April 9, 2019

Sometimes things are not what they seem. For example, The UN’s initial purpose was to win WWII. The term “United Nations” was coined by President Franklin D. Roosevelt in the “Declaration by the United Nations” on January 1, 1942, just after America entered WWII, when representatives of 26 nations pledged to fight together against the Axis Powers. The peacekeeping angle only came later, after the war.

Our primary institution dedicated to world peace got its start as a win-the-war exercise. Life is often counter-intuitive. Humans want stability, but things don’t often go the way we feel they should.

Remember late December 2018, when it seemed like we were headed straight into a bear market? Growth was over. Depressed markets were “still overpriced” in some pundits’ views, as they hit fresh lows. The mood was dour, the situation dire. Many concluded that the long bull market had finally died.

But just as many fell for the market’s death, it perked up, said, “Just kidding!” and got up and scampered away as fast as it could. I’ve published this table, below, throughout the new year, with that right-most column showing a frisky rising market that’s saying, “I have somewhere I have to be, and it’s not down!”

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

I know it’s boring by now, but the recent growth is mostly Growth! That’s right – Growth is back. Growth is king again. The poison pill that was supposed to undo global stocks in 2018 is the all-conquering hero of 2019. For those who got spooked, selling or switching to defensive sectors proved a costly mistake. The S&P 500 Growth index is the biggest S&P performer since the Christmas lows.

The NASDAQ Composite is the biggest broad index performer in the same time, up 28.2%. The Russell Growth indexes are whipping Russell Value by eight points. Infotech, Discretionary, and Industrials are the leading sector indexes. Utilities, Health, and Staples lag notably. Finally comes the powerhouse PHLX Semiconductor index – up almost 6% last week and a massive +38% since Christmas.

This should leave no doubt as to what is pushing this market higher – Growth. Let’s review:

First, remember that the MAP Ratio we calculate every day measures unusual institutional buying versus selling on a 25-day moving average, meaning we tally up unusual buys and sells and make a daily ratio, then we take the 5-week average. That allows us to identify overbought and oversold points.

So, when the MAP ratio went oversold in late December, that was our “everyone back in the boat” signal. The rally started and the ratio screamed higher. When we went “overbought” on February 6th, I said it could stay that way for a quite a while, and it did. That ratio peaked on March 1st and it fell steadily since. The market exited overbought on March 27th and is currently in neutral territory (see table below).

MAP Ratio Exits “Overbought” Condition

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

So, what does a 78-79 reading mean? Well, it means that we are still seeing outsized buying. The buying outnumbers sells significantly, but not enough to be unsustainable. That’s good, because that means we are in a healthy zone for a continued bull. When the ratio is in the 60s or 70s it’s a healthy and sustainable ratio of buying to selling. If there is 78% buying versus selling, it stands to reason that market prices will trend upward. And that is precisely what we are seeing.

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

Remember all that ETF selling I used to talk about? The market got spooked, plain and simple, in late 2018. The jitters caused a technical collapse and forced ETF selling, which peaked at the market trough.

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

If you look at the green bars to the right in the above chart, you’ll notice that we are beginning to see ETF buying return, with little hint of selling. That means the massive capital outflows out of ETFs preceded a new rush of capital into ETFs. Buying is nowhere near as intense as selling, which indicates there may be plenty more buying to come. We believe all that ETF selling caused the intense stock selling in late 2018.

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

On Friday, we noticed that 17% of our tech universe was being bought, a large number. Crypto, China, and Global stocks are rallying, setting up a nice continued rally. Prior pain-points are leading us higher.

The UN was a fighter before it was a peace-keeper. The market low was a trigger for a new bull market.

Before you decide where the market will go next, think of Tommy Cooper, who said, “I used to think I was indecisive, but now I’m not so sure.”

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*

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