by Jason Bodner
June 11, 2024
Why do you invest?
People like to spend their money on different things. Some like watches, cars, and homes. Some enjoy accumulating and not spending. Some like to give; others just want to win the game of having the most.
Pablo Escobar, who made Forbes’ top 100 billionaire’s list seven times, once burned $2 million in cash, just to keep his daughter warm. A noble thought, until you recall he was a drug lord and narco-terrorist.
As for me, I’m more of an experience junky. When my last day comes, I will have tried all I wanted to try. As I write this, I’m in Barcelona, Spain with my family. Eventually, our children will splinter off, and yet I feel we will still have at least a few weeks a year together for travel and vacations as life goes on.
Naturally that requires money, so I sold some investments to fund this trip. That is, in part, why I invest.
Whatever your reason, the ultimate goal of investing is the same – to make money.
I’m here to help you achieve that goal, and my method relies exclusively on cold, hard data.
They say you must know where you’ve been to know where you’re going. So, as usual, I will first look at what the data has shown us about the past in order to get a potential glimpse of the possible future.
My usual starting point is the Big Money Index (BMI), one of the best money flow indicators I know of. It’s simple: If it rises, Big Money is flowing in. If it falls, big investors are dropping out. April saw money flowing out of stocks but May showed a strong reversion. Early June paused, but we still saw inflows:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Naturally we should be able to see this trend echoed with real stock buying. This chart shows daily counts for unusually large buying and selling of stocks. As you can see, buying has been strong.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Selling (the red line) was noticeably lower. Looking into more of the details, we can see that the buying was nicely distributed across different sectors. What impressed me most about the following chart is that the growth areas have been under accumulation. Health Care, Technology, Industrial, and Discretionary:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This level of sustained buying, especially in technology stocks, has pushed it into the pole position:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If we stopped there, life would seem rosy enough, but there has been a darker side in the tech arena. Recently, we have seen the most selling in technology stocks since last October:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
On May 30th alone, there were 44 tech stocks sold in an unusually large way. The latest catalyst for selling was Salesforce.com (CRM), which released disappointing earnings and guidance. The entire sector took a beating, but specifically the Software Industry group got pummeled. In the last week alone, 74 Software stocks showed unusual buying or selling. A shocking 57 of them were sold in a big way.
Given that software is a growth engine, that’s a disconcerting perspective and enough to sow the seeds of fear and doubt. That said, there are a couple of things you should know. The first is that my colleague Luke undertook an excellent survey of the sector and found that we’ve seen this kind of technology selling before. It signals capitulation and resignation for technology investors, which is excellent news for the bulls.
His study shows that going back to 2013, there have been 78 days when our data logged 44 or more technology stocks being sold. Here’s the forward returns for XLK after this rare signal:
- 3-months later, XLK ramps up +7.8% on average
- 6-months later, the group surges by 12.7%
- 12-months after, technology shares power 23% higher
- 24-months post this signal, XLK rips 57.2% higher, with a 100% positive hit ratio
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The next thing to know is that not all recent technology trading was selling. There was buying in electronics and even some select software companies too. Here we see the distribution of buying to selling for last week:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Also, nearly all sectors look solid across the board. Here we see reasonable buying in most sectors:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Overall, things look good and stable. Stocks are at or near all-time highs, but we had technology capitulation that prefaces technology stocks ripping higher. This event, should it come to pass (which it has, 100% of the time, historically speaking) bodes well for stocks. Technology is also historically a major leader during bull markets.
I have some more good news for you. I dug into similar times, like now, for the recent BMI action.
Here you can see that both the BMI and the S&P 500 rose 5 of 10 trading days from May 9th – 21st:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This setup has happened 577 trading days since 1990 out of 8,648 possible trading days, or only 6.7% of trading days (1 in 15) since 1990, so it’s relatively rare, and here’s what happened, going forward:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Returns look terrific, I’d say.
This is also an election year, when we will almost certainly see rates fall by year’s end. Cuts are already happening in Europe, and we should expect more. Such tailwinds are what we hope for as stock investors.
For me, this means more future vacations.
What does it mean for you?
“It is better to travel well than to arrive.” – Buddha
Navellier & Associates owns Salesforce (CRM), in some managed accounts. Jason Bodner owns Salesforce (CRM), personally.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Overseas Rate Cuts Could Help Lower U.S. Yields This Summer
Income Mail by Bryan Perry
Non-Leveraged High Yield Asset Class Pays Double-Digit Yields
Growth Mail by Gary Alexander
High Tech Stocks Can Create (or Crater) Fortunes
Global Mail by Ivan Martchev
Fresh All Time Highs, Now What?
Sector Spotlight by Jason Bodner
Why Do You Invest? To Hoard Wealth, or Spend It?
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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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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