by Jason Bodner
March 12, 2024
Research suggests that 20% of the adult population is indecisive. I suspect that number is much higher than that… or is it? I’m not sure…I can’t decide.
Indecision leads to debate, whether outer or inner, and often to inaction. There’s an old tale about two men debating which way to turn in a traveling car. They each are resolute in their opinion, so they debate their way over the edge of a cliff. The cliff represents inaction in the face of reality.
Many don’t trust this market. I’ve heard it called a “melt-up,’ an analog of 2007 before the Great Financial Crisis. Others say it can’t run higher. I say, “It is what it is,” which is a bull market.
Market timing is tricky. Very few get it right, and it can be an exhausting and frustrating game. Late into last year, even this year, many investors have been debating whether or not to jump into stocks. All the proof we need is in the cash on the sidelines. Some estimates are as high as $8.8 trillion. When we lump in cash-like securities onto the Federal Reserve’s chart of $6.4 trillion in money market funds, below, the $8.8 trillion figure is entirely believable:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
While the guys in the car debated, stocks kept soaring. Since the October 27 lows, every index I monitor is now positive. Growth indexes are especially strong (the blue boxes, below).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Let’s take the SPY (S&P 500 ETF) as our market yardstick. Since October 27th, SPY has risen over 25%. Two out of three (59 of 90 days) were positive trading days – that’s 65.6%. The average daily move is +0.25%. That may sound small, but if the S&P 500 were to rise by just ¼% every day for 250 trading days (a year, minus weekends and holidays), it would be up 85.7%.
Now I am not saying I think that will happen, but it underscores the kind of opportunity you can miss while debating yourself off a cliff. I say: Keep debating; some of us have money to make.
In the meantime, the Big Money Index (BMI) has fallen from overbought, which historically is a sign that there may be trouble on the horizon.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Historically, that signals weakness or a period of under-performance relative to the averages, but we are simply not seeing that. I see continued healthy unusual buying, pushing the index averages higher. Below, we see charts of unusual buying and selling in stocks (left) and ETFs (right).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The takeaway here is that the huge spikes of buying in December have brought us consistently more green (buying) than red (selling). While there is very little red lately, the fact that there is some selling is healthy. It would be concerning if there were only buying and no selling. We would grow extremely overbought, begging for a significant correction. That is not the case here.
Since 1990, the ratio of buying to selling historically is 63% buys and 37% sells. Since the October 27th lows, the average is higher: 75.6% buys. This logically pushed us to overbought territory. But the pullback was not matched in the market averages, but rather in buying activity vs. selling. The BMI fell from overbought on February 5th. Since then, the average is 71.6% buys.
What does this mean? Look at it this way: There is healthy buying and healthy selling. There is no significant selling under the surface, yet, which would indicate a crack in the market structure.
When we look at what has been getting bought, it’s very bullish, too. Simply looking at a distribution of unusual buying versus selling divided by market cap, we see a clear picture.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
While a picture can indeed equal 1000 words, I can summarize two charts in just 70 words:
Since January 1st 2024, 78.4% of all unusual buying has been in small and mid-cap stocks. The smaller companies may have represented some value stocks, but they are also littered with growth companies. And when we look at what sectors attracted that buying, we see growth heavy sectors dominating the buying. We see Health Care, Technology, Industrials, Financials, and Discretionary stocks accounting for more than 75% of all unusual buying:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
To further hammer this market strength home, let’s look at individual sector buying and selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In summary, we see healthy constructive buying across a majority of sectors. The strongest are Technology, Industrials, Energy, Discretionary, and Health Care. The defensive sectors like Utilities, Real Estate, and Communications, are quiet. The only sector I am watching for warning signs right now is Financials. The sector has risen a lot but has not been propelled by unusual buying:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If the market pulls back, I expect the Financials would pull back more than the market. This conclusion is based solely on a survey of the relatively light unusual buying activity in the sector.
We can debate all we want on whether the market “should be” rising, or why it is rising, or why certain stocks go up 5% per day almost every day. These are all valid arguments. But in the meantime, stock values are undisputedly rising. And as an investor, I want to be in good stocks while they rise. Until I see a convincing reason otherwise, I am staying the course.
As Aesop said of those 0.25% average daily market gains: “Slow but steady wins the race.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
New Leaders Emerge as Market Dynamics Change
Income Mail by Bryan Perry
A Bullish Breakout That’s “As Good as Gold”
Growth Mail by Gary Alexander
Growth Stocks Keep Trouncing Value (and Global) Stocks
Global Mail by Ivan Martchev
Measuring the Bull Market by the Numbers
Sector Spotlight by Jason Bodner
Where is the Market Headed Next?
View Full Archive
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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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