by Jason Bodner
June 13, 2023
I have something to say to those who are waiting for the next market shoe to drop and are still sitting out the expected coming crash (or recession). I say: The data says you’re going to miss out on more gains.
Here’s why: As the old saying goes: “Once bitten, twice shy.”
That saying implies: “Pay attention! Don’t do that again!” It’s about getting burned and learning your lesson. But is painful experience really the best teacher?
Look at the case of Bill Haast, a renowned snake handler and scientist. He spent his life working with poisonous snakes. He led an extraordinary life dedicated to studying and working with poisonous snakes. He was famous for being fearless when handling the world’s deadliest snakes. He was bitten 173 times. Not only did he not die from it – in fact, he lived to the ripe old age of 100!
How did he do that? Well, he inoculated himself with small amounts of venom over long periods of time and thereby built up resistance to the toxins. If he followed the “Once bitten, twice shy” adage, he likely wouldn’t have pursued his passion, and most certainly wouldn’t have lived as long as he did!
As investors, we too have a choice on how to handle getting bitten. Let’s face it: Bad times happen to all investors. Show me a person who bats 1,000 and I’ll introduce to you to the next Bernie Madoff. The question is how we deal with losses and, more importantly, what will these losses teach us?
Oddly enough, right now is an excellent opportunity for self-assessment as stock investors. Apart from a very few winners, most investors got hammered sometime in the first three quarters of 2022. Many exited their positions to raise cash. Intuitively, that made sense: Protect what’s left and live to fight another day.
But right now, some regret may start to seep in. The stock market has rallied significantly from its October lows. Tech led the rally, and it has been stunning. Here are some index rallies from the lows made October 12, 2022. I’ve highlighted the top performers. The PHLX semiconductors index rallied an astonishing 62.5%! The Nasdaq 100 is up 35.75% and a couple of S&P sectors are also up over 30%.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
It might have felt good to “sidestep the coming pain,” but now it’s not looking so hot. This regret invariably morphs into FOMO – which is when bears start to capitulate. “Fear of missing out” (FOMO) is a form of regret for those who said, “Once bitten, twice shy” and decided to sit out the bear market.
Like I said: those waiting it out might be making a big mistake. Let’s look at the data and see why…
I always like to start with the Big Money Index, a 25-day moving average of all unusual buy and sell signals. It gives us a great indication of big institutional money flows. It was falling for much of April and May. Despite that, the S&P 500 was rising. I explained that was due to the immense buying pressure of tech stocks. That sector single handedly propped up the market. But suddenly, the BMI is rising again.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The data has recently shifted. Selling has essentially vanished into thin air. Here we see an intensifying of buying of stocks coupled with a sudden vacuum of selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
You may be thinking: That could just be tech stocks holding the market up again. But you would be wrong. Buying in small cap stocks over the last week (as of Friday morning) has been immense.
Look at this cross section of buying (divided by market cap) and you’ll see what I mean:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now let’s compare that last week’s chart to market cap buying and selling for all of May:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There is a clear shift – from selling small-cap and mid-cap (in May) to buying (in June)!
Now let’s dig into the sectors to see if it’s only tech holding up this market. To spare you the suspense: It isn’t. Not only is each sector rising in price, but the buying is measurable in every sector.
First let’s look at how they rank in our system:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The growth sectors are still on top: Tech, Discretionary, and Industrials. There is also visible buying in each sector lately. This is inherently very constructive for a new bull market:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Energy has seen a bit of a resurgence, in part due to news of the expected Saudi output reduction, along with some green buying. Materials saw immense selling, which we pointed out as a major reversion signal. And, as if on cue, the sector had a massive bounce and even exhibited new buying:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Moving into the lower tiers of sector rankings, we see signs of buying. Staples and Health Care have been muddling along after some pressure, but suddenly we see fresh green shoots of buying even here. And remember when our global financial system was going to collapse because of our failed regional banks, back in March? Well, what didn’t seem possible in March is happening now: Buying financials stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now as we make our way to the sector rankings basement, we still see signs of buying and, perhaps more importantly, less selling. Real Estate, Utilities, and even Communications show signs of firming up:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We are seeing signs of buying under the surface across the board. Market caps that were previously under pressure are getting snatched up. And in so doing, investors are lifting nearly all the sectors. The story of Tech holding up the market could have turned to one where the market tumbled after tech cracked. But the opposite happened: Tech stayed strong and everything is running faster now, trying to catch up.
The new bull market is here, believe it or not. The data says so and so does the official definition of a bull market. Investors could continue to sit out for fear of being bitten, but our data says they’ll likely miss out on more gains. Once bitten, twice shy doesn’t work, unless you take the right precautions first.
Let’s follow Bill Haast and try what Mari Mancusi said: “Once bitten, totally smitten.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Small Caps and Energy Stocks Still Look Good
Income Mail by Bryan Perry
Investors Taking a Year-End View Should Be Well Rewarded
Growth Mail by Gary Alexander
As Adam Smith Turns 300 (With Marx at 205 & Keynes 140), Who’s Winning?
Global Mail by Ivan Martchev
Watch Jobless Claims – and Beware Bitcoin
Sector Spotlight by Jason Bodner
Are You Still Waiting for the “Next Shoe to Drop?”
View Full Archive
Read Past Issues Here
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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