by Jason Bodner
April 11, 2023
Make money? No Problem! Or that’s what ads on TV want you to think. It’s so easy to make money in stocks that even a baby can do it. Remember this popular ad? It’s so easy, even a baby can do it.
If the ad execs take it one step further, we won’t even need a brain to navigate the never-ending puzzle of the stock market. It turns out that Physarum polycephalum, a type of slime mold, can solve complex mazes. It doesn’t even have a brain or a nervous system.
Well let’s get one thing straight: making money in the stock market is harder than the ads tell you it is.
You see, the market is a giant mass of investors – each with thoughts, feelings, and emotions, like fear and greed. Sure, the machines are there, too, but don’t forget: They are programmed by humans – at least for now they are. And these feelings and emotions are swayed heavily by the news media.
We have a huge plate full of anxieties these days – fears of a recession, concerns on interest rates and inflation, the Russia/Ukraine conflict, oil price volatility, and political scandals, just to name a few.
All of these things make it seem impossible to profit in a market that just won’t make it easy on us.
But I’ll let you in on a little secret: With the right tools, it can be easier than it seems. The right data can help identify stocks that outperform, sector leaders and laggards, and even help with timing the market.
Data trumps what the news is pumping out. Back in September, selling became unsustainable as evidenced by the Big Money Index (BMI). When it goes down into the green, it means unusual trading activity was 25% or less was unusual buying. That level is unsustainable and is a strong buy signal.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Like clockwork, the market pivoted and started to rally. That rally has been happening despite all the negativity in sentiment and headlines.
Recently, the market came within a kiss of being oversold. That’s great. It means we could be going much higher. But on the other hand, it was due to selling disappearing as opposed to buying taking over:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The Fed is likely at or near the end of its rate hike cycle, and their battle against inflation is working, as we are seeing some indications of economic cooling. Perhaps that helps explain why market leadership has been in tech and discretionary, two very powerful forces for a new bull market to emerge. We need growth sectors to drive prices higher, and this tells us the market sees fewer impediments ahead.
We can see this reflected in the sector leadership table below. Tech and discretionary are tops while financials and real estate are in the basement:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
When we dig into individual sector charts, we see not only that selling has dissipated, but we also are seeing signs of buying. Tech, Discretionary, and Materials are seeing little green shoots of buying lately:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Industrials saw some selling into recent strength:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
After recent weakness, energy saw some tiny buying which is interesting given how deep the sector pulled back. There was also healthy buying in staples, utilities, health care, and communications stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
And finally – we can see clearly why financials and real estate are ranked so poorly. The selling was heavily concentrated in those two sectors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Earnings season is nearly upon us, and everyone is still freaked out about a banking crisis and a recession. It feels like the market’s next move could be a coin toss. Fear gets in the way of objectivity and buying stocks at highs feels wrong. It becomes confusing, and in some cases paralytic. That’s the problem with making money. Once again, emotion gets in the way of practical objective thinking.
The other problem is that the pickings can get slim. What I mean by that is, stocks that rise to the top of screens become saturated. For instance, one stock can appear at the top of my list week after week. If that happens often, and we already own them, pickings become slim. I am seeing a lot of that now.
The good news is that with a quantitative approach, there are always opportunities, regardless of what the broader market is doing at the time. Sure, some days are easier than others. Think for instance, just after COVID-19 when the market screamed back to highs! But when COVID first hit, it wasn’t easy.
That’s why I am such a zealot for quantitative analysis. It filters out all the emotion, all the confusion, all the heartache of investing. It allows us to adopt a procedural, unemotional approach to managing our money. After all, if you hire money managers, I doubt you’re looking for the most volatile personality you can find. No – you want a cool customer when things get hot, so you don’t overreact.
When we start winning, we get addicted to a feeling of success… we want more. Emotion can take over and eschew logic. But in the world of investing, it is paramount to keep emotions out of the way.
That’s a time to focus on what the data says.
More is a great word. I forgot which movie, but one character asks the other: “You have everything anyone could possibly want… riches, power, fame… what else could you possibly want?”
The reply was simple: “More.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
President Biden’s Saudi Insults Have Come Home to Roost
Income Mail by Bryan Perry
Earnings Season is the Next Big Hurdle for Equities
Growth Mail by Gary Alexander
A Tax Time Bomb is Ticking
Global Mail by Ivan Martchev
The Odds of a May Rate Hike Just Rose
Sector Spotlight by Jason Bodner
Investing Isn’t as Easy as Child’s Play…But It’s Close
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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