by Jason Bodner
March 5, 2024
Humans crave stability, above all else. We want predictable outcomes, like safe retirements, with no surprises. We feel most comfortable with nothing to worry about.
Reality, of course, is different. What’s that old saying? “Man plans, God laughs!”
We try to plan our lives based around preventing disruptions. A case in point is our reliance on electricity. Most of the world functions on modern electronics. They govern everything from communications, traffic lights, flight control, work, play … you name it. But what if we woke up tomorrow and it was all gone… dead in the water – non-functioning? We largely discount that as a possibility, but an Electro-Magnetic Pulse (EMP) from space could easily knock us back into the Stone Age in a matter of days.
We laugh that off, but an 1859 solar disruption called the Carrington Event caused telegraph stations to catch fire. The state of technology in 1859 was primitive, compared to today, when a large solar flare could render us powerless instantaneously. We simply can’t plan for this most catastrophic event.
This is why when it comes to investing, I prefer to combine two approaches: First, I plan by stacking the odds in my favor, but then I always react to what the market does in real time. Right now, the planner in me saw the Big Money Index (BMI) fall from overbought, so I prepared for a market drop, and was ready to shed risk. But the drop never came. Instead, the data is constructive for earnings and for price action.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The message this week is the same: steady as she goes until the data shifts. This is a time when events can be counterintuitive. You may wonder: Isn’t the BMI falling from overbought a negative sign?
Like most things in life – it depends. In this case, as I have highlighted recently, the fall from overbought was not caused by an increase in selling. It was, in fact, caused by a decrease in buying from high levels in December. We can see that with the huge green spikes below in the stock and ETF charts of unusually large buying and selling. You’ll notice that the red (selling) since has been very low:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If the selling hasn’t picked up and stock prices keep rising, that indicates a pause in underlying market strength – not a weakening. We can also see that in unusual volumes. The amber bars (below) show when stocks are trading at unusual volumes. Notice the only dip in volume was at Christmas – to be expected:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, the market has kept on rising, on steady, unusual volume. The only thing that fell was the level of heavy buying. From my perspective, that’s hardly cause for concern. Now, if we should start to see heavy selling coupled with a falling BMI, that’s a flag worth paying attention to. But that’s not happening now.
Next, as we analyze where the buy/sell pressure is focused, we notice an interesting reinforcing pattern. Small- and mid-cap stocks are collecting most of the unusually large inflows. Since January 1, buys have been focused mostly on stocks under $50 billion in size (left). That pattern continued last week (right).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It also matters where the money is flowing into – into what sectors. When we look at sector strength and weakness, we see growth-heavy sectors at the top of the table. Technology, Industrials, Financials, and Discretionary lead. Defensive sectors lag – like Real Estate, Communications, and Utilities:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This pattern is also borne out in the charts of unusual buying and selling of stocks by sector. I think the clearest takeaway from these charts is that 10 of 11 sectors have been on the rise. Eight of 11 have been powered by green (unusually large buying). Only Utilities are weakening. As growth becomes more in demand, yield hungry plays like Utilities, Communications, and Real Estate become less appealing.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It’s only human to be constantly waiting for the next shoe to drop. But that doesn’t help us emotionally or psychologically as investors. I for one, don’t want to go through life in a constant state of worry. It is best to understand the environment, infer likely outcomes, plan accordingly and react to reality as it comes.
Right now, the information tells us a few things clearly:
- The stock market is strong. There is more buying than selling.
- Earnings are working: According to FactSet Earnings Insight, with 97% of S&P 500 companies reporting, 75% of companies have beaten earnings, and 64% have beaten revenue expectations for the fourth quarter of 2023.
- Bellwether stocks are leading the market higher. Mega-stocks* like NVDA, Microsoft, AMZN, and META all powered indexes higher, providing solid indications of a continued economic recovery and a resilient consumer.
- The Fed’s stance on interest rates is clear. Rates will fall in 2024 – it’s only a question of when. And the closer we get to the election, the less comfortable the Fed will be in being perceived as interfering with it, so action should come soon.
- The military conflicts in Ukraine/Russia and Israel/Gaza are fizzling out of the media cycle. That to me is a dead giveaway of the lessening implications. If people aren’t clicking the stories and not reading them, the media agencies will likely stop running the story. They will chase other fears to fan the flames of worry. That’s how they get ads seen and make money.
There you have it. The market is strong, earnings are working, and other than taking some strategic profits to use for future purchases, it’s best to remain steady as she goes.
As John Lennon said, “Life is what happens when you’re busy making other plans.”
Navellier & Associates owns Nvidia Corp (NVDA), Amazon (AMZN), and Meta Platforms Inc Class A (META), in managed accounts. Jason Bodner owns Nvidia Corp (NVDA) personally. He does not personally own Amazon (AMZN), and Meta Platforms Inc Class A (META).
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
What Could Go Wrong After This Super Start to 2024?
Income Mail by Bryan Perry
The Coming Tidal Wave of AI-Driven Layoffs
Growth Mail by Gary Alexander
The U.S. Growth Machine Will Likely Rescue the World (Again)
Global Mail by Ivan Martchev
Small Caps are Due to Move Violently to the Upside
Sector Spotlight by Jason Bodner
When Reality and Perfect Planning Clash, Trust Reality
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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