4-5-22: Don’t Buy Into all the Bad News (the Market Isn’t)

by Jason Bodner

April 5, 2022

Don’t believe everything you hear. It’s often untrue and most of the time it helps sell a different message.

I’m sure you’ve all heard that Albert Einstein flunked math as a kid. It’s comforting to know that a genius can fail and then reach the highest heights. His story is motivational and uplifting. It’s also utter hogwash.

Einstein was a child prodigy and he aced everything math-related, so where did this myth come from?

It’s likely that Einstein’s first biographers weren’t as sharp as he was. They likely got confused by the grading system of his Swiss school. At age 16, he got a “1” out of 6 in arithmetic and algebra. But they didn’t know that 1 was the highest and 6 was the lowest grade. The next year, he got a 6 of 6 in math because the school reversed the grading system that year, making 6 the highest grade. Simple solution.

But “when truth encounters legend,” as the saying goes, “print the legend.”  The story sounds better if Einstein bombed math, perhaps because that makes us feel less dejected when we bomb at math for real.

The news rhetoric, as always, is highly pumped, making us anxious, but have you considered – making us anxious is the point, because bad news keeps our eyes glued to the screen. This way, advertisers get their message across to a larger captive audience. But I must ask – is the world really as bad as they say it is?

COVID is real but dwindling. Inflation is high but will retreat. The Ukraine war may be simmering down in terms of media hysteria. Interest rates are lifting but are still at historic lows, and will be for a while…

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

Plus, rates can’t rise too much when we have a huge balance sheet – like $30 trillion in national debt:

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

The action in stocks is giving us a clue that all may not be lost. Let’s look at the data to get an idea.

The Big Money Index (BMI) measures institutional money flows on a net basis (net all buying and selling on a 25-day-moving-average) to get a sense of inflows or outflows. It has been rising lately, indicating more buying than selling, overall. It has now reached its highest level since November 22, 2021. That’s important because November 15^th marked the peak for many growth sectors – especially in technology:

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

So, with headlines rattling nerves, equity investors aren’t buying it. We see similar indications when we look at big buy and sell signals on stocks and ETFs. Selling has evaporated on both stocks and ETFs.

Buying is also picking up. That can be seen in the charts below, but a word of caution: With the recent big bounce, the sudden absence of selling could mean short covering is dying down and there may be room for the market to consolidate. In other words, the market bounced and might give a little back soon. While recent price action is constructive, the market is like a rubber band. When stretched, it usually snaps back:

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

I believe the buying has been constructive and might carry forward, firming up the market. It’s important to understand where both buying and selling have been taking place. Below we see the charts of buying and selling per sector for the week of March 28-April 1^st. What jumped out at me was Health Care saw solid buying and Real Estate suddenly showed up in the buy column. The big news for the selling side may look like it’s Discretionary selling, but as I’ll show you, that’s not a big deal yet.

What jumped out to me was the continuation of low tech selling after the tech rout starting in November:

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

Now let’s dig into each sector to get a feel for what investors might be thinking.

With the recent market bounce, Communications selling evaporated coupled with solid buying. I mentioned Discretionary selling wasn’t as big of a deal as it seems. The brown line on the chart shows that despite being big for the week, it’s well below the destructive levels seen in the last six months:

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

That can be explained by last week’s 105 sells being at more normal levels for our 30-year history.

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

Moving on to Energy, the sector is very extended. There is zero selling but buying has slowed a bit. If there is any positive news out of Russia-Ukraine, I’d expect the sector to give back some gains.

Financials also saw an immense rebound:

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

Health Care saw notable buying last week. Of the 65 buys recorded, the average fundamentals score was 53%. That means strong and weak stocks were bought indicating to me broad short-covering.

Industrials saw a lack of selling:

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

Materials buying slowed, with a big rally but saw new selling, also an indication of short-covering.

Staples stocks, usually dividend rich, saw fresh buying too.

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

Real Estate was a big story last week. Wednesday March 30^th saw the most Real Estate buying in 9 months. Investors are looking for yield-bearing stocks invested in hard assets as an inflation hedge.

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

Next, we looked at Technology, which has been battered since last fall. Selling just up and left and we’ve seen early but positive indications of buying in the sector.

Lastly, we see Utilities buying following the lead of Real Estate.

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

Communications, Real Estate, and Utilities stocks are being bought for their dividend yield.

If the market really thought that immense rate hikes were coming, these stocks would be less interesting, and Financials would be bought, as they could lend at higher rates and have higher profit margins.

Higher rates would also make tech stocks less favorable because they must finance growth at higher rates. We are seeing early indications of the opposite action here. My takeaway is that recent buying indicates the death-spiral is over for now. Einstein didn’t bomb at math, so don’t believe everything you hear. The current market certainly isn’t buying into all the bad news myth-making going on around us.

Important Disclosures:

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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