By Jason Bodner

February 4, 2020

I’ve been warning of a market pullback in the second half of January for many weeks now. I felt that the January Effect would lose steam. Pension funding and new annual investments would give way to something else, since the market was heavily overbought. The data said so. But many I talked with saw no signs of slowing. Every dip was bought. Every headline was shrugged off. But last week, the cracks in the “Buying Dam” finally gave way, and sellers came rushing in.

So, what’s to come?  As always, I look to the data… There are a few key data points to consider:

  1. The Big Money Index is Falling. Until buyers show up, we will see selling pressure. For weeks, the market was one-way buying. We highlighted it constantly. When big money investors move stocks in an unusual way, I get signals. To simplify, the top of a price range is a buy signal. The bottom is a sell signal. We saw virtually only buy signals for many weeks. The BMI measures these signals over a 25-day moving average. Above 80% is unsustainable buying. As you can see, the meter was in the red for a while. But when it falls, look out below…

    Russell 2000 Chart

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

    On January 21st, the BMI peaked at 87.6, meaning 87.6% of signals over the prior 25 days were buys. The next day, I published a white paper for Navellier & Associates detailing how volume data called for lower markets near-term. You can find that here.

  2. Today the BMI is 74%. Selling only started recently. We won’t revisit “overbought” conditions any time soon. Looking at the BMI another way, the next chart looks at net buys vs. sells. (More buys mean a green stick, and more sells than buys cause a red stick.) Notice from October, there has been only green? Markets went straight up. But when red sticks come, markets sag. Sellers take control. It may be short-term, but this spells turbulence ahead. Look at how suddenly red shows up:

    Russell 2000 versus Net Buys/Sells Chart

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

  3. ETF buying also plummeted. For weeks, we highlighted abnormally high ETF buying as a contrarian signal for near-term market prices. Look at the chart below to see how selling suddenly picked up. After weeks of green, here comes the red:

    Russell 2000 versus Net Buys/Sells Chart

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

  4. Sector selling has been brutal for energy. Almost everything got hit last week but energy was really beaten up. There hasn’t been a single buy signal in the entire sector in six trading days. Keep an eye on it: Energy is not yet oversold, but if selling continues, we will be well on the way. Should there be more Iran retaliation for U.S. airstrikes weeks ago, we could see a major spike in the price of oil, creating a bid for energy stocks. The exception for buying was notable in Utilities, a classic risk off trade and a clamor for yield as equity risk suddenly comes out of favor – even if very short-term.
MAP Signals Table

So, to summarize, I said there would be lower markets by the end of January, and I was right, even if just under the wire. But what lies ahead? We are now waiting to buy stocks again. Here’s why:

  • Friday’s sell-off was certainly a healthy pullback, but it wasn’t capitulation; it was orderly. We are making plans for a further drop before scooping up great stocks on sale.
  • China’s coronavirus outbreak is spreading to the business sector, and thereby the stock market. Several companies are closing locations. Any economic fallout from the impact of the Wuhan outbreak will actually strengthen the U.S.’ standing in trade negations. China will be at even further economic disadvantage.
  • U.S. stocks are still beating sales and earnings forecasts, and analysts are forced to revise their estimates higher. As of end-January, 73% of Q4 reporting companies beat earnings and 67% beat sales, according to FactSet.

Rates collapsed. The 10-year is at 1.52%, while the dividend yield on the S&P 500 is 1.81%. So you win with stocks, before and after tax. Because bond income is taxed at ordinary income rates, after taxes you end up with 53% more money in your pocket holding equities. With the 2 year yield at 1.32% and FOMC rates at 1.50% to 1.75%, the market is looking to force a rate cut.

Standard and Poor's 500 Dividend Yield versus Ten Year Treasury Note Yield Table

This is all bullish for stocks. Stocks went up too far too fast and need a reset. The market is healthy. Don’t let coronavirus scare you too badly. While any virus is serious, ordinary flu is way more fatal, so far. Health scares are a convenient excuse to sell – when Middle East tensions and impeachment hearings don’t raise an eyebrow. Right now, watch and wait, because selling should continue. But when it stops, the rush into stocks should be swift and fun to watch – and even more fun to take part in!

Sun Tzu said: “He who is prudent and lies in wait for an enemy who is not, will be victorious.”

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
A Viral Gift for the China Bears

Sector Spotlight by Jason Bodner
The Much-Awaited Pullback Has Arrived

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

Important Disclosures:

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at or by requesting a copy by emailing All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.