by Jason Bodner
July 23, 2024
As a kid, I wanted X-Ray glasses. I imagined seeing straight through my hand to witness my bones, so I saw an ad and scraped up $1.25 to get them. It took me only two seconds to find out they were bunk.
They were just flimsy plastic with cardboard where the lenses should be, and a tiny pinhole covered with transparent material. Kids learn hard lessons sometimes… imagination vs. reality can be disappointing.
It wasn’t about seeing my bones as much as having an ability that others didn’t have. How disappointing.
I think about that often, because in the end I made my own X-Ray glasses – only these really work, and they allow me to see market money flows – deep inside the stock market – like nobody one else can see.
Let me show you the power of my stock market X-Ray glasses…You’re likely aware of the seismic shift that took place the last few sessions. Large-cap technology took it on the chin while small-caps exploded. That’s not clearly visible looking at a regular chart, so let’s start with the SPY (S&P 500 tracking ETF).
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
This chart clearly tells the story of a bull market starting late last October. That latest drop from the peak (highlighted by the arrow at the right) seems like any other bump in the road moving higher. We could just saunter along in our market daydreams blissfully unaware of what’s really happening. But let’s put on our market X-Ray glasses that allow us to see things in different ways than normal people can see things.
The first thing we see is that the 2% drop wasn’t from measurable selling. When huge professional money managers buy and sell stocks in an unusually large way, they leave footprints – if you have X-Ray help. Putting our glasses on, we see green bars representing unusually large buying, and red bars for selling.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The arrow on the bottom shows that as the SPY sank, it wasn’t due to huge selling – note the small red bars. In fact, there was green-bar buying on a level not seen since mid-December. So, what’s going on?
We’ve already drawn heavy attention to the rotation taking place under the surface of the big ol’ S&P 500, so let’s take off our X-Ray glasses and look at the IWM (Russell 20000 tracking ETF):
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
I don’t need to draw any cutesy arrows here. It’s as plain as day that the index broke out, ripping to new highs in a massive way. But when we put our X-Ray glasses on, we see something no one else can see.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Those green sticks depicting unusually large buying are clearly lifting the IWM. In other words, money is flowing into small-caps in a huge way. The Russell 2000 index popped nearly 11% since June 30th – adding about $326 billion in value at its July 16th peak.
Next, let’s take all unusual buying and selling and break it down by market cap. Starting the day before that earthquake of a move, we can see where all the money has been flowing:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
They can’t hide when we have our goggles on. Small and mid-caps have seen huge inflows. And again, note that while the Russell ripped, the S&P dipped but with virtually no selling (red).
Now, when we swap out SPY for QQQ we see the dip is more pronounced:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Again, we notice little red (selling). That means selling has not broken down to technical lows. But if the NASDAQ is under pressure, and small caps are flying, then some rotation is obvious.
Large-cap technology is getting hit with profit taking and rolling into small-caps. The index breadth was so low that as recently as a few weeks ago, 60% of the S&P 500 was trading below the 50-day moving average. Meaning: only a few huge technology stocks were holding up the whole index.
That has suddenly changed in a big way. In fact, the technology sector slipped to #2 on our strength table:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
That’s because Financials exploded higher. Using our X-Ray, we can see the money flows by sector. We can see the massive catch-up trade is under way. Money gushed into Financials stocks, Industrials, Real Estate, Materials, Discretionary, Utilities, Staples, Health Care, and even Communications.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
All the unloved, under-performing sectors saw green (cash inflows), but technology did not participate. The old paradigm of finding safety has shifted over the years. It’s glaringly obvious: Money was hiding in plain sight in the biggest technology stocks. Suddenly money is chasing everything else, for a few good reasons:
- Cooler CPI data has lifted Wall Street’s odds of a September rate cut to 100%
- Trump’s failed take-out vaulted his election odds to 64% and sank Biden’s to 15% according to Real Clear politics. Trump as front-runner is pro small business, anti-tax, and wants lower rates.
- The last time Trump won, in 2016, this same huge rotation happened. Large-cap technology crumbled and value had to catch up. It was stunning but painful to many who weren’t positioned properly.
Imagine those expecting a Biden win and the status quo. Imagine they were long big technology and short the small-caps. Last week’s reversal could prove to be fatal to some funds. It wouldn’t surprise me to read about blow-ups in the coming weeks. The trade of the year is on, and we predicted it first.*
You didn’t hear about it anywhere else. That’s because we have X-Ray glasses that no one else has.
Change comes unexpectedly and can be uncomfortable. But as Alan Watts said, “The only way to make sense out of change is to plunge into it, move with it, and join the dance.”
*This column was written before Biden retired from the top of the ticket, but the principle applies to his successor.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Best Tech and Energy Stocks Should Remain Strong
Income Mail by Bryan Perry
Riding Out Summer Volatility with the “Mag 7” Earnings on Deck
Growth Mail by Gary Alexander
“Mr. Powell, Tear Down This Interest Rate Wall!”
Global Mail by Ivan Martchev
It is Starting to Look like an Intermediate-Term Sell-Off
Sector Spotlight by Jason Bodner
Here’s Your “X-Ray Vision” Key to the Market
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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