by Jason Bodner

June 22, 2021

Only 12 men have ever walked on the moon, all between 1969 and 1972. They also left 96 bags of waste.

The thought of tainting this unspoiled orb may seem cringe-worthy, but it’s all in the name of progress.

Similarly, we want our stocks to go up each day, but we also know there must be days like last Friday…

There are basically three types of investor/traders: (1) Short-term traders love the excitement of trying to pinpoint the pivots. If successful, they can scoop up some tidy profits along the way. (2) Mid-term players want to ride trends and get out before it turns sour, or dump risk ahead of anticipated choppy waters, while (3) Long-term investors put faith in the process and long-term trends.

Depending on which type you are, you greet volatility different ways. From February to May of 2021, growth investors had a frustrating time as markets got all twisted up. Companies with growing sales and earnings were punished while value was applauded. But much of the “value” that investors were gobbling up were companies with poor sales, earnings, and profits.

Recent MAPsignals data shows a shift back into growth stocks. Last week especially started to show an “untwisting.” Growth companies started to get their juice back while value areas felt pressure. But on Friday, June 18th, markets went ugly. A swath of selling hit, so much that according to the MAPsignals.com data, it was nearly the single largest day of selling since the pandemic began – second only to 10/28/20.

Stocks Buys and Sells Chart

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

Here’s a close-up on the details of last week: Stocks Buys and Sells Chart-No Name

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

Price action like what we saw last Friday – a significant down day with chunky volume selling – could heighten fears and raise tension, so it begs the question: should we worry?

You know by now that I only look to data to get my answers, and the answer I got is: Absolutely not.

First and foremost: Friday was a “Quadruple Witching Day.” That’s the third Friday of March, June, September, and December. That’s when four types of derivatives expire – market index futures, options futures, stock options, and stock futures. When this happens, we can always expect whippy volatility.

I looked back at the last six quad-witching dates and did a simple smell test on performance. Here’s a table of the SPY (SPDR S&P 500 Tracking ETF) daily performance on those dates:

SPY Table

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

Every Quad witching date since 2020 was a negative performance day. So, Friday’s action was very much in line with the average for the last 18 months. Even if you threw out March 20th, the day before the pandemic low, you still have an average of -0.8%.

Just for the skeptics, I went back to 2015 to see if the pattern holds true…

SPY Table2

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

Only three out of 26 periods were positive, and those were narrowly positive. In other words, over 88% of the Quad Witching days since 2015 were down days, so I am going to confidently ignore last Friday.

What the Big Money Index is Saying Now

Now, let’s revisit the Big Money Index (BMI). For those unfamiliar with the BMI, it measures all unusual buying and selling of stocks on a 25-day moving average. It can give us a great idea of near-term trends. It also helps us identify overbought and oversold points. After the sideways price action from February to May, it started picking up. When the Blue line trends higher, we generally expect higher market prices.

Big Money Index Chart

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

So even though we can ignore Friday’s ugly “Quad Witching” price action, such a day helps keep the BMI from running into heavily overbought territory. As you can see, we’re getting close to becoming overbought, but a bout of selling helps by keeping the BMI in check and trending higher more gently.

Now, it’s important to know what is getting bought under the surface of the BMI. A look at the sectors also shows us that there was rotation action going on. Interestingly, Tech and Energy were bought up, while Financials, Industrials, Materials, Staples, and Utilities were sold: MapSignals Sector Rankings Table

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

There were 294 unusual stock buys last week. I wanted to see if growth was continuing to be bought, so I filtered for stocks that have appeared on the MAPsignals Top 20 report in the past. This report basically just looks for stocks with superior fundamentals getting bought in a big way. Out of the 294 stocks bought last week, 86 were prior outlier stocks, meaning they were on the top 20 reports at some point.

This is how the average growth shook out: 3 Year Sales Growth Table

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

The average return since the first appearance on the Top 20 report for those 86 stocks was +432%, dating as far back as July of 2012.

The key takeaway is this: Despite a down week for the market – especially a nasty Friday – there is something really constructive going on in the market. Friday was just like most of the other Quad Witching Days we’ve seen since 2015, so ignore it. Stocks previously bought with poor fundamentals are getting sold now, while solid growth fundamentals are getting bought. During a week of negative (red) price action for stocks, 30% of the buy signals were prior outliers which have a phenomenal return record.

Short-term traders might find volatile markets exciting for the prospect of quick-swing profits, while medium-termers might worry about last week and start to think about shedding risk. However, long-term investors, like myself, know that once a winning process has been found, it’s best to stick to it.

The short-term stuff is usually just noise.

Finding the crème-de-la-crème of stocks and owning them long-term is my recipe for success. When the Big Money comes around and starts buying those stocks, too, it’s a very encouraging sign.

Meanwhile, volatility comes and goes, and we must endure any downdrafts. In the words of Jack Nicholson as The Joker: “You want to make an omelet, you gotta break some eggs.”

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

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Commodity Inflation is Coming Under Control

Income Mail by Bryan Perry
Confusion is a Major Market Nemesis

Growth Mail by Gary Alexander
The Grand Experiment in “Funny Money” Continues

Global Mail by Ivan Martchev
The Fed’s “Untaper Tantrum”

Sector Spotlight by Jason Bodner
Why I Am Ignoring Last Friday’s Market Mess

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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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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