating in trading stocks each day. Even the algorithms and “bot traders” that have come to dominate trading are programmed by humans – for now.
Clearly, stocks mostly move up over time. Look at any chart of stocks over the last 100 years, and this is irrefutable. But when we zoom in, we see the same ebbs and flows of the commuters, or the living, breathing planet. However, what I see from my unique data is nothing that everyday traders see on a traditional chart. I look at the unusually large buying and selling patterns of Big Money buyers, and the patterns are not only stunning, but they also can help guide investors and traders for what to expect next.
Here’s what I mean…
Below, we see a chart of the Big Money Index (BMI). The amber line shows the aggregated average of unusually large buying and selling of stocks over a 25-day period. While not reflecting the regular rhythm of respiration, we can clearly see a pattern of money flows. As the amber line rises, money moves in, and as it falls, money flows out. Like sitting at the beach and watching tides ebb and flow, so go money flows:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Regular patterns become much clearer when we examine the daily record of unusual buying and selling. While it may resemble the breathing of a training workout, the ebb and flow is unmistakable:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The rhythms are colorful and cool, but why is this important? Mostly because understanding the market’s rhythm – much like understanding music – can help us anticipate the next measure – what lies ahead.
Below, I simply break the BMI into its buying and selling components for the last 10 years. The green line represents the 25-day moving average of unusually large buy signals, while the red represents the same for sells. What jumps off the page is that there is a clear pattern of ebbs and flows – like respiration or an EKG of a heartbeat. The buying rises and falls in a fairly predictable manner. So does the selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Let’s zoom in for just the year 2024 thus far. We see it again… in and out. What jumps out at me is that both the buying and the selling are at their upper and lower bands of extremes for the year:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This gives us an indication of what is likely to occur next. I would say that it is likely that the unusually large buying will wane, as will the unusually large selling for the rest of the year – only about 10 trading days. Usually there is a Santa Claus rally in late December, but it may be on low volume this time around.
Extremes are usually boundaries to prevent excessive moves. Like a rubber band stretched to the max, it snaps back to its normal shape when it releases. This – in essence – is the basis for the “mean reversion” strategists. Their belief is that markets will revert to the mean. And this usually holds true, as long as you assume an upward sloping market as your base-case for the long-term. Stocks can rally to dizzying heights, but then they must fall back. They can also fall to uncomfortably low levels, only to rise again.
Sector Price Changes in Since December 1
If we dig into the sectors, we can see some wicked price action in certain pockets of the market. As we study unusual buying and selling at the sector level, some painfully sharp declines are clear. It’s been a rough December for most sectors. Here are some of the worst sectors, compared to the three best:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It’s easy to think that Health Care is where the greatest pain is, given its abysmal (-10%) performance since the end of August, but Energy, Utilities and Materials have been the biggest losers in the last two weeks, with Real Estate and Industrials next and Health Care in the middle of the pack (#6 of 11). Financials were next, down 3.57%, and Staples -1.42%, with only three of 11 S&P sectors up in from December 1 to 13.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The good news is that by stretching our time horizon, traditional growth sectors, like Financials, Technology and Discretionary, are strong. Financial and Industrial stocks can endure a healthy pullback while maintaining their uptrend. Energy looks to be reverting to the mean, while Utilities might have broken down to new lows – breaking their uptrend. Materials and Health Care look to continue their downtrend.
Unusual buying and selling factors heavily into the technical components of each sector’s score for their ranking purposes, but we can also see that – with the exception of Energy in the middle of the pack – the higher fundamentally ranked sectors have higher fundamental scores, and vice-versa:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That said, the traditional growth sectors continue to dominate the top spots of the chart. This is inherently good news as we want these kinds of sectors to power the bull market higher. Short-term, we have the holidays, then an inauguration. Then we will see the potential of our new leadership emerge. This pattern has been in play since the summer, though, as small and mid-cap stocks have been expanding rapidly.
The market breathes, like the planet does. We can see it. Relax and breathe… that’s what stocks are doing.
“To breathe is to be.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Stubborn Inflation Continues in the U.S. While Deflation Plagues China
Income Mail by Bryan Perry
Bullish Energy Policies Could Boost High-Yield Oil and Gas Infrastructure
Growth Mail by Gary Alexander
Santa Claus is Coming to Wall Street … Starting This Week?
Global Mail by Ivan Martchev
Bonds Need to Play Ball for Stocks to Keep Rising
Sector Spotlight by Jason Bodner
The Indexes are Flat, But Most Sectors are Either “Hot” or “Cold”
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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