by Jason Bodner

July 7, 2021

When I was younger and desperate to “figure out the stock market,” I’d ask everyone everything I could, looking for the answers. Having worked in the industry, I thought that was the best way to learn. But I ended up constantly frustrated at the conflicting information I would get. Nothing would irk me more than hearing how the market came down to feelings. That’s probably because I had no feel for the market. Or worse yet, my feel was constantly wrong. I knew in my bones that feel was not the way for me to go. I needed an analytical framework to guide my decision making. Feel was fraught with “issues” for me.

To demonstrate that, I came across this fascinating fact: A study found that people scored higher in a mental agility test while wearing a lab coat that they believed was a doctor’s coat. Interestingly, the effect was not there when they believed that the same white coat was a painter’s coat.

Internal belief about the environment, irrespective of the facts about the actual environment, can impact one’s literal smartness. If you believe you’re wearing a doctor’s jacket, you’re smarter. But you may believe you’re wearing a stock market doctor’s coat, when you’re really wearing a painter’s jacket.

I tried using gut instinct and it almost broke me financially. Now I look at the data. And the data is telling me that the markets are headed higher. The first fact I look at is the Big Money Index (BMI). It measures unusual buying of all stocks on a 25-day moving average. If the blue line trends higher, that means more money is moving into the market than out. That usually means higher prices ahead. You can see after a few choppy months that the BMI is trending higher – so much so that it is nearly overbought:

Big Money Index

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

Before that term scares you into selling, remember that the data shows historically that markets can stay overbought for a long while. Last year, after the COVID crash, the market was overbought for nearly four months. What we need to be on the lookout for is when that blue line starts to fall. That would indicate more money is coming out than going in, which usually foreshadows lower prices. Seeing as we are not overbought yet – and we may stay overbought for a while once we get there – there’s nothing to fear.

Another area I like to check is ETF buying. ETFs are just baskets of stocks. They are great ways for investors to get overall exposure in a sector or theme, so when there’s sustained buying in ETFs (more so than selling), that also signals more money moving into stocks than out of stocks. Look here: ETF BUYS and SELLS

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

Notice that recently there is more buying than selling. I pay special attention when I see extreme buying in ETFs. The big blue spike usually coincides with a local peak in the market. When greed is high and peaks, markets usually pull back afterwards. You can see that ETF buying is sustained, but not extreme.

The next level to check in on is sector activity. Is there more buying than selling in various sectors? Since the end of May we have seen significantly more single stock buying than selling. And we’ve seen buying in prior growth areas too, like tech, discretionary, and health care. Here’s what we see now: MAPSignals Sector Rankings

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

Last week saw 222 buys versus 89 sells. That has been the trend for a few weeks now, but what interests me is where that buying is happening. As we can see, Big Money was piling into Industrials, Health Care, Discretionary, and Technology. This is a healthy pattern of buying as growth lives in these sectors.

To go a little deeper, I look at the stocks getting bought. Health Care saw buying in oncology, neurology, and infectious disease companies. Discretionary saw buying in consumer goods, retail, vehicles, and hospitality stocks. Tech saw buying focused heavily in software companies which were out of favor from February to May. And Industrials saw buying in manufacturing stocks.

I wanted to dig even deeper and look at all stocks but focus only on those with positive three-year sales and earnings growth, and positive profit margins. Out of more than 6,000 stocks that I scan every day, I found 1,330 with positive growth metrics. Seeing as my own portfolios full of growth stocks saw a very strong month of June, I wanted to see how growth strength in general fared in June.

Financials had the most growth stocks in the sector, but the performance on average was negative for the last month. The big winners here were Health Care, Tech, and Industrials. As you can see below, the average 1-month performance of growth stocks in those sectors was solid.

Growth Stocks

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

It’s also interesting to note that both the SPY and the QQQs had strong years to date. Most of that came in the last three months. Consider that the QQQs are +6.57% YTD, but 98% (+6.43%) came in the second quarter. SPY was up +12.71% YTD (+10.79% in the last 3 months), according to YahooFinance.

This all points to one thing for me: I believe the rotation out of growth into value is over. Big Money is scooping up growth stocks and propelling great sectors higher – sectors like Tech, Health Care, and Industrials. Most of the power of the general market, and sector strength is coming in the last 3 months. And the last month in particular was very strong for growth. All this buying is also happening on a reasonable pace: The BMI is not yet overbought and there is smooth but not extreme buying in ETFS.

It’s not all good news (it never is): Late summer is a notoriously volatile time for stocks, but overall the trend looks strong for continued reasons to cheer.

If I were wearing a painter’s coat and told you all this, you may be less inclined to believe me, so pretend I’m wearing a doctor’s coat, since I am basing my diagnoses on lab data, which rarely steers me wrong.

As for “trading with feeling,” I’ll give emotions their due by quoting what CEO Andy Dunn says: “Passion provides purpose, but data drives decisions.”

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
How Much Will 2nd Quarter GDP Grow?

Income Mail by Bryan Perry
What The Bond Market Is Saying About Inflation

Growth Mail by Gary Alexander
Is The Market Getting Ahead of Itself?

Global Mail by Ivan Martchev
The Dollar Looks Like It Wants to Run

Sector Spotlight by Jason Bodner
In This Age of Feelings, Facts are Still Safer!

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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