by Jason Bodner

May 5, 2020

I’ve been a jazz fan since the 80s. When I couldn’t sleep, my mom bought me the Sony Dream Machine, an alarm clock with a “Sleep” button. You could listen to the radio for a set time: 30 or 60 minutes, and then it would turn off by itself.

I picked the most “boring” music I could find on the Atlanta radio dial to help me sleep: Jazz. But I lay awake for hours listening. The music grabbed me forever. It was simultaneously lush and complex, harmonious and dissonant. I’ve been hooked ever since. I was a nine-year old Jazz guitar addict while my friends were air-guitaring Van Halen. I saw things differently. It reminds me of an old saying:

What’s the difference between Rock and Jazz guitarists?

Rock Guitarists play 3 chords in front of 30,000 people

Jazz Guitarists play 30,000 chords in front of 3 people

Sony Dream Machine Image

I’m also addicted to stocks. But keeping with my music tastes, I see stocks differently than most. I grew up in the 1980s hearing of fortunes made in the stock market. There were hot tips and free advice everywhere. Naturally, making money was never as simple as “buy low, sell high.” I ended up on Wall Street and learned that even professionals found the market baffling. It was clear: Market success was more about who you knew as opposed to what you knew. I thought I’d never figure it out.

All that changed when I was asked by a big London trader to make sure he knew about every huge trade in the market. I couldn’t monitor thousands of stocks myself, so I programmed a computer to do that for me. I started to see how big trades could move markets. Then I got to handle monstrously large orders for stocks and saw first-hand the impact of the biggest players in the market.

That’s how I learned to “read” the market based on what the big money is doing. It allowed me to write here last January that the market was overbought. It allowed me to predict a pullback in February and March. It allowed me to call “oversold” conditions and predict a market bottom almost to the day. I realized long ago that big money dictates the markets, so let’s see what the Big Money is saying now…

The Big Money Index (BMI) is Mapsignals’ market indicator. It tracks the unusual buying and selling of big investors in stocks. It nets daily signals in terms of buying and plots them on a 25-day moving average. A BMI signal of 80% or above (buys) is overbought and indicates a fall is near. A reading of 25% and below is oversold, indicating a rise is highly likely, just like in March.

The BMI led me to predict a market trough on Friday March 20. It actually happened on Monday the 23rd. The BMI went oversold on March 18th and troughed at 9% on March 27th. It’s been rocketing upward ever since. In fact, it shot up to over 74% last week. That’s just below the overheated level of 75%.

The only data changing now is that volumes are increasing. That means more stocks are trading above their average volumes recently. March volumes exploded. One component of a buy signal is a time frame of five weeks. Each day we get further from the March volume peak, making signals possible again.

The big thing to know is that it’s likely that the BMI will signal “overbought” conditions next week:

Russell 2000 versus MapSignals Big Money Index Chart

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

Check out the following chart. It shows how low buying and selling is under the surface of this rocketing market. It’s the daily net of buys and sells. Green bars = more buys; red bars = more sells:

Russell 2000 versus Net Stock Buys/Sells Chart

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

This usually happens after a reset. Again, last month’s huge rally was because sellers vanished and only a few buyers showed up. As we approach overbought, know it’s a technical signal; it’s not buyer fueled.

Tech and Healthcare are the Current Leaders

Sectors are also good indicators of near overbought or oversold conditions. Healthcare (specifically Biotech) seems like it would be overbought, but is it? You can see buying is very low, but ready to rise.

XLV Versus Health Care Big Money Sell Index Chart

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

The selling from March has fallen to zero. It means Health is nowhere near overbought. Selling dropped to zero. Buying is increasing. This means the market shift is happening to risk on:

XLV Versus Health Care Big Money Buy Index Chart

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

Let’s now look at tech, the next strongest sector. Is it overbought?

XLV Versus Infotech Big Money Sell Index Chart

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

XLV Versus Infotech Big Money Index Chart

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

Thematically, COVID-19 names are still ripping higher. If anything, it seems as though the market is looking past this summer and into the back end of the year.

The news is bad but trying to focus on reopening. Many don’t believe in this market rally. But here’s the bottom line, according to the data I watch: the BMI is bullish, sector positioning is bullish, earnings reactions that matter are bullish, although the GDP news likely means more accommodation.

Looking at where the buying is coming from, it’s mostly in two places, Tech and Health Care. Both of these are signaling gains to come.

Mapsignals Sector Rankings Table

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

When the market didn’t make sense to me, data led the way to clarity. It was like someone gave me sight after years of blindness. Just like Mary Ann Franco. She lost her sight in a car accident in 1993. All she could see was blackness … until 2015, when she fell and hit her head. Her vision suddenly returned, confounding doctors. It’s all about what we see…

Hellen Keller said, “The only thing worse than being blind is having sight but no vision.”

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

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
“Computers Gone Wild”

Sector Spotlight by Jason Bodner
Is the Market Entering “Overbought” Territory Again?

View Full Archive
Read Past Issues Here

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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