By Jason Bodner,

September 15, 2020,

My wife and I have a never-ending debate…about apple pie.

She’s Belgian. She like European style pie, called tarte-au-pommes, or apple tart. The apples are drier and less sweet than the ones I like. I prefer good old American apple pie, with mushy and sweet apples with that gooey gel. She thinks it’s disgusting. I think hers is dry, crusty, and boring.

I guess no marriage is perfect, but my choice has to be better! I mean, the old saying goes: “As American as apple pie,” right? Apparently, however, apple pie is not American at all. Neither apple pies nor apples originally came from America. Apples come from Asia, and the first recorded recipe for apple pie came from England.

No matter. Mine is still better. But it just points to the origin of common misconceptions.

This brings me to a question: Is this market going to find its footing or continue to slide down a slippery slope?

Common conception has it that our economy is in peril due to the coronavirus pandemic. Job loss is off the charts. Restaurants and stores are going under at an alarming rate. My mom just mentioned how sad it was that Lord & Taylor went bankrupt after over 100 years. Others are focused on the coronavirus case numbers, while exclaiming: “It’s worse than you think.”

It’s bad, but there is plenty of room for misinterpreting the news. For instance: how long have retailers like Lord & Taylor been against the ropes? Many headline retail closures have already been suffering losses, long before a pandemic came along to deliver the death blow.

And as far as numbers of new cases, they are dropping drastically from the July peak. Here in Florida, according to coronaviruscounter.com, new daily cases peaked at 15,134 on July 12th, and are now averaging around 2,500. Even if the news fudged the number by, let’s say 50%, things are still markedly better than before.

So when the selling in stocks comes to town and the bearish sentiment creeps out of the woodwork, what are we supposed to believe? Is this the end of our shocking bull run?

In mid-March, I told anyone who would listen to buy stocks. Pundits and media were calling for a new Depression, and a cataclysmic economic future. Guess what: QQQ (the Nasdaq ETF) rallied +84% troughs to peak.

The lesson: Don’t believe everything you hear. In fact, it’s best to do your own analysis. The media wants you to remain afraid and pessimistic. Their advertisers pay them money to have constant viewers. When viewers are happy and stress-free, they don’t usually watch the news.

So now that the rally seems to be over, the news is coming out with plenty more negative fodder.

Are we headed for the reckoning that many feel is long overdue?

Short answer: No.

The longer answer is that this market is having a much-needed pullback. The rotation is real and underway. Money is coming out of tech – largely due to profit taking. This profit-taking was sparked by day-traders getting their balloon pricked. Day after day, for months, day traders armed with stimulus checks would push up tech shares to a parabolic rise. I fully believe our future is tech driven, but the recent price rise needed a come-back-to-earth moment. This is it.

Last week saw some healthy continued selling in technology stocks. We saw 32% of our tech universe get walloped with big money selling. But that’s just the headline grabber. The full story is that it came down because it went too far too fast. But look at the damage in energy: 67 out of 58 stocks were sold this week. That means many energy stocks were sold on multiple days, and it was only a 4-day trading week. Therefore 116% of the energy sector saw big money selling.

Map Signals Sector Ranking

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

Big money is coming out of tech and energy and sloshing back into discretionary, healthcare, and some staples stocks.

On a broader level, the market at large is clearly seeing less demand for stocks, but the Big Money Index (BMI) foresaw this for quite a while. As we’ve noted, the BMI was steadily falling for a while, even when the news was getting very bullish. Remember, when a market gets overbought, it can stay that way for a while. This time the BMI established a 30-year record at 84 days overbought, but the level peaked in June and steadily declined.

Map Signals BMI April Dip

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

To nail exact tops and bottoms of markets is a puzzle that has frustrated traders since the dawn of trading. But following big money is still the best indicator to tell you what is coming. Generally speaking, we like it when the BMI is gently trending higher between the green and red lines. It means there’s a healthy balance between buying and selling, but in favor of buying. This allows a gentle up-trending market to continue for a long time.

We came from extreme overbought in January, to extreme oversold in March, to extreme overbought in May, which tells us that 2020 will mark an historic year for humanity, but also for the data we collect. We may not see a market like this for years, possibly decades.

On the other hand, it may happen again next year.

That’s the thing: We never know the future. All we can do is interpret data real time and react. Our data indicates a waning appetite for stocks in the short term. I suspect the next few weeks will be choppy as a base is formed and buying will come in again to lift markets in the late-fall and early winter.

The inescapable truth, regardless of the news, is that rates are near-zero for the foreseeable future, which means there’s nowhere better to put your money. Owning the S&P 500 for its dividends is +244% better than owning the 10-year Treasury for yields after taxes:

Advantages of Stocks Over Bonds

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

To review, we’ve learned that apple pie isn’t American (even though American pie tastes better than Euro-tartes). And we’ve learned that the market is not headed for disaster, but it may be choppy for a bit, so you should have your shopping list ready and pick your spots. Sun Tzu said: “If you know the enemy and know yourself, you need not fear the results of a hundred battles.”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

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Sector Spotlight by Jason Bodner
Common Misconceptions about Today’s Market

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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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