by Jason Bodner

July 20, 2021

I’m a dog person. I’m also a space person. So it’s no surprise that I’m drawn to the constellation Canis Majoris. It’s the dog constellation, and it looks like this: Dog Star

If you look at the dog’s shoulder, you’ll see it’s the brightest star. In fact, that star is brighter than all stars in the night sky. That star’s name is Sirius, or “the Dog Star,” and it’s the brightest star in the night sky.

On July 23rd each year, this binary star rises and sets with the sun. Because the star is so bright, the ancient Romans believed that it added to the sun’s heat. They believed that it caused the nasty summer heat to wear on for so long, so they referred to the time starting from this day as diēs caniculārēs, or “dog days.” The dog days of summer, starting this week, are named after the Dog star in the dog constellation.

Well, the dog days are here, and with them usually comes summer stock volatility. Last week, I showed you how the summer months are usually mediocre in terms of returns. Yet the following months, the fall months, September through December, usually deliver exciting results for stocks:MAPSignals Table

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

Alas, we must get through July and August first. My good friend Louis Navellier is no fan of August: “They should just close the market for August and then reopen it in September.”

I bet he leaves July out because it’s earnings season.

Great stock pickers love watching post-earnings reactions, especially when the results are stellar.  Well, based on my data, he may want to reconsider closing markets in July, too. The dog days of summer are here for stocks. As July began, I noticed the typical pattern: Buyers dry up, sellers appear, liquidity wanes. It logically correlates to Wall Street traders taking summer vacations and lightening their risk.

Looking at the S&P 500 Index, we may not see the trend clearly, but using our X-Ray vision goggles, we see it clearly in the Big Money Index (BMI), because it’s dropping like a rock: BIG Money Index

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

As you can see in the chart above, the BMI is below its lows from March, which was a bumpy time for stocks. Even more apparent is that BMI is approaching October’s levels, when pre-election jitters caused selling to lighten risk then, too. But notice how there is a clear deviation. The BMI may be falling but it looks like the S&P 500 is rising. This divergence is key because Big Money loves to pull a fast one. Like magicians, Big Money likes to misdirect you: Markets rise while buyers exit stage left. You’re busy looking at rising stock prices while buyers are quietly selling their risk before going on vacation.

We can see a nice summary of accelerating stock selling in ETFs. Remember, ETFs are listed funds which are often really just baskets of related stocks. If ETFs get sold, stocks get sold. You’ll notice in the chart below that the red downward bars are increasing. That’s selling: ETF Buys and Sells

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

You may also notice that when ETF buying reaches extreme levels, the peaks are usually rather close. When the blue bars spike, markets usually pause or pull back nearby. The most recent spike in ETF buying was Wednesday July 7th. We can see the SPY (S&P 500 tracking ETF) peaked Monday July 12th.

Now the picture should be clear: the dog days of summer are here and with it we should expect volatility. The BMI is falling, and the indexes haven’t cracked yet. So when will they crack?

I went back and looked at the BMI since I began collecting live data on it. The BMI spent most of its 30-year history above 65%. The “stats nerd” in me loves that number because it’s very close to one standard deviation from the mean (68% of the time), which means that it’s a fairly common observation. Compare this to three standard deviations, which represents 99.7% of cases. The 0.3% is where many outliers live.

Back to the BMI. I wanted to see when the 10-day average (about two trading weeks) was below the 30-year average of 65%. I found there were 51 periods out of 2,275 possible days. The average duration was 20 days, and when those periods came along, the average performance of the S&P 500 was just 0.68%.10 Day Average BMI Table

This means that when the BMI 10-day average falls below 65%, don’t expect much. And guess what… the 10-day average for the BMI is currently below 65%, and it has been for four days now.

The chart below shows in red when the BMI has been in this sub-65% state. Notice we just hit a red patch. And notice what typically coincides with red patches…Sustained Lowering BMI

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

This chart forecasts some volatility. But that’s not unusual for July or August. This BMI reading just gives us some context for summer 2021. The bad news is that even with stellar earnings, history suggests we may want to just close the stock market for August – and add late July for good measure.

But herein lies our opportunity. If and when some groan-worthy pullbacks come, history also suggests we should buy the dip. I would have my lusted-after stocks ready to pounce on should deep discounts come.

Last week, I wrote about contracting Covid, despite being fully vaccinated. I’m happy to report that I’m now over my mild bout with Covid. Everywhere I look, I hear stories of others testing positive even after vaccination. But their cases seem mild, which is what the vaccine was designed to do – to mitigate the severity of cases, making Covid akin to the flu: We know it’s serious, but not as deadly as it once was.

We will go on with our day-to-day lives, post-Covid, so I’m vacationing in Asheville, NC, with my family. We went walking around to check it out. There was a free concert. Here’s what it looked like:Crowd in Asheville

You tell me if this looks like the pandemic scenes depicted in the news.

People are out and spending. The economic backdrop is bullish, not bearish. The dog days of summer are here. If they can’t close the market or the economy, embrace whatever volatility we see with a buy list.

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
Inflation is Rising at the Fastest Pace in 30 Years

Income Mail by Bryan Perry
When Money Runs for Safety

Growth Mail by Gary Alexander
Seven Life Lessons for Building Wealth (Part 1 of 2)

Global Mail by Ivan Martchev
Nasdaq Looks Ready to Consolidate Its Gains

Sector Spotlight by Jason Bodner
The Big Money is Selling as the “Dog Days” Begin

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

Important Disclosures:

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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