by Jason Bodner
July 9, 2024
It is the July 4th weekend, a time to relax and reflect on our country’s independence, and our freedom. A lot has changed since 1776. Our population in 1776 was 2.5 million. It is now an estimated 341,842,492, representing an unbelievable 13,575% gain. Our forefathers didn’t see that coming. They also likely didn’t envision the Freedom Tower in New York City standing at 1776 feet tall, a nod to our freedom.
Like or love the state of our nation these days, it’s ours, and it affords us freedom to determine our own outcomes. With hard work and determination, we can accomplish our dreams. The Land of the Free is also the Land of Opportunity. No one said that it’s easy, but it’s possible.
One of the best opportunities to gain wealth in the U.S. is by investing in stocks. History is speckled with a few rags to riches stories of neophytes who made it big. The story of Dan Zanger comes to mind. He was a pool contractor who transformed $10,000 into $42 million in under two years back in 1998-2000!
History is also replete with stories where people lost their shirts and failed miserably at investing.
I’ve found that the best way to win in any market is to focus on the data and remove emotion from the equation. That way, predictable outcomes can be exploited when you measure your wins against your losses. The key is winning more than losing, and score bigger wins than losses. That is a long-term recipe for success, and a game in which you need not focus on losing; you only need to focus on the process.
July is starting with its expected thin holiday-week trading volume, which is also visible in the slowdown in unusual buys and sells. For starters, notice the wedging pattern of dwindling volume:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Falling volume is helping to stabilize the Big Money Index. This is largely due to prior elevated selling rolling off the 25-day moving average. The last six trading days have seen the BMI in a 0.8 point range:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The BMI fell hard in June, but stocks did not fall with it. In fact, technology stocks did particularly well.
In the following chart of XLK – the SPDR Select Technology Sector ETF – we see the index rising with the upward sloping yellow lines. Notice the recent vanishing of selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
We can see this action echoed in the following pie charts. On the left, we see how technology was the sector with the most buying. Health Care continues its internal tug of war, simultaneously seeing the second-most buying and the most selling:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This price action in technology along with the unusual buying (green lines in the technology chart above) helped propel the index to the top of our sector strength and weakness table:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The bad news is that while the S&P 500 has been outperforming the BMI, the stocks that comprise it don’t match the eye test. According to my data, 55% of the stocks in S&P 500 are currently trading below their 50-day moving average. The average market cap for those 274 S&P 500 companies is $55 billion.
And it’s not just happening in the S&P 500 either. Out of the 5,018 stocks that populated the price data in last Friday morning’s data sweep, 2,875 are below their 50-day moving average – that’s 57%.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, we are at a crossroads. Dwindling volume, weak breadth, the dog days of summer, and a looming election may be more than this market can take. But before you bail and make an emotional decision, we have some good news for you: July is a great month for stocks, historically speaking. Nothing is ever a slam dunk, but the odds are in our favor for a decent July, stock-wise.
A Look at the Last 34 July Markets – Ending in a Winning Streak
Here, we see each July since 1990 and the respective month-long returns for each of the four main stock indexes. The first thing you notice is a lot of green. Green is good! The next thing you’ll notice is the red – the bad Julys – mostly clump around some particularly rough historical periods: 1998-2002 was an especially volatile time for stocks. It encompassed the Internet bubble, 9/11, and the subsequent collapses of some titans of industry. Enron and WorldCom come to mind. Then, 2007 was when cracks appeared again, leading to the Great Financial Crisis. Then we see 2011 and 2014 exhibiting unusual volatility.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The last nine July markets have been positive, and I’d like you to notice that the last four Julys have been tremendous, averaging 5% for the S&P 500 and over 6% for the NASDAQ Composite!
Let’s take it one step further… For the past 34 years, July has been a positive month about 65% of the time, with an average return of about 1.5% for the Dow, S&P, and NASDAQ.
Now let’s look at the positive Julys. Naturally we can’t exclude rough patches in the market, but if we have a nearly 70% chance of a good July, the average positive July delivers gains of about 4%.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now, back to the BMI. If we get any sustained buying, we can expect a ramp in the BMI. And if we get buying in those 274 under-performing stocks in the S&P 500, the average size being $55 billion, breadth will greatly improve. In short, despite the S&P 500 being at highs, there is a case for it to go higher! On the flip-side, should capital flow out of the mega-cap leaders, we could see pressure, as it is cap weighted.
The market is in a lull, under the surface, much like a sailboat that hits a glassy patch of water with no wind. What comes next is anyone’s guess, but using history as our guide, we might expect a solid July.
“External things are not the problem. It’s your assessment of them. Which you can erase right now.”
-– Marcus Aurelius
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
Why the Monthly Jobs Report is Often Misleading (or At Least Premature)
Income Mail by Bryan Perry
Energy-Based Income Provides for High Yield Inflation Hedges
Growth Mail by Gary Alexander
Clear-Eyed Optimists Convene at Freedom Fest This Week
Global Mail by Ivan Martchev
Macron’s Gamble Pays Off
Sector Spotlight by Jason Bodner
July Has Delivered Nine Straight Gains – Will This July Be #10?
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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