by Jason Bodner

February 2, 2021

Forecasting is tough. We rely on forecasts, but then bemoan them when they fail us.

How many times have you headed out somewhere expecting mostly sunny weather, only to end up drenched without an umbrella? Still, predicting the weather is surprisingly accurate. According to NOAA SciJinks, seven-day forecasts are about 80% accurate, while five-day forecasts are 90% accurate.

Ancient Greeks and Egyptians hired “bematists” to measure long distances. They’d count steps while walking and could measure hundreds of miles with 95%+ accuracy. Eratosthenes used one to calculate the circumference of the Earth within 15% accuracy. That was over 2200 years ago in 240 B.C.E.

But what about predicting stock market tops and bottoms: Isn’t that a fool’s errand? I’ve tried it several times, and in recent years I’ve been very accurate. Consider these predictions from the past three years:

  • On January 24, 2018, my data said stocks were overbought and due for a pullback. The market peaked two days later.
  • I also came very close on the timing and level of the subsequent bottom, in February 2018.
  • In June of 2018, I warned of an overheated market and to expect a market drop.
  • The day before the December 18th, 2018 market trough, I said “we’re 90% done with the sell-off in prices, and 75% done with the sell-off in terms of time. That means we’re close to a bottom.”
  • May 31, 2019: The exact date of the bottom of that selloff.
  • Summer volatility right at the beginning of the August 2019 selloff.
  • January of 2020: Alerting of a market overbought and a pending selloff.
  • Predicting a market bottom on Friday March 20th, 2020. The bottom occurred Monday March 23rd.
  • Predicted a monstrous subsequent rise in prices.
  • Predicted market weakness heading into the 2020 presidential election and strength immediately after.
  • In December 2020, my data said we were overbought.
  • I predicted the S&P 500 to peak on 1/19/2021 at a price of 3825. So far, it peaked January 25th at 3855 – only four days and 1% off target.

What’s my secret? I could tell you I lick my thumb and hold it to the wind to find major pivot points, but I rely on watching Big Money buying and selling. When buying gets unsustainable, I expect markets to fall. When selling is out of control, I expect markets to rise. Thirty years of data taught me to rely on our Big Money Index (BMI) as my data indicator. By looking at historical averages, I can make data-based quantitative predictions. I haven’t yet been able to get it down to a time of day, but I’m working on it.

The data allows us to navigate a crazy market. I say “crazy,” not just because the BMI predicts short-term lower prices for stocks on the horizon, but because there really is crazy stuff going on. Just look at the wild feverish price action of GME and AMC (no positions). The Main Street crusade against Wall Street is coming close to putting some financial titans out of business. Billionaires are getting emotional on TV.

The short squeeze mayhem might be tempting, but please suppress any urges to get involved. I believe this headline feeding frenzy offers the perfect distraction for Big Money to exit stage left.

The Big Money Index trend now is as clear as day. It has been overbought for over seven weeks. And the data tells me that the recent small patch of volatility is foreshadowing more to come. Digging into the data, I saw something really wild. Since 2012, the daily average count of big volume stocks is 526. Those created a daily average of 63 buys and 46 sells (or 109 total average daily signals).

Since the 2020 election day, the daily average big volume stock counts rocketed to 700, creating daily average signal counts of 145 buys and 13 sells (158 average daily total signals). January 27th was the highest big volume stock count (1,460) since Friday, March 20, 2020 – one trading day before the market trough. January 27 was also the tenth highest big volume day in my 30-year data history.  Shockingly, eight of the top 10 highest big volume days occurred in 2020. What’s more interesting is that the rally that occurred on January 28 only resulted in 38 buys and 11 sells on a huge 1126 big volume stocks.

Let me translate this into plain language: Volumes have been huge since election day and this volume has been all buying. I’ve been saying it’s unsustainable, with an overbought BMI. Then, suddenly, we got a monster volume spike followed by another big volume day of barely ANY signals.

That screams “Big Money exiting stage left.”

While the index may grind higher, who holds the money is changing hands. Big Money is using these opportunities to lighten risk. Remember “The Matrix”? When Neo sees the green and black code of the matrix, he sees himself standing in it. That’s how the data signals the invisible framework of the market.

So what should we expect now? I expect the Big Money Index to start to fall in the coming days. It’s been flat for a while, and now is starting to stall…

Navellier & Associates does not own AMC Entertainment (AMC) or GameStop (GME). Jason Bodner does not own AMC Entertainment (AMC) or GameStop (GME).

MapSignals Big Money Index Chart

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

The charts reveal a sudden vacuum of Big Money signals in both stocks and ETFs:

Big Money Stocks/ETFs Buys and Sells Charts

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

Don’t worry, though – all markets need to reset. In my opinion, this should not start a new bear market; it will just serve to vent steam for an overheated market. It’s healthy and necessary. All stocks come under pressure. Great ones rebound fast and furious.

My outlook is bullish on stocks this year, but things are overheated now. The froth in the system needs to get flushed out. Expect some chop, but earnings are great, and the economy is on verge of reopening. Vaccines are here. It should be a great year.

A look back at the data allows me to look forward. Søren Kierkegaard understood the power of both when he said: “Life can only be understood backwards; but it must be lived forwards.”

Soren Kierkegaard Quote Image

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:

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