by Jason Bodner

February 25, 2020

The latest “New Moon” cycle began Sunday, February 23. Does that mean anything to investors?

When I left Wall Street to become a self-proclaimed quantitative stock analyst in 2014, I made a classic rookie mistake. I tried to be all things to all people. It was a disaster. My early research was called Macro Analytics for Professionals (MAP). My partner and I covered over 100 macro securities – everything from global stock indexes to currencies, metals, and commodities. If you wanted to know if Lean Hogs were breaking out, I was your man. If you wanted to know if ETFs were heavily traded, I was your man. If you wanted to know how many stocks were bought and sold each day in a huge way, I was your man.

I could also tell you what phase of the moon we were in. That was useful! As it turns out, that wasn’t such a bad idea after all. I knew hedge funds that paid one analyst thousands of dollars a year for his insights on the moon phases and how they affect markets. There are many studies indicating a strong correlation of market returns to the moon’s phases. A MarketWatch opinion piece published last year (“The most reliable market indicator comes out at night”) says the New Moon translates to 5% higher stock prices.

New Moon Stock Prices 3-D Bar Chart

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

It makes sense: The moon’s gravity moves ocean tides, and humans are mostly water, so it’s logical that the moon can affect our investment decisions, but eventually I ditched the moon and macro. I wised-up and started giving people what they wanted: Stock names. Now, all I do is find stocks being traded unusually by big money investors. I pick stocks based on that and have found success in doing so.

I didn’t fully abandon the study of phases, though. I wasn’t a “Moon-Guy” (as one analyst was known for his research). I became the “Big Money Guy.” You see, Big Money moves in phases too. I created the Big Money Index (BMI), a reliable indicator for overbought or oversold markets. It looks like this:

MAP Signals Chart

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

We ride market waves. Surfers don’t fight an oncoming wave. They sit and wait. They look behind them at the horizon, waiting for the big wave to come. Then they start paddling to meet it until it gently brings them along with it. They wait to ride the major wave-phase, so moons and markets are not very different.

Typical market waves can be simplified into four phases, like the four weekly phases of the moon.

BIG MONEY FLOWS IN FOUR PHASES

  1. Big money rushes in and selling is non-existent (where we were for most of the fourth quarter)
  2. Big money buying slows and selling starts to pick up (that’s where we’ve been the last few weeks)
  3. Big money buying slows further and selling grows (as the BMI starts falling towards 50%)
  4. Big money buying is nonexistent, and sellers are in control – (this is when it’s time to get those buy tickets out)

Graphically, it looks like this:

Money Flows in Phases Chart

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

Currently we are in phase 2, the topping phase. The BMI needs to break below 60% to get to Phase 3.

Once we break below 50%, I get excited. That’s when many professional investors are forced to sell because they get the tap on the shoulder from their risk manager.

What is the Big Money telling us now?

“RISK-OFF” BUYING LEADS THE PACK

There is still big buying in the market, but recently the big money is moving into “safer” equities. The last two weeks have seen big buying in REITS, and this past week saw a spike in Utilities buying.

Map Signals Buys and Sells Table

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

We’ve also seen money rushing into gold stocks too. Gold has been on a bull run lately and has hit a 7-year high of $1,642/oz. To cap off the risk-off choices, 30-year yields hit their lowest-ever level Friday.

Thirty Year Treasury Yields Chart

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

This tells me that a pullback could be near. I hope so, as a pullback is long overdue. I’m sure that many have cash on the sidelines waiting to buy. I’ve been moving cash steadily waiting for a dip. I’m not alone!

Let’s embrace the coming pullback and be patient.

The BMI is falling. I’ve been cautious. I told you the data changed weeks ago. One dip came, but for just one day! Then, even as markets went higher, the BMI was heading lower. The message the BMI is sending us now is that “the big money rushing into stocks is slowing.”

Oscar Wilde said: “Imitation is the sincerest form of flattery.” At first, I needed to imitate the moon guys to get inspiration for observing the phases I’m good at – hunting the trail of Big Money. When they buy great stocks, I want to own them too. When they sell at market highs, I want to follow their lead. Then, when the selling cascades down to Main Street, Big Money is getting ready to buy again. And so am I.

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

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