by Jason Bodner

February 23, 2021

History can get distorted at times. I was interested to learn that Paul Revere never shouted: “The British are coming!” After all, his warning was supposed to be stealthy. The British troops were hiding out in the Massachusetts countryside, so Paul wasn’t about to scream their presence at the top of his lungs.

I think about modern life versus the fuzzy history I learned as a kid. Sometimes it made us nuts going through World Wars, plagues, coups, depressions and pandemics. To us, it seemed unthinkable, but to them, it was life. You’re likely reading this from your home, where you’ve spent most of the last year avoiding COVID-19. One day, people will look at 2020-2021 and think how crazy it must have been…

But it’s just “life” for us. And during this extreme time, stocks have been doing the opposite of what we once expected. We’re all waiting for life to return as we knew it, but stocks keep piercing new highs.

So, when will stocks stop going up?

Admit it, stocks are frothy. Prices and P/E ratios are rising. Stocks are opposing the news. Looking at stocks in a vacuum, we might think it’s boom-time. But looking at the news, people are dying, too many are out of work, and the pandemic is a fight for the ages. For stocks, I learned long ago: Don’t fight the tape. If stocks want to go up, that’s where they are going, regardless of the news.

But to see where they might be going next, let’s take a look at where they’ve been.

In July of 2012, I started collecting stock data professionally. My research identifies when I believe Big Money investors (hedge funds, pension funds, RIAs, and asset managers) move stocks in a big way. I start with a universe of about 5,500 stocks on average. Then my models filter down to stocks that big investors can trade without pushing their prices around, that is, they can absorb big money easily.

On average there are about 1,400 a day. But recently, that number has exploded 20% higher to roughly 1,700 a day. That’s one indication that volumes are rising. My basic filter is that stocks must trade 500,000 shares daily. There are more indications: I compiled (and updated) them in a neat little table:

  • Volume is one baseline criteria: 500,000 shares per day (average) is a benchmark.
  • The daily universe of stocks averaged 5,500 for years. Recently, it has ballooned to over 6,000.
  • The daily universe of Big Money stocks averaged 1,400 for years. Recently, it reached 1,700.
  • The daily number of stocks seeing Big Money trading averaged 528 for years. Recently, it has ballooned to 700, a 33% increase.
  • The daily Big Money BUY signals averaged 64 since July 1, 2012. But since January 2020 buys vaulted 23% to 83, and since Joe Biden won the election, average daily buys skyrocketed 122%.
  • Average daily sells fell off a cliff since the election, falling 69% below the nearly-9-year average.

MapSignals Average Daily Sell-Offs Table

That sets the scene. I’ve been warning of overbought markets and a possible pullback, which came, but only briefly. Robinhood saved the day, and it quickly went. They bought the dip bigtime. The Big Money Index (BMI) hasn’t fallen from overbought yet. In fact, we’ve been overbought for 54 trading days, over 10 weeks! For perspective, the longest consecutive overbought period in 30 years was posted during the 2020 pandemic crash. That lasted 84 trading days (nearly four months).

This can feel frustrating: “I shouldn’t buy stocks at lofty values, but they keep going up. Will there ever be a pullback?” A look into recent history might help. Despite market strength, buying is softening under the surface. That doesn’t mean a crash is coming. Slower buying could pave way for stronger buying. Or it could signal an exhausted uptrend. Trying to anticipate moves is nearly impossible. But there are signs.

The BMI couldn’t match its prior high. Two weeks ago, I warned of a flattening BMI. The market sagged a few days, then buyers rushed in. Now, recent Big Money data shows possible flatlining again:

MapSignals Big Money Index Chart

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

Red circles mean the BMI dropped below 80% (overbought), signaling a deteriorating market. The BMI measures daily unusual stock buying and selling. It’s a 25-day moving average of netted buys and sells. The BMI falls when buying slows and selling grows. The data lags so as stronger days roll off and newer days are weaker, the BMI will fall. The selling at the end of January shows how.

In the chart below, the red selling bars circled to the right pressured the BMI. In the past few days, we also saw a small selling uptick, and the BMI reached its lowest level since December 7th:

Big Money Stock Buys and Sells Chart

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

Zooming in on the red circle:

Big Money Stock Buys and Sells Zoom Chart

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

That little bit of red is holding the BMI back. Should selling pick up, the BMI will deteriorate. But if buyers step back in, it could even lift more.

Sector buying and selling can also help foreshadow what’s ahead. Here, these charts show money velocity for each sector. A rising line means increasing buying velocity. A falling line means slowing.

Sector Money Velocity Charts

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

Buying has been unusually strong since the election. We also see sector strength has been strong. But recently, buying is slowing. So, frustrating as it may be, there’s a bit of a mixed message going on with stocks. The best thing we can do is look for answers in data and history. What this tells us is: The surface shows stocks are at all-time highs but, underneath, our data shows us the beginning of a divergence.

For market timers, pay attention in the coming weeks. For long-term outlier stock lovers, like us, be prepared to find outliers while waiting on the signal. Get your buy lists and cash at the ready, for when the shift comes. Those who are prepared will win the game.

History may prove this kind of delay to be the new normal for stocks, or just an unusual time. I believe it’s the latter. But remember, history may just be one version of events.

After all, Napoleon said: “History is the version of past events that people have decided to agree upon.”

Napoleon Bonaparte Quote Image

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
It’s Starting to Look a Lot Like 2003

Sector Spotlight by Jason Bodner
An Update on our Rapidly Growing Big Money Index

View Full Archive
Read Past Issues Here

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.

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