by Jason Bodner

December 7, 2021

Injustice exists. No matter how you plan ahead, or “do the right thing,” bad things can happen to you.

Here’s one example of many I could cite. A first-year college student was bright, loaded with potential. But she suffered a brutally traumatic sexual assault. She later got the opportunity to identify her attacker. He was convicted of rape and spent 16 years in prison and then became a registered sex offender for life. He couldn’t get a job; relationships were virtually impossible, and his neighbors would always see him as a violent sex offender. It’s natural to say: “The punishment fits the crime, and I feel no remorse for him”.

Yet there’s a twist in this tale. The victim was 18-year-old Alice Sebold. She became a best-selling author who wrote a novel called Lucky, which described her personal attack, using a pseudonym for her attacker.

But it turns out he was innocent: She mistakenly identified the wrong man. She identified her real attacker as #5 in the lineup. But she incorrectly marked #4 on her form. That was Anthony Broadwater, a U.S. Marine returning to his sick dad. He was convicted in 1981. He was just exonerated of the charges, 40 years later. Sebold even issued a public apology acknowledging his innocence. He accepted her apology.

Forty years gone. There’s a go-fund-me raising money for him. But money doesn’t buy a lifetime…

That’s injustice.

This true story should put things in perspective. We investors tend to get emotional about our stocks. In a week like last week, it seems like everything looks ugly. We saw huge selling in stocks. According to MAPsignals data, it was the most selling since the March 2020 pandemic selling. We can see that here:

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

That doesn’t look too drastic when charted against the SPY (the S&P 500 tracking ETF), but when you look at it against IWM (the Russell 2000 tracking ETF), the percentage decline in IWM is much larger:

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

To give you an idea of last week’s selling intensity – let’s look at the sectors. Ordinarily, some of them lead higher while others lead lower. Last week they all got pounded:

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

Every sector saw 25% or more of the stocks within our observable pool get sold. Communications was over 100% and Healthcare was nearly at 100%. This is important because when we see selling like this, capitulation is either here or just around the corner. How do we know when, though?

A good place to start is the Big Money Index, which tracks all unusual buying and selling over a 25-day moving average. This gives us a smoothed view of whether money is flowing in or out of the market.

Here’s the BMI now:

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

We see the BMI falling fast, so fast that if there were not another buy signal going forward, the BMI would go oversold on December 15th. And when the BMI goes oversold two things happen:

  • We see a lot of despair and pain.
  • Historically, it is a phenomenal time to buy great stocks that are getting pummeled.

Again, comparing to the Russell 2000, we see a similar setup now compared to that time:

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

It’s important to ask ourselves: Are we headed into another global lockdown and economic freeze?

I don’t think so. The Omicron variant has no indication of being more deadly than the original strain of Covid-19. Historically, viruses often become more infectious but less dangerous until they just go away.

What are some other fears?

Friday morning’s market fall was driven by a disappointing payroll report. Only 210,000 jobs were created in November, but as Louis Navellier pointed out, that will likely be revised higher. Still, it was the slowest growth of jobs this year. Louis also said that, although unemployment fell from 4.6% to 4.2%, the unemployment rate can fall with slowing jobs because people are disappearing from the work force.

Inflation fears have investors spooked, too. The Fed is talking about curtailing their monthly purchases of bonds and lightening up on Quantitative Easing. That, in turn, stokes fears of rising rates.

But despite all that talk, the 10-year Treasury yield still tells us that it’s a great time to buy stocks. S&P 500 dividends are taxed at a maximum rate of 23.8% vs. Treasuries at 40.8%. This means investors would have 24% more after-tax money in their pockets by owning stocks over bonds:

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

And should the BMI predict lower market prices, stock dividend yields will grow while Treasury yields will likely fall as investors flee to the safety of bonds. That, too, is a screaming buy signal for stocks.

Also noteworthy, according to FactSet, the estimated earnings growth for the S&P 500 stocks in Q4 2021 is 20.9% which would be the fourth straight quarter at 20% or more earnings growth.

While that is strong and Q3 numbers were great overall, there are some clouds on the horizon:

  • Fewer companies are issuing positive EPS guidance for Q4.
  • Analysts aren’t raising their Quarterly EPS estimates for the first time since Q2 2020.

The injustice here is that great stocks are getting punished with overall selling. Fears of slower earnings growth may have investors spooked, along with inflation, potential Fed tightening, and Omicron.

I think strong company earnings and low rates mean stocks remain a favorable investment. With sinking prices and a falling BMI, I believe we have a rare buying opportunity now – or soon. That’s when we will shop for fundamentally superior stocks that exhibit weak technicals. That’s when the once-in-a-while deals come along, when the “Michael Jordans of stocks” go on sale. Jordan is a true outlier, and he knew how to handle adversity as well, like when he said: “Always turn a negative situation into a positive situation.”

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

Please see important disclosures below.


Marketmail Survey #13 is now closed.

Also In This Issue

Global Mail by Ivan Martchev
Analyze This: Treasuries Rally into the Taper

Sector Spotlight by Jason Bodner
When Good Stocks Go Down, Buy Them

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

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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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