by Jason Bodner

June 23, 2020

This market is like the sun.

Sunlight travels at the speed of – well… light.

To get to the Earth, sunlight travels 93 million miles at 186,282 miles per second. That means it takes 8 minutes and 19 seconds to get here. If the sun vanished, we wouldn’t know until over 8 minutes later.

Big money is the ocean on which the markets float. But when big money has a seismic shift, there is usually a delay in the market following. Think of it like the sun’s 8-minute lag.

I showed you this chart before. It’s the Mapsignals Big Money Index (BMI). Look again at this chart, which shows a peak in January of this year in advance of the market peak in late February. It took nearly a month of lag time for the indexes to react to the Big Money selling going on under the surface.

MapSignals Big Money Index Chart

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

Recently, we talked of a shift in the data. Buying visibly slowed. The BMI even started to tick down a bit. Then, right on cue, the market fell. Remember the -6% day (1800 Dow points) on June 11th?

And then stocks resumed their gravity-defying march upward.

Many headlines I’ve read recently portray incredulous money managers. They are aghast as to how stocks continue to rise. Here are three typical reactions in the last week:

Crescat Capital’s Kevin Smith says stocks are insanely disconnected from reality. (from “La la land? The stock market is ‘insanely disconnected’ and due for a ‘reckoning,’…” from MarketWatch, June 20, 2020),

Ray Dalio warned of a “lost decade in stocks.” (from Bloomberg, June 18, 2020), and

Leon Cooperman said the rise of mom and pop investors in the stock market will end in tears. (from MarketWatch, June 15, 2020).

I had breakfast once with Mr. Cooperman. I have a lot of respect for his accomplishments and acumen, but do I agree with him? Not necessarily. But what should we make of all this bearish sabre rattling?

Normally, I like bearish headlines, for their contrarian signals. Markets act like teenagers. My teenagers often do the opposite of what I ask – and markets often do the opposite of what the majority expects.

There are plenty of bullish headlines out there, too. Barron’s said: “Biotech stocks are getting ready to run.” They also said: “Oil’s rally points to better times ahead.” And I’ve read ample reports of vaccine developers racing to battle coronavirus.

I’ve also read conflicting news. Cases are spiking now – or they aren’t. Apparently, Florida (where I live) now has the makings of the next coronavirus epicenter. My wife heard the local hospital’s ICU was 75% full. But the same day I heard from a neighbor who works at the same ICU that they were empty!

Trying to make sense of these conflicting news reports is mind-bending. Are you trying to make investment decisions based on headlines? Well, I decided that was a bad idea decades ago.

If I want to know what the market is likely about to do next, I look to the data for answers – not stories.

One thing I am confident about is this: a shift is about to happen.

There’s a market tell. It’s like in the great 1998 poker movie Rounders, where John Malkovich plays an uncrackable player, Teddy KGB, with an unrivalled poker-face. It took a long time for Matt Damon’s character to discover his tell. But when he finally did… well, I won’t spoil the movie for you.

Reading Poker Tells Image

The market’s current “tell” is this: Big buying is slowing down. (I also mentioned that last week.)

First off, buying is slowing in ETFs. Two weeks ago, I told you how ETF buying was record-breaking. I also said that’s historically a terrible time to buy stocks. Since I said that, the S&P 500 dropped -4.08%.

Look, monster ETF buying never lasts. Take a look at how big money moves in and out of ETFs against the picture of the broader market. This chart shows big ETF buying and selling activity. (Green bars are all ETF buys each day, and red bars are sells.) This is when I believe big money is flowing in and out of ETFs. The circles are extreme buying in ETFs. The right-most circle is massive buying from June 8th. But, look for the tiny circle just off to the right of that. That’s a huge drop off in ETF buying:

MapSignals Big Money ETF Index Chart

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

Here’s a zoom-in on that final rise:

MapSignals Big Money ETF Index Final Rise Chart

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

You can see in that close-up that that buying clearly slowed down.

Big stock buying is slowing, too. When we look at big money activity in stocks, we see the same trend. Buying peaked two weeks ago, the same time as ETFs. Below we see Mapsignals Big Money buying and selling in stocks. (Green is buying, red is selling). Two weeks ago, we saw a monster green bar:

MapSignals Big Money Stock Signals Chart

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

Expanded, we see the same thing: a vacuum. Buying dropped bigtime:

Big Money Stock Signals Final Drop Chart

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

Ebbing greed is understandable after a wave of frenzied buying.

So, while the news jerks around our emotions, making for a confusing time horizon, the data gives me a clearer image. It’s a market “tell.” It tells me to expect lower prices for stocks, near-term.

And that’s a great thing! I love to grab great stocks on sale when everyone else is afraid to own them: you want to buy when the crowd is scared.

I think markets are setting us up for a better entry point soon. I don’t subscribe to the dire bear growls of prolonged stock market pain ahead. I don’t see a bear market. I see an economy that wants to be back in full swing. I see equity optimism that was spurred by big money buying. It’s now getting frothy with the entry and talk about mom and pop investors using stimulus checks to buy stocks.

When the inevitable washout comes, the market will reset and resume a chug higher.

A columnist I highly respect here points out COVID-19 still represents the highest risk of fatality for 75+ year-old people with pre-existing conditions. He advocates letting the young go back to work. Give them a reason to wake up each day. Give the economy a shot to come back. Let the elders self-sequester until a vaccine becomes available. Incidentally, he is celebrating his 75th birthday in three weeks.

COVID cases will spike and the news will likely be the excuse to bring the market pullback. The story will stick even though the “tell” was there long before, namely: the big money buying vanished.

You’ve heard the slogan, “Don’t fight the tape”? I’ve coined a new slogan: “Don’t fight Big Money.”

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

Please see important disclosures below.

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We Usually Have Plenty of Warning Before the Market’s Next Move

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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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