by Jason Bodner
December 31, 2024
It’s December 27th as I write. A lot of cool things happened on this day in history. Radio City Music Hall opened in 1932, and the IMF was founded in 1945, but I think one of the coolest things to happen today in history was that in 2004 radiation from a magnetar explosion reached Earth. A magnetar is a neutron star with a powerful magnetic field. One magnetar, called SGR 1806-20, suffered a star quake 42,000 years ago and so it took 42,000 light years to reach us. It was the brightest stellar event ever recorded, releasing more energy in 1/10th of a second than our sun did in 100,000 years. On this date 20 years ago, its flash bounced off the moon and lit up the earth’s upper atmosphere in a magnificent light show.
But on Friday December 27th this year, not much exciting happened other than the stock market having a hard day. The NASDAQ fell as much as -2.3% before closing down 1.5%, as did the Russell 2000. The S&P 500 fell as much as -1.73% before closing down 1.1%. The thing is, I don’t really follow these daily swings much, and I don’t think many people are too focused on the overall market today, either. We’re all doing personal things and spending time with family. Or we are at work. Wall Street is on a break, too.
In fact, every year I worked on Wall Street, this time of year was composed of a skeleton crew of juniors and the odd senior who drew the short straw. Call it the “B” team, or the “replacement squad,” and a volatile day like last Friday, or today, illustrates that old trope: “When the cat’s away, the mice will play.”
It’s well known that the final weeks of the year for stocks are usually noisy, volatile, and, most importantly, over-reacting to low trading volume. Let me provide some hard data to illustrate this.
First let’s look at the unusual buys and sells for stocks and ETFs. As you can see below, we entered into a vacuum of any such buy or sell signals. Predictably, everything dried up, both big buying and selling.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Below we see all unusually large trades. This doesn’t factor if a stock breaks out or down from a range. This is just when trades are abnormally large. We see the same pattern in Big Money Trading Activity:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Let’s contextualize this low volume another way. Below, we look at the same buys and sells for stocks, but now we superimpose the running 1-year average for both. That last reading for the 1-year average for buys was 78.8 and sells was 46.3. December 24th saw four buys and no sells. This is what that looks like:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Let’s talk some more averages… Using MAPsignals data, we can determine how far below average the activity is right now. Below, we see a table summarizing various trading activity levels. The average buys from 1990 to now is 49.6, and since 2000 it is 60.5, and so on. We see the same for sells, and for Big Money Trading Activity. It’s plain to see that activity is now well below average:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, when stocks are moved around by big percentages on very thin volume, we need not care. It’s not “real” action. It’s just mice playing around while the proverbial “cat” is away – skiing, or whatever.
A better use of our time this week is to look at where the real money has been moving since the beginning of the year. Looking at unusual buying and selling since the start of 2024, we can see what’s been getting gobbled up, and what has been sent packing.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The number one sector being bought up over the last year, by a narrow margin, at 16.2% of all buying, was Financials. It was followed closely by Technology, at 15.7%, and surprisingly Health Care at 13.9%.
I say “surprisingly” because Health Care was also the heaviest sold sector this year and the 9th lowest ranked sector. Similarly, Technology was second most bought and second most sold, yet ranks second highest!
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This is where the beauty of stock picking comes into play. For instance, we can go into a sector such as Technology or Health Care and identify leading stocks (highly bought), and lagging stocks (highly sold). I did the same exercise for Technology stocks – most bought and most sold – since the start of December.
Naturally this approach can be done for any sector to identify money flows within a tug-of-war sector like Technology or Health Care. It can make the selection process much easier. This is the beauty of an unemotional quantitative method of analysis of a sector or stocks within that sector.
The end of the year is here. It’s time to relax, re-center, and refocus. The New Year will be upon within a few hours of the time this post goes public, and I feel we have a great opportunity in 2025.
I still maintain it’s a great time ahead for stocks. With global rates falling, and our rate slated to fall at least twice, small and mid-cap stocks are poised to benefit. Economic data is strong, and pro-business. An anti-tax, anti-regulation administration is three weeks from taking office. The tailwinds are strong, so sit back and toast the New Year with family and friends. But be careful.
As F. Scott Fitzgerald said: “First you take a drink, then the drink takes a drink, then the drink takes you.”
Don’t let that happen tonight. I wish you all a happy, healthy, and prosperous New Year!
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
My Final Three Predictions for 2025 (And Updates on the First Three)
Income Mail by Bryan Perry
History Favors the Bulls Following Recent Presidential Elections
Growth Mail by Gary Alexander
A Report Card on the First Quarter of the 21st Century
Global Mail by Ivan Martchev
2024 Was Great, But What About 2025?
Sector Spotlight by Jason Bodner
Holiday Trading Days Mean…Next to Nothing
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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