by Jason Bodner

May 23, 2023

It’s Friday morning and I’m tired.

Last night, I watched Game 1 of the Florida Panthers/Carolina Hurricanes Eastern Conference Finals in the National Hockey League Stanley Cup playoffs. If you listened to the media, Florida shouldn’t even be here, just squeaking into the playoffs in lowest seed in the East. But here they are, and the game went to quadruple overtime. Florida won with only 12.7 seconds remaining in the fourth overtime.

Watching hockey is boring for many. I still think hockey is the best sport but watching one game for 6-and-a-half-hours was tough for even me. I bailed after the first overtime at 11:30 pm. I imagine many would consider sitting through the whole thing a weird form of torture. Crazy enough, that wasn’t even the longest game in NHL history. No, that distinction came March 24, 1936, when the Detroit Red Wings beat the Montreal Maroons 1-0 in the sixth overtime after 176 minutes and 30 seconds of play.

Here’s the thing, though: Sure, there were herculean athletic displays, and crazy resolve, and superhuman strength in those four overtimes. For example, the Panthers’ Goalie, Sergei “Bob” Bobrovsky lost 20+ pounds in just one game of the playoffs! What became apparent after watching many periods of hockey- is the mental aspect of the game. Bob said it best when he called it a war of attrition, which is the process of gradually reducing the strength or effectiveness of someone through sustained attack or pressure.

It turns out that the first four NHL playoffs in this round of NHL games all went to overtime! It’s like the market, with the S&P trading in a range of 4,050-4,198 in April and May – unable to break out either way.

Trying to win at hockey is crazy. Trying to win at the stock market might be even crazier. Most people think it’s pretty easy to beat the market: Just pick a stock and lay your money down and watch it rise. Or be a long-term buy-and-hold investor. But the cold-hard truth is that only 4% of stocks provide the entire net gain of the stock market over the past 97 years, as proven by Hendrik Bessembinder. Investing in the stock market means you have only a 4% chance of winning. Put another way, the odds are stacked 96% against you. Perhaps like the computer Joshua said in War Games: the only winning move is not to play.

Well, rest assured that such a dire fate need not be true, provided you can find those 4% winning stocks. Constructing a system to do that has been my life’s work for the last 20 years. The key is using quantitative analytics to identify stocks with winning traits. But it also involves interpreting the market’s current status and the information it’s giving. And right now, there is a war of attrition happening on the order of quadruple overtime hockey – an exhausting battle that will leave a victor and a vanquished.

We can see that war unfolding in the buying and selling data. After rising in March and April, the Big Money Index (BMI) pulled back and churned sideways. The BMI is now coiling up tightly, looking primed to explode one way or the other, breaking out of this sideways deadlock.

Big Money Index Chart

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

Buyers and sellers are battling it out, but who will win? The key to that answer comes in the data.

First let’s look at unusual stock and ETF buying and selling data:

Big Money Stock-ETF Charts

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

At first glance, it doesn’t look like much is happening. But if we zoom in, we can see a winner emerging – even if ever so slightly. Here we see stock buying increasing, selling decreasing, and the index lifting:

Big Money Stock B-S Chart

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

The SPY is clearly breaking out, with unusual buying increasing. Now let’s look at what is being bought. That can tell us if this is sustainable or not. First, we see accumulation last week of small- and mid-caps:

Big Money Buying-Selling Market Cap

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

Before we get to which sectors are leading the way – let’s ask why there is so much buying?

One reason is that it may have something to do with the no-show of the dreaded “earnings apocalypse.” Earnings season is pretty much done at this point. According to Fact-Set, as of 5/12/23, 92% of companies reported earnings for Q1, with 78% beating EPS estimates and 75% beating sales estimates.

What’s bad about that? I’m sure the bears out there will find something to say, but I see sunny skies.

Now as for what’s getting snapped up, growth areas continue to lead the way. Tech, discretionary, and Industrials round out the top 3 sectors. Strong growth leadership is not the behavior of a defensive market prepping for a crash. It is the opposite. We see the war of attrition playing out in front of our very eyes:

Sector Table

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

We can also see the buying happening in these strong growth sectors too:

Technology vs XLK Discretionary vs XLY

Industrials vs XLI

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

Then we look at the “middle-meat” of the market sectors. We see constructive buying (green) in those, too. Staples, Materials, and health all are seeing young shoots of buying potentially foreshadowing more to come. Even Energy is seeing its first noticeable buying in a while:

Staples vs XLP Materials vs XLB

Health Care vs XLV Energy vs ELE

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

When we turn to the laggard sectors, we still see promise. Perhaps we aren’t seeing convincing buying, but we do see selling dissipating to practically nothing. This is especially good news for the troubled banking sector, as relentless selling seems to have stopped for now:

Communications vs XLC Financials vs XLF

Utilities vs XLU Real Estate vs XLRE

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

So, without getting tainted by the media’s endless portrayal of doom, I look at some very promising data.

In summary:

  • The BMI’s fall has slowed to a sideways coil, about to spring up.
  • There is noticeably more buying than selling.
  • The SPY (S&P 500 ETF) is breaking out.
  • Small and mid-caps are being gobbled up.
  • Earnings are working well.
  • Leadership is in the growth sectors.

Wrapping up, logic says the Florida Panthers shouldn’t be this far in the playoffs, winning a second overtime game on the road Saturday night against the favored Carolina Hurricanes. The same logic says the market should be in worse shape. But the data in both cases supports an emerging picture of victory.

It’s still too early to tell in each case, but thus far, it’s black and white: The underdog Panthers are winning a lot of playoff hockey games, knocking off the best team in history on the way, and the stock market is also strengthening in many aspects, flying in the face of many pundits.

Like Benjamin Franklin said, “Believe none of what you hear, and half of what you see.”

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

Please see important disclosures below.

Also In This Issue

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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