by Jason Bodner

April 26, 2022

“Home Alone” still cracks me up, 32 years on. Actor Daniel Stern (playing Marv) got a tarantula put on his face (below). His howl was amazingly funny because it was a real scream… At the last moment, the prop tarantula was replaced with a real one named “Barry,” because they wanted Marv’s fear to be real.

It sure looked real to me, because it really felt­ real to actor Daniel Stern:Home Alone Movie Pix

The real world has a lot of fear right now, reflected in last week’s panicky market action. Scary times are actually good times to buy. I’ll get to that in a minute, but first, let’s look at the market – top down …

The Big Money Index (BMI) measures unusual buying and selling, using a 25-day moving average. Since February, the BMI has lifted, but markets didn’t bottom until mid-March because buying in some sectors overpowered the destruction of others. Last week, however, the market suddenly turned southward again, supposedly because Jerome Powell put a tarantula on investors’ faces by indicating that he may pursue more aggressive policies to tighten the money supply and fight inflation. Was that a fake or real tarantula?

BIG Money Index Chart

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

For a partial answer, let’s look at the selling that spoiled investors’ moods last week. Remember, there has been much destruction over the last six months. How did last week compare? Actually, I’d say it was mild on a relative scale. Let’s compare last week’s selling with the months prior – in both stocks and ETFs:Big Money Stocks Buys & Sells & ETFs

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

The red lines (selling) were much deeper in November, January, and March than last week. Selling, of course, can intensify from here, but for now, the selling is below average for the last six months.

Turning to sectors, last week’s selling (below right) concentrated in the painful areas – tech, health care, financials, and discretionary. Buying was in real estate, energy, utilities, and industrials (below left):

Percent Buys & Sells from Universe Pie Charts

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

Since we’re focusing on selling, let’s look at weak sectors first. Below we see last week’s pain points.

Technology vs XLK & Discrestionary vs XLY Charts

Health Care vs XLV & Financials vs XLF Charts

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

As these charts show, despite tech’s ugly action last week, selling was nowhere near prior monumental levels of November, and late January. Discretionary, health, and financials are also below average.

We do, however, see some intensification of selling, but that’s often like aftershocks of an earthquake. Obviously, the market had several earthquakes in the last six months, but as investors digest the unfolding new environment, reactions should become less severe. And it’s not all bad news. Some sectors fared well: Real estate saw another spike of follow-through buying from March. Energy saw refreshed buying earlier in the week but no selling to speak of, and industrials and utilities saw hardly any selling.Real Estate vs XLRE & Energy vs XLE Charts

Industrials vs XLI & Utilities vs XLU Charts

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

Rounding out the more range-bound sectors, staples and materials also saw lower-than-average selling for six months. Communications is a peculiar sector because it has the smallest universe – roughly 30 stocks. Smaller data sets mean less reliable data. Compare that to tech with roughly 250 stocks.

Staples vs XLP & Materials vs XLB Charts

Communications vs XLC Chart

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

Despite lower-than-average selling, markets may want to roll over. We’ll see, but the encouraging thing I see is that since the mid-March lows, markets have been making higher highs and higher lows. SPY, DIA, and QQQ have all been up-trending since March lows. The exception is the sideways IWM. It will be interesting to see if this uptrend (higher lows) holds and we bounce, or if we give way and reverse lower.

Big Money Index Charts

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

At this precarious market moment, I think it’s good to step back and contextualize. Given that tech was the strongest sector for 10+ years, many investors are overweight in tech shares. And that’s where the pain has been. Last week’s negative news from Netflix didn’t help matters much.  Like many of you, I too hold many phenomenal technology companies that grow sales and earnings and provide products and services we all use, but that doesn’t mean their prices won’t go down in this environment.

But, let me ask you a few questions about the direction of technology from now until 2027:

  • In 5 years will we be less reliant on Siri or Alexa?
  • Will we go back to Cable TV?
  • Will we use word processors again instead of laptops?
  • Will computers become less important in our lives?
  • Will chips become slower?
  • Will our networking needs wane?

I’d say the answer to all of these questions would be “No.”

I believe tech is at the core of the modern Industrial Age of the 20th and early 21st century. In the dawn of aerospace, for instance, planes didn’t suddenly vanish during hard times. We became more reliant on them. Tech is the same. This temporary tech correction punishes companies priced on forward growth, which is now in question. But no one should question the necessity of the sector and its transformational impact on humanity. Will innovation cease because interest rates might go up by a percent or two?

Again, no.

I think it’s also important to remember that what we’ve seen so far is what I call ghost tightening – a phenomenon whereby officials talk about future actions but don’t yet perform those actions. Then, through media enhancements of geopolitical and economic events, and Fed hawkish language, money tightening is happening in real time through market corrections.  I have written extensively on this topic. I see this as an engineered strategy to take money out of the system without raising rates so much that it would damage our economy. I believe that strategy is playing out perfectly in front of our very eyes.

Money is coming out of the system, and the froth is fizzling. Add an inevitable reinforcement of the labor force and the supply chain, and the table is set for a bullish time, which I believe will come in 2023

The Fed is reducing its balance sheet by $9.5 billion a month, but they increased it by several trillions, not billions. While $9.5 billion is a lot of cash, it would take 263 years of that to wipe out today’s public debt.

Tech is still very much the engine of our growth for the foreseeable long-term future. Tech may dip and dive the next few months as the poster child for punishing growth in a higher-rate environment. I foresee tech stabilizing after six months. Despite its tough talk, the Fed can’t raise as much as they say with a $30 trillion national debt. A 1% hike means $300 billion a year of additional self-imposed interest payments.

In 1-5 years, I believe tech is DEFINITELY higher. Now is a value opportunity. Reliance on tech isn’t diminishing; it is increasing geometrically. We’re going nowhere without technology.  Investing now should not come with the expectation of immediate gain, but I think gains are assured in years to come.

Price and value is what trading is all about. Updating an old line from Oscar Wilde, Philip Fisher said, “The stock market is filled with individuals who know the price of everything, but the value of nothing.”

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

Please see important disclosures below.

About The Author

Jason Bodner

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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