by Jason Bodner

August 4, 2020

The problem with making any predictions is: It’s a setup to fail. Anticipating outcomes is fun because when you’re right, you’re a hero. When you’re wrong, however, you try to stay as quiet as possible.

In the end, few people remember predictions after the fact. And when they do, it is often for the wrong reasons. As Louie Navellier always says: “When I’m right, it’s their idea. When I’m wrong, it’s my idea.”

Here’s a perfect example of where prediction frustration sets in: A dear friend of mine rarely makes day-trade bets. For literally months, we had been debating the data I analyze. My Mapsignals BMI indicated an overbought market since May 6th, following a 17-day deeply oversold run from March 18th to April 9th.

Russel-2000-Map-Signals-BMI Image

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

Prior to May 6th, there were 19 overbought periods since January 1st, 1990. The average length of overbought trading days each time was 20 days, or roughly one calendar month. So, one might have expected that around a month after the market went overbought on May 6th, the indexes would descend. My data indicated exactly that, so on June 8th, I said to expect a market to pullback, or at least a flatline.

The market defied logic… or at least it seemed to. Since then, the power only came from one index, the Nasdaq. The Dow Industrials and Russell 2000 declined about 4% since June 8.

Fact-Set-S&P-Index-Table Image

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

Before you point out that the S&P 500 was also positive since June 9, look at this chart, offered by Bespoke Investment Group. The entire increase came from just five mega-stocks.

S&P-500-Change-Bar-Chart-Bespoke Image

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

So, with the exception of NASDAQ, and 5 stocks in the S&P 500 Index, our Mapsignals data was right.

Late last Thursday, Mapsignals data was suggesting sellers vanished again and buyers returned. If we look at the following charts, we can see buying increasing in Discretionary, Industrials, and Materials.

XLY-Discretionary-XLI-Industrials-2-Charts Image

XLB-VS-Materials-Single-Chart Image

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

In contrast, Healthcare and Tech saw buying decrease in recent weeks. I believe that will change in the coming weeks. In a record-breaking overbought market, these may be value pools:

XLV-VS-Healthcare-XLK-VS-Technology-2-Chart Image

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

But how can the market stay so overbought? The answer is simple: There is no selling. I’ve learned in my career that there is really only one thing that moves stocks – supply and demand. When there’s too little supply, stocks don’t sink. You can see how selling has flatlined in the following sectors:

Six Chart Block X Line Charts "Jason Bodner august 4th 2020 image


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

But wait. We never exited overbought territory, right? In fact, in the next three days, this will become the longest overbought period in my 30-year history of following market data.

Buyers are back in the midst of earnings season, but earnings have to suck because of coronavirus, right?

Wrong. There were some cheery earnings and announcements released Thursday, after the bell. Google, Facebook, and Amazon all surged after hours on good announcements. Apple kept the streak alive with a solid report and news of a 4:1 split. Here’s a quick summary of key tech earnings in the last week or so:

  • Apple (AAPL) – beat and raise
  • com (AMZN) – beat and raise
  • Facebook (FB) – beat and raise
  • Lam Research Corp. (LRCX) – beat and raise
  • PayPal Holdings (PYPL) – beat and raise
  • Alphabet (GOOG) – beat and raise (first-ever revenue decline)
  • Skyworks Solutions (SWKS) – beat and raise
  • Qorvo Inc (QRVO) – beat and raise
  • Intel (INTC) – miss
  • Advanced Micro Devices (AMD) – beat and raise

Once again, the street analysts got it wrong. Earnings expectations were simply too low. The stay-at-home trade is very real for Tech.

Navellier & Associates does own Amazon, PayPal Holdings Qorvo, and Intel in managed accounts but does not own Amazon, Facebook, Lam Research, Alphabet, Skyworks Solutions, or Advanced Micro Devices.  Jason Bodner does not own Amazon, Facebook, Qorvo, Intel, or Advanced Micro Devices but does own Lam Research, PayPal Holdings Alphabet and Skyworks Solutions privately.

All this set up incredibly well… Logically, my friend thought the market should lift off like a rocket come Friday morning. I agreed. He was monstrously bullish after the weekend prior being flooded with bearish outlooks. The setup was right to predict a big bull move, so he put on what he described as the single biggest trade of his life setup to cash in on a major rip for Friday. It set up for a very nice weekend…

Only the market didn’t do what it was supposed to. Does it ever? That and a hurricane was seemingly headed for a direct hit on the eastern coast of Florida, where we both are.

Here is how the major indexes (except Nasdaq) dipped intraday on Friday, according to Yahoo Finance:

Major Indexes Values Brief

Somewhere around noon, things looked pretty grim for my friend. It didn’t make sense. He should have been making the most money on a day trade in his life. Instead, it was looking like the opposite.

Fortunately, he stuck with it and cashed out for flat. He had a few new gray hairs and a lot of Pepto by late afternoon. But he was out and skirted a financial wreck.


Only then, the frustration piled on. He watched the trade play out just as he expected with a strong close, as buyers raced in and lifted the market in the waning hour of the week.

He called me. He was upset. Understandably so.

I told him that’s how I felt when I tried day-trading. It was 2001. I set myself up with an account to trade the USD/GBP currency pair. I traded for 21 days. I lost money on 19 of 21 days. I bought the high, sold the low and ended up with a lot of bruises on my fists from pounding the desk.

I learned an immense lesson though: Trading by my gut will nearly always guarantee poverty.

I removed any nook or cranny that might contain emotion. I only look at data now.

With that, though, I try not to predict. I use history as a guide, not a rule. For example: just because it’s never happened before, there is no rule that says markets can’t stay overbought for an entire year, so I told my friend that, for what it was worth. I felt his anguish. He wanted to punch the market in the face.

But it wouldn’t matter. It will just do what it is going to do.

You don’t tell the wave where to go, you just let it take you where IT is going.

Right now, it’s going up.

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 Market is Much Weaker Outside of Tech

Sector Spotlight by Jason Bodner
Why My “Gut” Will Put Me in the Poorhouse

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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