by Jason Bodner

March 23, 2021

I catch flack if I don’t pick up my phone when it’s incessantly ringing. That’s because I get very focused on what I’m doing, so I often just let the phone go to voicemail. Still, just the annoying buzz-buzz of the phone vibrating is enough to sometimes derail my thoughts. Even though friends and family get annoyed when I don’t pick up the phone, my decision is well justified. I just found out that “interruption science” research found that it takes an average 25 minutes to regain focus after being interrupted by a phone call.

In this modern distracted world, it’s tough to focus, but when it comes to stocks, that world is a vast ocean of distraction. Everyday price action alone can be enough to switch people from happy-face to frowny-face. Last week was no exception. Stocks were up and down, and heads were scratched while nerves were tested, but if we can let the metaphorical phone just ring and ring, we can focus on what’s really going on.

Let’s start with tech stocks. Why? Because the tech sector has been punished since February. I will use QQQ as our baseline – that’s the NASDAQ tracking ETF. QQQ peaked February 12th at $336.45. It proceeded to fall 10.85% to trough out at $299.94 on March 8th. That was enough to officially push the QQQ into “correction” territory, which lasted for the grand sum of one day.

QQQ Graph

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

Last week saw the Qs end the week at -0.68%. But it was bumpy, climbing 2% Monday to Wednesday only to fall -3% on Thursday and then regain some ground on Friday.

QQQ Graph-Bars

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

So, the question pops up: Are we headed lower? Emotionally, this kind of price action doesn’t inspire much confidence, but let’s not get distracted by the phone ringing: What does the data say?

The first thing I noticed looking at QQQ was this: Since Jan 1st, 2021, there were 11 days where volume was 1.5 times the 20-day Average Daily Volume (ADV) of 77 million shares. Looking at 20 trading days (about one month) of average volume gives us a yardstick to compare trading days. Of those 11 high-volume days, eight were down days and three were up. The average return was -1.21%. Included were:

  • 1/27 -2.79%
  • 1/29 -2.10%
  • 2/25 -3.49%
  • 3/3  – 2.90%
  • 3/4  – 1.64%

Thursday’s -3.06% volume only equaled the 20-day ADV. This is important because when markets crack, they typically do so on BIG volume, like the 150% days detailed above. In fairness, the QQQs are not indicative of the overall market. But it does say Thursday’s ugly price action on the Qs – where the pain was – was not particularly impressive. It was “average,” at best. If we were to retest the lows, we would need to see bigger volumes. This action indicates to me that we are in a volatile period.

When earnings season dies down, the winds pick up before the next earnings season comes, which is still a few weeks away. There are fewer meaningful catalysts, and trading typically becomes choppy. And when earnings resume, we can expect to see stellar year-over-year comparisons.

What does the Big Money data say? First, let’s look at Big Money buy and sell signals since February 1st. Two weeks later, stock prices deteriorated, primarily in the NASDAQ. The S&P 500 and Russell 2000 performed reasonably well in the “tech-wreck.” When we look at Big Money buying and selling, we see that the weather was sunny. In the table below, I highlighted in green the days where net buying was greater than selling, and I highlighted in red the days where net selling was greater than buying. The yellow highlights are days where net buying over selling was less than 70%. All this really tells us is that despite some volatile price action the buyers are still overwhelmingly in the majority:

MAPSignals

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

These signals are major components of the Big Money Index (BMI), which fell from overbought. But as we can see, it was not due to monster selling. It was due to just a little selling finally showing up. Markets were so overbought for so long, because no selling was being registered at all. The recent uptick in selling was all it took to push the BMI out of overbought. Now, it is stabilizing and moving sideways short term.

MAPSignals Big Money Index

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

The market’s price action itself is the phone ringing here. We hear it, we know someone’s calling, but the data says it’s not as important as focusing on the real picture: There’s buying happening.

The reality here is that we hit a bumpy patch between earnings seasons. The reopen trade is alive and well. Vaccinations are happening at lightning speed. There is plenty of pent-up demand in an economy which should fuel job-growth and discretionary spending. Tech companies are getting punished, but these are where the “juice” is in terms of fundamentals. Look at this FactSet chart of companies within the S&P 500 that have positive guidance over negative. See a positive outlier here? I do: Tech. Number of S&P 500

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

Here’s the bottom line: I try not to get distracted by the noisy chaos of the market and the media. By quietly and methodically measuring what Big Money is doing, I hope to get a clear picture, even in the dark. It’s kind of like my own personal radar or sonar. The data says to me that lows have been put in and there is real buying taking place. After all, the tech stock market corrected officially for only one day.

In reality, overbought markets eventually need to pull back. We saw some give-back in between earnings seasons. The data says buying under the surface should power us higher in the coming weeks. I have been using these pressure points to buy great stocks at favorable prices.

We have oodles of things to fixate and focus on, especially when it comes to stocks. If I let my emotions get to me, I’d focus on all of them and get nowhere. Instead, when it comes to stocks, I focus only on data. As George Lucas said: “Always remember, your focus determines your reality.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Inflation Fears Continue to Mount

Income Mail by Bryan Perry
Corporate Investment in Tech is Set to Surge In 2021

Growth Mail by Gary Alexander
Which is Scarier – A Market Meltdown, or a Melt-Up?

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.

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