by Jason Bodner
August 29, 2023
A lot of weird stuff happens in the heat of summer. For instance, the Eiffel Tower gets taller in the summer – by up to six inches – due to thermal expansion – then it shrinks back in the winter.
Stocks also bow and flex in the summer. And I bet you’re sick of all that volatility. Looking at it can be dizzying. Hearing about is almost worse. And waking up not knowing what to expect can be agonizing.
August market days can be so frustrating. A case in point is the recent earnings call from Nvidia (NVDA, which I own in personal accounts). The company shattered all expectations for a blowout quarter. It delivered the coveted trifecta: NVDA beat both sales and earnings estimates, and then issued substantially higher guidance. That’s the kind of report that usually powers a stock to stratospheric heights. Overnight, many street analysts raised their price target to $600 (from Wednesday’s $471 close). One target was $1,000. Eager owners, including me, watched as shares soared more than 10% in after-hours trading.
A company worth $1.1 trillion would ordinarily lift an entire market higher. And Thursday seemed poised for exactly that with NASDAQ futures up 1.5% pre-market and NVDA opening at a lofty $502. But it wasn’t meant to be. Markets ended up closing sharply lower. NASDAQ closed -1.87% lower. And those paper NVDA gains? They melted away to a measly $0.47 (+0.1%) gain by the time of Thursday’s close.
Then, NVDA fell 2.43% to $460.18 on Friday’s close. So much for winning the “trifecta.”
It’s stuff like this that makes traders want to log out of their brokerage accounts and not come back until October. But the news events keep coming…. The ones you can’t miss. Like FED chair Jerome Powell’s speech at Jackson Hole. He said the falling inflation is good, BUT – and there’s always a ‘but’ – on the other hand (and there’s always that ‘other hand’), so you end up wondering what he really thinks.
Essentially, Powell’s language is very cautionary. Two successive lower readings are not enough to feel confident that PCE and core inflation will continue their declining trend. While core goods fell, they are still higher, year over year. Therefore, continued restrictive policy is required to keep fighting inflation.
We’re hearing more or less the same message we have been hearing – only now, the acknowledgement is that everything is coming down. Powell’s “BUT” is that we are “navigating using the stars under the cover of clouds” or something like that. One would think that voodoo like this might tank stocks. But at the conclusion of Powell’s address, NASDAQ rallied to +1% and then fell to -0.3% before rallying again.
Naturally, this speech comes in what is arguably the last week of summer for Wall Street. We still have this week, as Labor Day marks the boundary between lazy summer and an action-packed autumn. The bottom line is that we are in the thick of summer volatility, so Fed speeches keep reeling us back in.
Let’s turn to the data to see what’s really happening, and what we can expect. Naturally you have seen the following chart many times. I love it because it tells the whole story in a simple graph, the story being, in sum: August and September typically stink, while October through December are awesome for stocks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
August has played out precisely how history suggested it would, with the S&P 500 down 4% through last Friday. My bet is that September will also be down, which bodes well for the rest of the year. With that out of the way, perhaps we really could just turn off CNBC and reapproach investing in early October?
That would be nice, but it would also ignore what sets up to be a potentially great opportunity. Markets are softening, but perhaps there’s a signal that will alert us when to buy great stocks on sale?
Let’s look at the setup.
First, the Big Money Index went overbought and then promptly started falling. It doesn’t always do this. It once stayed overbought for nearly four months. But this time, it pierced overbought territory, then fell.
It is still falling sharply, as shown in our first MAPSignals chart:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now, it’s important to say that the BMI is falling more due to an absence of buying than due to accelerated selling. This can of course change at any time, but for now, as you can see below, buying shrank to virtually nothing but selling picked up only mildly for both stocks and ETFs:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
For the BMI to plummet to oversold levels, we will need to see very uncomfortable selling, reminiscent of March, which wasn’t fun. It’s also important to contextualize the recent trading activity. August is typically characterized by low volume. In the chart below, we can see that is definitely the case now.
The amber bars show the cumulative unusually large trades on any given day, according to MAPSignals data. We can use this as a proxy for institutional trading, or (more simply put): volume that matters.
We can see that much of the recent run up in stocks starting in April was accompanied with increasing unusual trading. We see the drop in the market in January was with seasonally usual low volumes.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I’m not saying that an oversold BMI is assured, but should it come, it’s historically an excellent time to buy stocks. A quick glance at the sectors shows us that growth-oriented sectors, while recently feeling some pressure, are still the highest ranked. Tech, Energy, Discretionary, and Industrials are still the top four, while Real Estate and Utilities (rate-sensitive securities) are at the bottom:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
As far as buying or selling in individual sectors, we see that selling is hitting Discretionary and Staples with some significance. Recently, there hasn’t been much more buying, which is why the BMI is falling. (Remember when you see Communications, the results are amplified as the sector universe is very small).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The truth is that we are in the midst of summer madness. That’s life. The bright side is that we are halfway through this August/September volatility. By the middle of October, markets usually right themselves and lift into the end of the year. But it’s still summer. Enjoy what’s left of it, even if we must suffer through the market’s predictable hurricane season.
As Russell Baker said: “Ah, summer, what power you have to make us suffer … and like it.”
Navellier & Associates owns Nvidia Corp (NVDA), in managed accounts. Jason Bodner owns Nvidia Corp (NVDA), in a personal account.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Wall Street Likes to Add Volatility to the August Doldrums
Income Mail by Bryan Perry
Stocks Are Looking to Make Peace with The Bond Market
Growth Mail by Gary Alexander
Jerome Powell’s “Dream Speech” at Jackson Hole, 2025
Global Mail by Ivan Martchev
The Stock Market Reaches Another Fork in the Road
Sector Spotlight by Jason Bodner
Why Good Stocks Go Down in Price…on Good News
View Full Archive
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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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