by Jason Bodner
February 27, 2024
Most people know that when you walk into a casino, the odds are already against you. That doesn’t mean you can’t walk out a big winner, but if you do, don’t expect a warm welcome next time. Casinos are in the business of making money and they do so by shifting the odds in their favor – in all of their games.
According to the American Gaming Association, Blackjack offers you the best odds. That said, the house still has an advantage of up to 1.5% on a natural game of 21. Over the long run, that’s a guaranteed loss.
Maybe you’re better off playing something like keno? No, sir! According to the same data, the house edge on video Keno is 8% to 15%. With odds like that, Keno must be a huge profit center for casinos:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Interestingly, this table excludes Texas Hold ‘Em Poker. This is likely due to the fact that the above are games of chance and Hold ‘Em is a game of skill. Same with Video Poker. If you bet perfectly there, you still lose by a margin of at least 0.5%. In games of luck, on any given toss of the dice, you might win big, but if you keep playing long term, you’ll lose. It’s written into the DNA of the odds. However, with poker, you can master strategies that shift the odds in your favor. This is how professional poker players can rake in big pots time and time again. According to pokernews.com, the top 25 poker players in the world have won a staggering $1 billion, with the top five being Bryn Kenney (winning $65,115,882), Justin Bonomo ($63,405,743), Jason Koon ($55,762,108), Stephen Chidwick ($55,543,12) and Dan Smith ($52,438,566).
The great irony is that investing in stocks can seem like a sure thing, but our behavior in real life can turn the odds back to “the house,” making the odds pretty discouraging. In a 2017 paper, Professor Hedrik Bessembinder asked: “Do Stocks Outperform Treasury Bills?” To find the answer, he used 100 years of stock data spanning over 26,000 stocks. The answer was mixed: Yes, they do, but only 4% of listed stocks accounted for the entire surplus gain of stocks over Treasury Bills for those 100 years. The moral of the story? If you want to win, you need an edge over the world’s best players. My preferred edge is data.
Last week’s market action was a roller coaster. After a monstrous rally starting late last October, the momentum seemed to peter out in mid-February, as some major themes seemed to lose steam, and profit taking commenced. The Big Money Index (BMI) fell from overbought, and it seemed that the implied volatility arrived right on cue. The charts below show the BMI falling from overbought (in amber).
The left chart, below, shows the S&P 500 tracking ETF (SPY) in blue. It didn’t seem to be that volatile. But if you look at the Russell 2000 tracking ETF (IWM) on the right, we see a more volatile picture:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I wrote last week how history suggested a falling BMI is a risk reduction signal, but with this caveat: We must focus on the buying and selling pressure. Looking below, we see that the BMI fell not from increased selling, but mostly due to a wave of massive buying falling out of the 25-day moving average.
We see unusually large stock buying and selling on the left and the same for ETFs on the right. You can clearly see there’s just not much red (selling) recently… certainly nothing to get worried about:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If anything – we see steady buying after a minor drop-off. This is helping push the BMI back up! Below we can see , major buying is shifting the BMI higher:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We need to see obvious signs of selling for this bull market to pause. That has not happened yet. In fact, buying still heavily outweighs selling. Here we see the start of the year in comparison to just last week:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Next, we look into the sectors for any possible cracks in the wall. Looking at the sector strength and weakness table, we see strong growth sectors at the top and weaker defensive sectors at the bottom.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What’s more interesting is the buying and selling distribution of these sectors. In short – there’s no notable selling in any sector:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
What little selling that took place in tech shares quickly retreated and the rest of the market along with it. The only possible warning flag in such a rise is if the higher market action was “ghost” action, that is, if the market rally were taking place on light volume.
In the charts below, we can see unusually large trades based on volume and volatility alone. No highs or lows indicating buying or selling are considered. Here, I am just looking for whopper trades:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
My takeaway is that this rally is still very much intact. I won’t change my view until I see contradictory evidence. In fact, I see earnings that just keep on beating expectations. According to the latest available data from FactSet Earnings Insight for Q4 2023, 79% of S&P 500 companies have reported, with 75% registering an EPS surprise and 65% beating on revenue. The blended (year-over-year) earnings growth for the S&P 500 is 3.2%, marking the second-straight quarter that the index has reported earnings growth.
For me, approaching investing with a “gut instinct’ is comparable to walking up to the casino craps table with “high conviction.” Confidence in a casino is not based on quantifiable data, but my data on today’s market shows me that market strength is intact. Thus far, we have only one negative indicator (the BMI falling from overbought). On the other hand, we have several positive indicators, such as heavy volume buying, strength across sectors, growth-heavy sectors leading the surge, and excellent earnings.
The best strategy is to ride the predominant wave until the data says otherwise.
I prefer to use data to earn an investing edge. I risk real money in markets. It is up to me to manage that risk and understand it. Quantifiable data is the best tool I know to help with that. Otherwise, to me, it’s gambling. And as Wilson Mizner said: “Gambling is the sure way of getting nothing for something.”
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Inside NVidia’s Stunning Report, and its Impact
Income Mail by Bryan Perry
What Could Stop the Market’s Mojo?
Growth Mail by Gary Alexander
Are We in Market Bubble Territory Yet?
Global Mail by Ivan Martchev
The Broad Market is Not Extended at All
Sector Spotlight by Jason Bodner
Is the Market a Short-Term Casino, or a Long-Term Sure Thing?
View Full Archive
Read Past Issues Here
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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