by Jason Bodner
December 6, 2022
Rites of passage are not always obvious. For instance, I bet you didn’t know that when the Apollo 11 astronauts (Armstrong, Aldrich, and Collins) came back home from the moon, they had to clear customs.
Amazing, but true!
“Declare that rock! Where did you buy it? What is the retail value?”
Some rites of passage are happening in the stock market right now, although it may not seem that way…
As we wind down 2022, tensions are running high. Investors are rattled and on edge from a year wrought with war, politics, and economic fear. Recession fears have impacted stock prices in a far worse way than the reality of a global virus, still claiming human lives. It’s a sad commentary on what we hold dear.
Fear sells headlines. At beautiful Jackson Hole in late August, the Fed Chair kept pounding away on the need for “more pain.” Today, some see a housing-led recession, echoing the 2008 Great Financial Crisis.
That’s a tough backdrop. But here’s the thing: Stocks are recovering. The market has a funny way of not always following what the headlines say it should do. By now, you know I have been bullish on stocks. The funny thing is, I genuinely don’t care for the labels “bullish” or “bearish.” They denote an emotional bias. I prefer to deal in black-and-white data that can drive probabilities as opposed to a bias, or opinion.
The good news is that the data looks strong for a continued bull run. Let’s break down an eventful week through the lens of what we chart – “unusual buying and selling” data.
First off, in case you missed it, on Wednesday, Fed chair Jerome Powell gave a speech in which he telegraphed that the December rate hike would likely be just 50 basis points – lower than the expected 75 bps. He included hedging language along the lines of we’re not there yet, and rates may need to stay elevated for a while. The market didn’t care – all it heard was “relief,” so stocks staged a stunning rally.
The net result was some stunning technical “rites of passage” that flew under the radar. For instance:
- The S&P 500 is trading above its 200-day moving average – a key technical level. Also:
- The Dow Jones Industrial Average traded 20% above its recent low, a bull market signal.
Now, let’s dig into the data I watch to see some other indicators that can tell us whether this is the beginning of a sustainable bull-run or just another head fake.
- The Big Money Index (BMI) is rising steadily to levels only seen this year in February and August.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It gets better. As you can see here, stock buying exploded to levels not seen since February 2021. An explosion of buying coupled with an absence of selling is a strong indication of a real uptrend.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
- Pair that with immense ETF buying, and that further strengthens the technical setup. ETF buying was monstrous out-of-the-blue, eclipsing levels not seen in over two years. Also notice the lack of selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
- Looking at the buying distribution last week, we see small and mid-cap stocks once again ruling the roost. It almost feels as though investors had a standing order with their brokers to buy their favorite stocks as soon as the Fed said anything remotely encouraging:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
- Another sign is “breadth” or wide distribution. To see if a rally is real, watch to see if the buying is fragmented or evenly distributed. Many rallies of the last year only focused in certain sectors, such as energy or staples. Last week, the buying was much more evenly apportioned. It’s also encouraging to see a sudden interest in tech and discretionary, as they are typically growth engines for new bull runs:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Naturally, one week does not a bull market make, but all these trends have been happening for weeks, and now all of these various technical indicators gave us the “cleared customs” stamp last week.
To see the sector distribution in action, look at the sector buying and selling charts below. You will find them roughly organized from top to bottom in terms of which saw the most buying.
Here’s what to look for: Tech, Health, Financials, Discretionary, and Staples stocks were bought heavily. Materials, Industrials, Energy, Communications, and Real Estate all saw buying too – although less intense than the prior sectors. Only Utilities say more muted buying. But most importantly: there is no selling to speak of. In a year stained with red, the past few weeks have been relatively red-free.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Sector rankings still favor energy, industrials, and staples. But we are seeing a clear shift in attitude towards tech, discretionary, and financials shares, which is a positive sign for a more meaningful bull.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Add recent action to the studies I’ve highlighted, and we get the big lift I’ve called for since August.
I also said that markets are historically strongest October through December since 1990. I also said that mid-term election years are strong this time of year. I also told you November through April of mid-term election years are positive 100% of the time since 1980 with an average S&P 500 return of +12.6%.
Add all this together and it looks like smart investors aren’t buying the bearish rhetoric. Bearish bias is more of a hunch than data based. As W. Edwards Deming said: “In God we trust, all others bring data.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Is China Facing Another 1989-Style Revolution?
Income Mail by Bryan Perry
Fed Policy and Oil Prices Are Key Year-End Factors
Growth Mail by Gary Alexander
Inflation Will Likely Be “Transitory” Indeed (2021-22, R.I.P.)
Global Mail by Ivan Martchev
We Are Reaching a Possible Inflection Point in Both Stocks and Bonds
Sector Spotlight by Jason Bodner
Bear Markets Turn into Bulls Through “Rites of Passage”
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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