by Jason Bodner

April 13, 2021

Odd as it may seem, I think yellow traffic lights sum up human behavior perfectly. When lights at intersections rolled out in 1868, yellow wasn’t part of the plan. In fact, yellow lights didn’t exist until 1920. A Detroit police officer named William Potts introduced them to warn drivers of a coming red light. I guess he was trying to prevent crackups due to the sudden stop-go-stop transitions.

Here’s how the yellow warning light perfectly profiles our human nature: Most people’s eyes glaze over when they are faced with calculating probabilities. Concepts like risk assessment are actuarial science, but when it comes to zipping through a yellow light, people do heavy risk assessment and odds calculations almost instantaneously. Among the variables you calculate, consciously or unconsciously, are:

  • How many cars are at the intersection?
  • Are they stopped?
  • Is it rush hour?
  • Are cars quickly coming from the perpendicular road?
  • Are there cops around?
  • How fast am I going?
  • If I accelerate, will I make it in time?
  • How late am I for my next appointment?
  • Are there pedestrians present?

These questions and many more can go through our minds in a split second going 30 to 60 miles per hour.

Then, most of us gun it anyway, and fly through, just as it turns red. The satisfaction of surviving this adventure, un-arrested, is undeniable. Maybe that’s because the AAA estimates the average American wastes 59 hours a year at red lights. That works out to six months in a lifetime of waiting at red lights.

But I’d bet if you ask the average investor about their money, most wouldn’t have a clue as to their risk, their concentration, or even what they own. Most investors let someone else, their financial advisor, drive.

Hopefully, they pick safe drivers, especially as they approach some “deep amber” lights turning red.

They say patience is a virtue. But we all know it doesn’t come naturally for most of us. Neither sitting at intersections nor at investing. In both cases, we just want to get there now – or at least as fast as possible.

Patience Pays Great Dividends… Over Time, Of Course

Like much in life, the older I get, the more I realize that patience is usually the best course. That’s why I dig deep into the data to give me as clear a picture as I can get. This process leads me to “outlier” stocks, the 4% of stocks that account for 100% of the market’s gains over bonds for the last 100 years.

Sometimes when all is humming along, I focus on stocks. Other times I focus on the big picture – the Big Money Index to be more precise. Right now, it’s rising, which bodes well for future stock prices.

But does it, really? Let’s see why the Big Money Index says stocks are on the rise…

Here we find a 30+ year chart of the Big Money Index (BMI for short). Naturally, it doesn’t tell us much at first glance. And if I plot an index over it for 30 years, the time frame is too zoomed out to see anything meaningful. After all, the S&P 500 rose over 1,000% (1,048%, to be precise) in that time.

So, I dug into the data, because that’s what nerds do.

Thirty Years of the Big Money Index Chart

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

You don’t need to do the math. I did it for you.

What we can tell from that chart is that the BMI spent a vast majority of its time in the middle, between overbought and oversold. Out of 7,876 trading days (31-¼ years) the BMI was overbought 1,565 days – or 20% of the time. The BMI was oversold for only 292 days, or just 3.7% of the time. Those rare oversold instances are the golden tickets. That’s when you need to prepare to load up on outlier stocks.

Now, back to my question: Just because the BMI is rising, should we expect rising stock prices? It makes sense that we would, I mean, as big money rushes into stocks, they should go up on balance, right?

What I found was fascinating:

Thirty Years of Big Money and Standard and Poor's 500 Table

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

For 31-¼ years (7,876 days), the BMI rose for 3,706 days. That’s less than half the time, at 47%! But what’s eye catching is that on BMI up days, the S&P 500 also rose 67% of that time (2,474 days).

In contrast, the BMI fell 53% of the 31-year span (4,145 days). And on days where it fell, the index fell with it for 2,401 of those days or 58% of the time.

Fast forward to 2021. So far, the BMI only spent 25 of 67 days rising, or 37%.

Lastly, let’s take into account that the 31.25-year average for the BMI is 63%.

So where are we?

MapSignals Big Money Index Chart

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

This year so far, the BMI is below average in terms of time spent rising. But it is rising now. And as it rises, we can expect nearly 70% of the time that stocks will rise too.

Now before you skeptically tell me that “indexes usually go up,” check this out. The S&P 500 index rose only 53.5% of the time or 4,218 days of a possible 7,876. Those are good odds for a casino, but hardly great odds when assessing flying through a yellow light unharmed.

But a 70% chance that stocks rise? Those are great odds in the market. Right now, the BMI says higher highs are coming. And my approach is to find the leaders – or outliers that do even better than the market.

Nothing is certain, but using BMI history as a guide, it’s time to be bullish. The light is turning green.

Humans risk life on a split-second probability check, but we can be paralyzed when it comes to money. It seems like our priorities when it comes to money would be to be patient and purposeful and to prioritize.

As Stephen Covey put it, “The key is not to prioritize what’s on your schedule, but to schedule your priorities.”

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
We Are Now Essentially in Economic Nirvana

Income Mail by Bryan Perry
Taxing Foreign Profits – GILTI As Charged

Growth Mail by Gary Alexander
Inflation Will Roar Again – And Probably Soon

Global Mail by Ivan Martchev
Tuesday’s CPI Numbers Will Be Interesting

Sector Spotlight by Jason Bodner
Is the Stock Market a “Yellow Light Turning Red”?

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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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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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