By Jason Bodner

February 9, 2021

What do sea otters, an old athlete, frustrating markets, and outlier stocks have in common?

The stars align nicely on Super Bowl Sunday to give us an answer.

First, the male sea otter. They look cute and cuddly. But don’t get fooled, they are ruthless and cunning. Instead of hunting themselves, they exploit maternal instincts of otter moms. Males will ‘kidnap’ mom’s baby while she’s out scavenging for meals; taking the baby hostage. When mom hears her baby’s cry, she rushes back, food in mouth, but the bully won’t free the baby until he gets her food as ransom.

Nature employs deception to get what it wants. Stocks are deceptive, too. For a while, I’ve been warning you about a market drop. This is because my 30 years of data tell me that stocks are extremely overbought and that condition is unsustainable. I am both right and wrong. It may seem I am held hostage by my data. The data predicted a market top the week of January 20th. For a while, that prediction looked good, as the S&P 500 peaked on January 25th. It fell -3.6% only before powering to new highs on Friday February 5th.

What really happened is quite interesting. The GameStop (GME) drama clearly placed high-profile money managers in a tight spot. Gabriel Plotkin, former SAC Capital protégé, saw his Melvin Capital take a -53% thumping from being short GME. Steve Cohen helped rescue the ailing firm with billions of dollars in a cash injection. He then had to leave Twitter as pressure mounted and Point 72 performance sagged. Ken Griffin also ponied up cash to help Melvin, while feeling the GME short pain. Leon Cooperman got emotional and misty on TV over how he cares about the common investor…

What really happened were some nasty margin calls. When capital can’t meet margin requirements to maintain losing levered positions, the piper must be paid. When the call comes, shorts must cover their losers or they’re done. Then they have no choice but to sell their performing longs to cover their bad bets.

That’s what we saw in late January: Sky-high losing shorts went higher while popular longs went lower.

Then something changed: Brokers got together and halted trading on offending stocks like GME, BBY, AMC, and others. This gave reprieve for wounded short sellers. Buying those sky-high stocks and sending them higher was no longer possible. That started a scramble to sell, driving prices back down to Earth.

Navellier & Associates does not own GameStop (GME), AMC Entertainment (AMC) or Best Buy (BBY) in managed accounts. Jason Bodner does not own GameStop (GME), AMC Entertainment (AMC) or Best Buy (BBY) personally.

As predicted, our Big Money Index (BMI) initially started falling as cracks appeared. But the unexpected intervention of brokers banding together meant the party could continue. The reset correction that looked about to happen…didn’t. The brokers stole the baby and got their food – a stable market to keep buying.

The BMI dropped but the selling was momentary. Sellers vanished and buying returned. The scenery changed and now we might expect higher prices. When a terrorist has your baby, you pay the ransom.

MapSignals Big Money Index

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

Don’t get me wrong: I’m not saying I want a correction. We all like making money and want to see the market keep rising, but we all know that parties don’t last forever. Corrections are healthy, needed resets. While I’m as happy as anyone to see markets pierce new highs, there’s a flipside. Intuitively, the longer time passes between corrections, the more severe we expect the correction to be, when it finally comes.

For now, the crisis is averted, but we’re not out of the woods. If selling returns, the BMI can fall quickly indicating more market pressure. But should buying take over again, we remain extremely overbought.

So, what do we do now?

Here’s where the old athlete comes in.

Sunday was Superbowl LV. Tom Brady, at 43+ years old, made his record-breaking 10th appearance and earned his 7th win, but that is lost in a sea of records… Look at this Wikipedia page of Brady’s records (I had to make it tiny print to fit it on one page. He has so many records they can’t even fit in normal type.)

Tom Brady Career Records List

I not a Bucs or Chiefs fan. I am an outlier fan. Is this a guy you want to bet against? I won’t. I bet with winners, not against them. The reason? Outliers keep winning. They exhibit qualities that clearly set them aside from everyone else. Tom Brady, even at 43 years of age, clearly fits that description.

I wrote this before the game, but my bet is on Tom to add his record 7th Super Bowl win, even though he was an underdog on Sunday – as he was in his previous two road wins in New Orleans and Green Bay.

Here’s the bottom line: It’s fun to be right about market timing, but if you hold outlier stocks, it just doesn’t matter. If you’re playing the long game like Tom Brady, now in his shocking 20th NFL year, you want outliers on your team. These are the Bradys, Wayne Gretzkys, Air Jordans, and Warren Buffetts

If you hold those, you can afford to be duped by the devious Sea-Otter-dude, because he’s only focused on the short game: getting the food now – one meal. The long game is the survival of the species.

Nailing market pivot points accurately is fun. But it’s more fun finding outlier stocks with 10x or 20x potential, or even more. Malcolm Gladwell explored this concept in his book Outliers: “Success is not a random act. It arises out of a predictable and powerful set of circumstances and opportunities.”

Success Is Not a Random Act

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
The Junk Bond Index is “Inside 400”

Sector Spotlight by Jason Bodner
The Winning Outliers vs. the Scheming Sea Otters

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:

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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