by Jason Bodner

February 7, 2023

If you’ve been reading my column for any length of time, you’ll know I love to start many columns with oddball facts. I’ve used offbeat factoids ever since November 2012, over a decade. At over 530 weeks, I’ve seen a lot of facts. Some make me giggle, gag, or just scratch my head, but research shows that our emotions play a significant role in stock market behavior and can often drive prices higher or lower.

That seems frustrating until I remember that not everyone is immersed in the stock market the way I am. The truth is that most people don’t really care about the market’s daily gyrations. Most investors have important jobs to do, like save lives, feed people, or build houses. Stock analysis is for us addicts, but as an addict, I spend an inordinate amount of time studying them and crunching numbers.

In 2001, I learned the hard way about emotions after “trusting my gut” for about a month. I traded on that “inner voice” for a month and lost 19 of 21 times. Only after I removed all emotion and went full “quant” did I start to see some consistent success in my stock picking and investing.

But I’ll let you in on a little secret: The stock market needs all those emotional participants. It can’t really function without them. The show goes on precisely because there are different types of emotional people (and irrational machines) investing every day. The deal seekers need scared emotional sellers to buy from, and the bears need greedy, irrational buyers to sell to. And so the beat goes on, and on…

That’s perhaps why the backdrop of information surrounding stocks is always so – well… emotional! News stories are designed to stir greed, fear, or indifference. Anything to get you to stay tuned in and see advertising. Once the media has achieved its goal, the viewer is armed to go make investment decisions.

That doesn’t necessarily mean they are good decisions.

Why am I telling you this? Because I study deep data that no one else does. I look at unusual institutional buying and selling according to algorithms that I designed. In the aggregate, that information says that something big is happening – and no one else I see is really talking about it:

Investors are voraciously buying stocks

Let’s start at the top: the Big Money Index (BMI) is a 25-day moving average of unusual buys and sells for stocks and ETFs. It has been steadily rising after a brief, barely noticeable pause in late January:

BMI Index Chart

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

The BMI tells us that buyers are clearly in control. This makes sense, since the markets are generally rising, but as we’ll discover, this doesn’t look like a “reversion bounce” before a tumble to new lows.

Before we get into that, we should notice that the BMI is getting overheated and hurtling towards “overbought” territory. Before you go sell any stocks, however, it’s important to note that what matters is not so much that the BMI may go overbought. What matters is when it starts to fall from overbought. The BMI can stay overbought for a long time. Once, post-COVID, the BMI stayed overbought for 87 days!

The downbeat headlines may not indicate any optimism out there, but there is monster buying going on:

Big Money Stocks-Buys-Sells Chart

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

Not only is there a three-month high of buying, but it’s the most buying we’ve seen since June of 2020:

Big Money Stocks-Buys-Sells Chart 1

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

ETFs can’t be scooped up fast enough, either. Similarly, we’re seeing the most ETF buying in years:

Big Money ETF Buys-Sells Chart

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

OK, so there’s a lot of big, excited buying, but what are they buying? The truth is, as I’ve said in the last few weeks, they’re buying everything, but especially the stronger (growth-oriented) pockets of the market. Looking at the table below, we can see the latest sector ranking. What I want you to notice is that the growth areas are getting gobbled up most. Discretionary and tech stocks rank #1 and #2, respectively. Then come Materials and Industrials. Defensive areas are getting bought, too, but with far less intensity:

Sector Rank Table

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

When you look at the individual sector buying and selling – a clear picture emerges. Focus especially on how the recent spike in buying measures up over the last six months:

Discretionary vs XLY Tech vs XLK

Materials vs XLB Industrials vs XLI

Real Estate vs XLRE Comm vs XLC

Staples vs XLP Financials vs XLF

Health Care vs XLV Energy vs XLE

Utilities vs XLU

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

There has literally been “off-the-charts” buying in discretionary, tech, materials, industrial, real estate, financials, and health care. To drive that point home, look at the distribution of buying since the beginning of 2023 by market size. There has been huge buying of small- and mid-cap stocks. That means value hunters are scooping up cheap small-cap tech, discretionary, materials, and industrial companies.

That’s not bearish behavior, folks…

Big Buying Selling Market Cap

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

Whether that’s short-covering or high conviction buying, those areas indicate betting on a recovery. The market is a forward-looking machine, so while Fed chair Jerome Powell delivered a mixed message on the economy, investors found reasons for cheer in his words. Properly parsed, he was saying: “It’s working. We may not be out of the woods yet, but we will be, and we’re close to the top of rate hikes.”

Lest I sound overly rosy, let me also issue a warning: Stocks will likely pull back, near term. We’re off to a great start to the year. The playbook is working perfectly – especially my prediction of a strong October-to-April, due to this being a post-mid-term election year follow-through. Remember, 10 of 10 mid-terms were positive for stocks since 1980 from just before the election through the following April.

But as the BMI comes within spitting distance of becoming overbought – and we combine that with off-the-charts buying in both stocks and ETFs – the buying exhaustion point is growing near.

That said, February may be bumpier than January. Historically, that is often true, but the rest of the year should be quite bullish for stocks, based on prior observations, especially given what they are buying now (small and mid cap tech and discretionary). Just remember, we need both the emotional and emotionless types in the market; that’s how it works. William Feather knew it when he said: “One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.”

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:

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.

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 www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. 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.