by Jason Bodner

June 27, 2023

I’ve been in France and Italy over the last week and am now flying back home, but before leaving, I was having lunch with a family member in Florence, Italy, and he recounted the old saying, “All roads lead to Rome,” and he pointed to the road outside his home. He said: “Sure enough, if you get on that road, you can take it all the way to Rome.” He mentioned that you can say that of most major cities in Italy.

Map Europe

Apparently, all roads in Europe really do lead to Rome (Map by ArchDaily)

As far as investing goes, we want all market scenarios to lead to one goal – to profits. Times can change quickly and become confusing. The urge is often to adapt quickly and change strategies to fit shifting markets. Perhaps that works for some, but I find solace in consistency and executing the same winning strategy over and over again. For me, it involves identifying large money flows in the best-ranked stocks.

That all starts with taking stock of up-to-the-moment money flows, so let’s hop into the current data.

It is late June and earnings season is over. The rally from the October lows has technically put us in a new bull market, which is taking a pause. Last week was not great for stocks. Major indexes finished down.

Most S&P sectors also finished down: Only Health Care, Consumer Discretionary, and Consumer Staples finished in the green. Energy was the weakest sector with a -2.55% finish. The biggest drop last week was the PHLX Semiconductor index, which fell an ugly -6.23%. While that may seem concerning, let’s not forget that semis were up nearly 70% from their October lows. Therefore, some consolidation is normal.

Now that we find ourselves in summertime, after spring earnings ended, this is usually when liquidity is lower, which often boosts volatility. Once again, I’ve highlighted tech indexes for their 30-day rise:

S&P 500 Index Table

We can see in the chart below that the overall market pressure has hampered the Big Money Index (BMI). After a rapid ascent in June, it’s now leveling out.

Big Money Index Chart

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

It’s unsurprising to see where the pressure was, according to my data. Looking at the charts below, we see how this unusual buying and selling was distributed. The key thing to notice here is that selling was fairly evenly distributed across sectors. To me, this indicates profit taking, especially after a heated run up.

As for buying, Health Care, Industrials, Discretionary, and Tech accounted for 73% of all unusual buying.

PIE Charts

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

Looking at the sector rankings, we still see tech on top. Last year, tech was consistently ranked last or near the bottom. This year the strength is real and continues even during an air-pocket – like last week.

Rate-sensitive sectors such as Utilities, Communications, and Real Estate continue to rank near the bottom:

Sector Table

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

If we look at our top-ranked sectors, we don’t really see significant selling, only a drop-off of buying.

Technology vs XLK

Discretionary vs XLY

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

Now, turning our attention to Materials, Staples, and Health Care, we start to see signs of some selling. Nothing has hit extreme levels yet, but the selling is evident:

Materials vs XLB

Health Care vs XLV

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

Looking to Energy, we see fresh selling as the index looks to retest its lows. Financials are seeing some selling again after firming. Real Estate and Utilities saw some sharp selling:

Energy vs XLE

Communications vs XLC

Utilities vs XLU

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

Earnings (which were great) are out of the way, and we have heard from the Fed. Rates were untouched, but the door is open for more increases. Their language was not rosy, but I believe that’s by design. The battle against inflation is real but is slowly being won. Powell must do his best to walk the tightrope, keeping a firm balance of optimism and pessimism. The stock market is not his main priority – it is the economy. With inflation falling from 9.1% to 4.1% in a year – it is clear that his actions are working. I never expected rosy comments to spark a massive market run. That doesn’t really serve his purposes.

With few market catalysts – and hitting near annual highs – the market was poised for a slowdown. Last week, we witnessed signs of that slowdown. Will it persist, or is this just a bump in the road? I believe the answer is both. If history holds, we should expect July through September to be volatile. September, especially, has been the weakest month of the year for the S&P 500, at least since 1990.

My expectation is a bumpy summer through September, followed by a strong 4th quarter lift. Historically speaking, October through December is the strongest quarter of the year. Right now, we are witnessing some profit-taking and consolidation of strong sector performers in recent months. It is precisely in these times, when identifying out-performance is crucial. Naturally, “a rising tide lifts all boats,” or so they say. And sure enough, when the bull is running, all sectors usually lift, so it can feel easy to make money.

But when volatility hits markets, it gets harder to pick winners. That’s when we see sector rotations, sideways choppy markets, and frustrating reversals that make you want to throw your hands up in disgust. These are precisely the times to have an edge in being able to identify stocks that outperform the market.

My friend Louis Navellier calls these stocks “the cream that rises to the top.” Focusing on where the money is flowing into the best stocks is our preferred defense for when we invest in choppy markets.

Many investors strive to control the markets and find comfort in predictability. But nothing remains always certain or stable. We can’t control outside events; we can only react to them. As we try to make sense of markets and their unpredictability, perhaps we should remember the words of Marcus Aurelius:

“The universe is change. Life is opinion.”

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
The Fed Skip May Actually Be a Stop

Sector Spotlight by Jason Bodner
All Roads Lead to Profits…in Time

View Full Archive
Read Past Issues Here

About The Author

Jason Bodner

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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