by Jason Bodner

June 8, 2021

Have you ever felt like you were being held hostage when investing?

I have. I devote my time to identifying “outlier” stocks, companies with growing sales, earnings, and profits that are being bought by Big Money. Over time, I have found no better long-term wealth builder than buying and holding outliers, which are often categorized as “growth” companies.

But it’s not always smooth sailing. Some days, it seems that my stocks are “red” while everything else is “green.” The frustration is real. I feel like I’m being blackmailed by the likes of Marcus Licinius Crassus.

Who? He created the first Roman fire brigade. During fires, his team would swiftly appear. That’s the good news. The bad news was that Crassus would offer to buy your burning building at a dirt-cheap price. If you sold it to him, he would put out the fire and evict you. If you refused, he would just let it burn.

When my stocks get punished, I feel like I’m faced with this no-win “fire brigade” choice. Do I watch my portfolio burn and wait to rebuild it? Or do I sell my stocks at dirt-cheap prices to a “rescuer”?

It took ages for me to learn that it’s best to keep a calm head and wait for the fire to pass. Even if my stocks go to sickeningly low levels, I believe in my work. I know the companies will rise again, like phoenixes from the ashes. But if I sell them to the fire brigade, I’ll make a big long-term mistake.

When my portfolio fire broke out in March, I immediately knew to ride it out. Growth stocks were getting pounded in favor of “reopen” value stocks. Once-adored software stocks were suddenly pariah status. The mainstream message was, “Everyone will go outside, and the demand for software products will wane.”

I don’t only own software stocks, but the ones I do were getting hit hard. And pretty much anything that had a phenomenal growth metric too. The big picture was: Prior growth areas will cool, and prior battered sectors will rise to new growth.

This makes perfect sense, but I also learned to tune out the big news drivers. Short-term, the media can (occasionally) be spot-on and dictate price movements. But long-term I stick with my winning formula.

Here’s why I am telling you all this: It appears that waiting out the fire will prove worth it yet again.

Looking at last week’s data, we see a relatively unchanged stock market. The SPY was virtually flat for one week rising only six basis points since Friday May 28th. The Big Money Index, which measures unusual institutional buying was equally flat, and has been for a few weeks:

MAPSignals Big Money Index Chart

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

The surface story doesn’t look that exciting, but when we start digging things get interesting. The BMI is a 25-day moving average of all buying and selling signals according to MAPsiganls data. It helps us identify overbought and oversold markets with great accuracy. But despite being a leading indicator, its time-frame lags, meaning we must weigh 25 days of data to calculate our readings. If we look at shorter time frames, we might predict where the BMI will go, thus helping us predict where the market will go.

Check this out: The normal 25-Day BMI has flat-lined for weeks. That usually means nothing exciting is coming for the near future. But the last ten days have shown a big rise in buying with a sudden vacuum of selling. That means the 10-day BMI is lifting fast, but not fast enough to be seen in the BMI we normally look at, but look at this: The 10-day BMI rose from 47 to 80 in six trading days at the end of May.

Big Money Index Table

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

This perked me up. Now looking at sectors, we see big buying last week for Energy and Real Estate stocks.

MAPSignals Sector Rankings

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

Energy has been beaten down for a long time but lately has seen a lift: XLE VS Big Energy Big Money Buy Index

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

Real Estate, conversely, has been hot for a while. After a pause, it’s seeing a recent push in buying: 1YR VS Real Estate Big Money Index Buy Index

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

Those two alone show some promising buying. But with a flat BMI, we need to look deeper. That’s why last week we slapped on our X-Ray glasses and looked at Big Money trading.

Let’s quickly revisit that:

Recently we see days where buying is more than the 20-day average; and that’s good news: When Buying Comes to Town Chart

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

This next chart just shows when the past 10-day average saw more buying than selling. Before you point out that there’s no purple last week, it’s about to go purple. That means there is sustained buying pressure under the surface. And notice the last year and a half that’s constructive for future price action:  When Buying Comes to Town Chart2

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

Expanding this study out longer starting from July of 2012, generally sustained buying pressure is bullish: When Buying Comes to Town Chart3

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

Huge investors can plow money into stocks and create a Big Money Trading signal. But to make buy or sell signals, the price must be above or below the interim high or low. If not, we are left with a trading signal. But there’s great information in those.

Last week saw 2,222 Big Money Trading signals. That created 451 buys and 65 sells in the sector ranking table above. But looking at the remaining stocks, we’re looking for when Big Money buys stocks but not high enough to make a buy signal. This is cool: 53% of those remaining rising stocks, were in top growth sectors. And the average sales and earnings growth of those stocks was largely awesome:Big Money Trading Higher 3YR ERN Chart

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

This simply means that below-the-surface buying is about to power the market higher. And it is starting to be in growth again. That means when holding outlier stocks, sometimes you must sit through fire. Short-term it hurts but selling your portfolio to the fire brigade hurts more long-term.

With economic growth and corporate earnings being revised higher, coupled with what is seemingly a more equitable set of tax initiatives forthcoming, there is a strong and growing case for staying fully invested in what is historically a tougher time to make money in stocks.

But for 2021, it’s looking more like the market wants to deliver its own version of the Summer of Love. Jefferson Airplane

Until we get there, remember, “Fire is the test of gold; adversity, of strong men.”

– Martha Graham

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
What Would Happen if the Fed Tapers?

Sector Spotlight by Jason Bodner
A “Summer of Love” Likely Awaits Unloved Growth Stocks

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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