by Jason Bodner
January 21, 2026
When you compress a spring, the energy doesn’t vanish. It is stored as potential energy. Then, when you release the spring, its stored energy is transformed into motion. To the untrained eye, nothing seems to happen while the spring is held down, but the energy is all there, waiting to explode when released.
We are now in the second half of January, and the stock market is strong. We have seen a major equity rally to start 2026, but beneath the surface, heavy rotation is underway. Today, I’ll dig into rotation by following capital from the top down, revealing where money is leaving and where it is concentrating.
With the naked eye, this movement is hard to spot, but viewed through money flows, the market looks different, more like an MRI than a price chart. Prices alone show strength, but money flows explain why.
The first two-weeks of 2026 were positive for stocks. SPY and DJIA confirm the rally, but comparing the NASDAQ to small-caps tells a different story. Small-caps have clearly taken the lead, signaling capital is rotating away from crowded leadership and toward new opportunities early in the new-year.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
With semiconductors flying high last week, it may not feel this way, but technology as a whole has stalled since October. Naturally, many of us with big positions in technology feel the pain in our portfolios. The oomph just isn’t there. This can be seen in the disappointing performance of mega-cap technology stocks from their highs.
Anyone holding small-cap and mid-caps know where the money has been going, as 81% of all inflows since January 1st were concentrated in companies worth $50-billion and below – the small-cap to mid-cap universe.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In the words of a friend: “This kind of market makes everyone look good.” And he’s right, with the few exceptions he noted. A rising tide doesn’t always lift all boats. We know mega-cap technology is suffering and we know small-caps are benefiting. Now let’s look again at the flow of capital from the top-down.
The Big Money Index (BMI) is a great gauge for overall capital flow in the stock market, and it has been steadily rising and currently sits at 71.2%:
Note how the SPY has been rising after a period of choppiness from September through November. In addition, unusually large trade volumes (ETVs) have risen to above average levels, coinciding with an uptrend in SPY. Since January 2005, the average daily ETV count is 511, meaning 511 unusually large trades are seen, on average, per day out of over 5,000-stocks, or about 10%. The average since January 1, 2026 is 1016, nearly double. This coincides with an uptrend and strength in small-cap and mid-cap stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now let’s look at daily flows. Since November, inflows have dominated and intensified since New Year’s Eve. The same can be observed in ETFs. We are seeing no big outflows and a hefty spike of inflows:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now let’s look again at a chart of IWM, the Russell 2000 ETF. It is composed of companies worth $50-billion and below. Again, the price chart just shows some juice for the ETF. But when we overlay inflows and outflows, we can see a perfect fit – a very tight correlation between flows and price:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
When there was fear and deleveraging last April and November, outflows drove IWM lower. But during calm seas, inflows drove prices higher… More so than the large-cap heavy SPY and technology-heavy QQQ.
Now, let’s check out the sectors. I should take a moment to tell you about a benefit (or flaw, depending on your view) of my process. To rank sectors and score stocks, there is a component measuring year-to-date performance. This means sector leadership on December 31st may look extremely different from January 15th. (Perhaps it should be rolling 1-year.) But the benefits are, there is no hiding it: we can see the weakest sectors right away and, unfortunately for technology, the sector is now near the bottom of the barrel:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The picture becomes clearer still when looking at how the flows distributed themselves since January 1st. Money flowed into Industrials, Technology, Materials, Health, Financials, and Discretionary stocks account for 81% of inflows in those five-sectors alone. One might think this is good for technology. But when you look at outflows, we can see nearly 40% of all outflows have been in technology stocks. Put another way, the outflows have been low, so far in 2026, but what has been there has been mainly in technology stocks:
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Looking at individual sectors we can see massive pops in Materials, Industrials, Energy, Staples, and Discretionary Index ETFs. Health Care is also strong, but for Technology, the story is different. The sector index has been sloppy since October. This computes with what I told you about mega-cap technology stocks.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
When we look at the distribution of flows by sector, it plainly looks like money is moving out of technology and into … just about everything else. Now, take what we observed above and we can surmise money is flowing out of mega-cap technology stocks and into the smaller-cap stocks, mainly split amongst seven-sectors.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Now we can look at the Technology sector with fresh eyes. We saw 158-outflows and 223-inflows, and we can see where the action happened: Software names seeing outflows and Semiconductors seeing inflows.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Markets are off to a great start, but most of the fun is in small-cap to mid-cap semiconductors. The news last November said the AI bubble was over… yet here we are with some vital new data among technology stocks.
“Where you stand determines what you see.”- Chester I. Barnard
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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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 and 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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