by Jason Bodner

December 28 ,2021

It was an exciting week. While children all around the world got to rejoice in the excitement of December 25, space-nerds like me were more excited about December 22nd – an amazing day for the study of the cosmos – when the James Webb Space telescope was launched, succeeding the Hubble Space telescope.

The Hubble made thousands of discoveries. My favorites were from the Hubble Deep Field (HDF) and Hubble Ultra Deep Field (HUDF). In simplest terms, they allowed us to understand that there are many more galaxies than we ever imagined possible. For instance, the following image was taken focusing Hubble on a pinhole sized piece of dark sky. Each dot is a galaxy, each with hundreds of billions of stars.

This image alone contains an estimated 10,000 galaxies.

NASA scientists now believe that there are at least two trillion galaxies out there.

Scientists have discovered thousands of planets outside our solar system, and just last week scientists announced they discovered 70 rogue planets with no star at all. With an estimated two trillion galaxies, each with an assumed 100 billion stars, and each star with an average of two planets, that’s 400 sextillion planets out there. If I did my math right, that number is four followed by 23 zeroes and looks like this:

400,000,000,000,000,000,000,000

By contrast, we can occasionally see at most five planets in heaven with the naked eye. This is a great example of what’s immediately observable dominating our view of everything. It happens in the stock market, too. When markets are down, my neighbor invariably asks me, “Why are stocks down?” (He invariably means the S&P 500 index or the Dow Jones Industrial average, the most popular indexes.)

The Dow was the first major index, introduced in The Wall Street Journal on May 26, 1896, as a thermometer for the stock market. Its main shortcoming is that it contains only 30 stocks, so in 1957 the S&P 500 index came out, tracking 500 companies in an effort to create a better yardstick for the overall market. It is a much better gauge of activity, but it also has shortcomings. Just like we think of those five planets we can see, the S&P 500 falls victim to the same thing – five dominant stocks out of 500.

Based on data I collected from FactSet, the market value of the 500 stocks in the index totals $44.5 trillion. That’s a big chunk (92%) of the total of all listed stocks of ($48.5 trillion according to Siblis research in September of 2021). The shortcoming arrives when we consider the S&P 500 is weighted by stock capitalization, meaning the biggest companies count for more of the index – so much so that if we add up the value of the five largest companies, it tops $10 trillion (23% of the index), and the 25 largest companies in the index are worth $20 trillion, so just 5% of the index accounts for 45% of the total value.

Simply put, if they move, or even a few of them move, it appears to our eyes that the entire market is moving. Perhaps more alarming is that the same works in reverse. If a majority of components fall, and the biggest stocks rise, the index can stay put, reflecting no real move. That’s why I look at data for individual stocks. If we see big selling overall, but the biggest stocks rise, it’s an inaccurate picture.

Here’s an example of what I mean. Below we see the SPY against the Big Money Index (BMI):

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

Notice how it rises while the BMI falls. That’s because of the phenomenon of the largest stocks going up.

Now look at the BMI falling with the Russell 2000 Index tracking ETF IWM:

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

That shows a more balanced picture. Money has been moving out of stocks since mid-November, so in the last few volatile weeks, it seemed like we might finally see the SPY follow suit. For that to happen, the large stocks would have to “crack.” They started to: we saw Apple (AAPL), Tesla (TSLA), and Nvidia (NVDA) all sag indicating the correction might pick up steam. Selling was finally intensifying in all stocks. But like so many times before in the post-pandemic world, selling suddenly vanished. How do we know if the coast is clear? We did a cool study to find out. Here you’ll see the individual stock sells:

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

What visually jumps out is when you get big red stick (huge selling), markets tend to bounce right away.

MAPsignals is developing a new Oversold Stock Indicator. To show you how powerful it is, here are the stats: Looking at only stocks that big investors can easily trade, we get a universe. When 15% or more of that universe is sold, we see big juice right afterward. Look at every instance since the pandemic when that happened, and then watch the 1-day and 5-day return of the SPY:

Notice that the most recent instance was December 20th. Also notice that 86% of the time, the SPY was up materially (average +2.54%) five days later. So far, December 20th is on track for a win.

But if we only focus on the biggest S&P 500 stocks, we get a totally different view. Much like focusing on the five visible planets, excluding earth, and ignoring the possible 400 sextillion other ones. The point here is that looking at just the indexes is like wearing rose-colored glasses: You only see part of the spectrum. I prefer to see it all. Looking at how big investors mover their money gives a much clearer insight into how the stock market really moves. As Malcom Forbes said: “The best vision is insight.”

Navellier & Associates owns Nvidia Corp. (NVDA), and Apple Computer (APPL), and 1 clients owns Tesla (TSLA), per client request in managed accounts. Jason Bodner does not own Tesla (TSLA), Nvidia Corp. (NVDA), or Apple Computer (APPL), personally.

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

Please see important disclosures below.

About The Author

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

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.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.