by Jason Bodner

December 27, 2023

Winston Churchill was one of the finest statesmen the world has ever known. He was renowned for his speeches, so it’s a bit remarkable he had a speech impediment: he had difficulty pronouncing “s” sounds. Not that he let that slow him down. He had many interesting quotes. He once said that if you put two economists in a room, you get two opinions, but if one of them is Lord Keynes, you get three opinions.

Opinions form the basis of endless debate over what’s going to happen next. When it comes to investing, we can have 1,000 opinions about the coming year! For the past three years, there was an endless debate over a certain recession that never materialized. Debates over a market crash raged on. And now, some are debating whether the market will keep going higher or collapse under today’s “overbought” conditions.

Even immutable laws can generate conflicting opinions. The law of gravity says that, “what goes up must come down” (fitting for the current stock market). But objects that are lighter than air don’t come down, and Newton’s law of motion says, “a body in motion tends to stay in motion.” So … is gravity universal?

I have an answer for you: In order to know where we are going – we need to know where we are, and where we were. Let’s begin with the Big Money Index (BMI). The BMI’s threshold for an overbought market is when 80% of all unusual trading signals over the past 25 trading days are Buys, and the BMI is now grossly overbought, at 87.2%. This means that over 87% of all unusual trading was big buying:


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

Note how quickly the BMI went from oversold to overbought. It took only 28 trading days (about six weeks) to flip from grossly oversold to overbought. The SPY (S&P 500 Tracking ETF) rose 16% from its oversold trough on October 27th, to its recent overbought peak on December 19. Along the way, debate raged over what stocks might do next. At MAPsignals, however, there was no debate. We shouted from the rooftops that an oversold BMI signals a massive rally. We even showed the statistics of forward returns during a grossly oversold BMI. Let me refresh your memory- I created this table on October 26th:

BMI Table

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

We all know how that turned out (I just told you): It was great for the longs and terrible for the shorts.

Having seen how oversold markets work out, let’s see what happens with overbought markets. You may think that the moment we go overbought, that would be the time to reduce risk, but you would be wrong. It turns out that overbought markets are more nuanced. Whereas oversold markets imply high conviction to buy stocks, oversold markets don’t necessarily mean it’s time to sell. Below you will find every instance when the BMI went overbought since our data began in 1990. I will give you the summary first.

The BMI has been overbought about 18% of the trading days since January 1st, 1990. There were 72 instances of going overbought. The average duration was 22 trading days. It took six days from the market peak after we went overbought until the BMI fell from overbought. From the first day of being overbought, the average return for the S&P 500 (SPY) was higher after 1 month (+0.3%), three months (+1.7%), six months (+3.8%), nine months (+6.7%), and 12 months later (by an average +9.8%).

Below, I’ve listed each of the 72 incidences of overbought. Note that the negative forward returns were mainly in severe crises – like the bubble (1999), 9/11 (2001) and the 2007-09 Financial Crisis.


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

As of this writing (December 22, 2003), we are six trading days overbought, so the averages say we have another 16 trading days until we fall from overbought. That is the key moment when reducing risk makes most sense. Historically speaking, when the BMI falls from overbought we can expect market volatility.

That said, the forward returns are clear: From the first day of overbought, the SPY is positive on average each interval – 1 ,3, 6, 9 and 12 months later – so I wouldn’t sweat it for the following reasons:

The Fed funds target rate is currently 5.25-5.50%. The Consumer Price Index (CPI) – our most quoted and most trusted inflation indicator – is at 3.1%. On a six-month basis, the CPI is significantly lower, at roughly 2%. The 10-year bond has fallen from just under 5% to 3.9%, so the Fed is way out of whack with market rates – which are falling. Interest rates are assured to fall further – the Fed said so – for 2024 and 2025. You are seeing this being priced into stocks, fueling the massive recovery that just took place.

But if you think you’ve missed out, remember this: There is still a record $6.142 trillion of cash in money market accounts waiting to enter the stock market. This is the highest on record:


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

As rates fall and the Fed cuts the Fed funds rate to bring it closer to market rates, we have a setup for a boom-time in stocks. The market has already rocketed 16% up from its October lows. As rates fall, money market yields will collapse, and all that safe-haven cash will look for returns. And it will flow into stocks.

I believe that the smart money has priced this in and has already begun making monstrous inflows. As my colleague Kevin points out, December is on pace for the highest monthly inflows into the SPY on record!


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

As exciting as this $40 billion of inflows looks, in chart form, it only accounts for 0.6% of the cash out there in money markets. By that logic, there’s still $6.1 trillion lurking behind that December surge.

Opinions may differ, but I prefer to count on the data, which shows us a very promising picture for the year ahead. I expect some short-term giveback in this very strong market, but I also think we are just getting underway. I am often at risk of being labelled an “eternal optimist,” but as Churchill said: “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Awaiting the Santa Claus Rally

Sector Spotlight by Jason Bodner
When Opinions Go to War, Rely on the Data

View Full Archive
Read Past Issues Here

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

Important Disclosures:

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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