Speaker 1: This is Master's in Business with very Rid Holds on
Speaker 1: Bloomberg Radio.
Speaker 2: This week on the podcast, I have a special guest.
Speaker 2: Steve Suttmeyer has been in the technical analysis game for
Speaker 2: a long time. He is chief Equity technical Strategist at
Speaker 2: be of A Securities, and he is a double threat.
Speaker 2: He has both a CMT and a CFA. Looks at
Speaker 2: the world from a very interesting perspective I get via
Speaker 2: a research. In particular, I really enjoy Steve's monthly chart
Speaker 2: blasts as well as his overview. Every now and then
Speaker 2: he'll do a deep dive into things like sentiment or
Speaker 2: sector rotation. I find his work to be very informative
Speaker 2: and very useful, and I think you will also. With
Speaker 2: no further ado my conversation with be of A Securities,
Speaker 2: Steven Suttmeyer, Thank you very much. All right, So yeah,
Speaker 2: I'm glad to have you. So, so let's talk a
Speaker 2: little bit about your background. So you get an MBA
Speaker 2: from Fordham. What was the original career plan?
Speaker 1: Yeah, so I went to Fairview University undergrad and it
Speaker 1: was right. I didn't put it this way. It was
Speaker 1: right right after nineteen em crash. I was there from
Speaker 1: not eighty nine to ninety three. Right, So instead of
Speaker 1: pursuing business, I pursued pre med and since my writing
Speaker 1: skills weren't all off the snuff, I just dove in said,
Speaker 1: you know, let me get a double major and do
Speaker 1: English writing. So I wanted to challenge myself improve my
Speaker 1: communication skills, you know, through through the writing process. Long
Speaker 1: story short, you know, get out of college. It was
Speaker 1: a tough time. You know, it was the early nineties,
Speaker 1: and you know it was hard to find, you know, jobs,
Speaker 1: and I was not a good standardized test taker, right,
Speaker 1: so my MCATs were bad, but I took them three
Speaker 1: times but I managed to jump my score, right, So
Speaker 1: I still was able to get a few interviews in
Speaker 1: med school. But I kind of changed my mind. I
Speaker 1: want I wanted to do so after So what I
Speaker 1: did was I was looking around for finance jobs and
Speaker 1: obviously you're not going to hire you know, a pre
Speaker 1: med bio major in English writing major, you know, right
Speaker 1: off the street. Right, So so I just answered ad
Speaker 1: from the paper and guess where I wound up. I
Speaker 1: wound out out of the boiler room right across from Strattonopemont,
Speaker 1: oh in nineteen ninety four.
Speaker 2: What were you doing there. I was one of those
Speaker 2: coal callers, no kidding, and.
Speaker 1: You know, quite frankly, it was a very interesting learning experience.
Speaker 1: I was only there for a year and a half
Speaker 1: because if you've see in the movie boiler Room, sure
Speaker 1: I lived it was.
Speaker 2: That was that accurate.
Speaker 1: I mean, their office was a lot nicer than ours,
Speaker 1: but generally speaking, was fairly accurate. And I remember when
Speaker 1: he was studying for the series seven. In the movie,
Speaker 1: He's like he's realizing, wait a second, you know, they're
Speaker 1: doing things that are not right. And I'm sitting there like, man,
Speaker 1: I'm glad I'm not licensed yet, because the last thing
Speaker 1: I want to do is, you know, get booted out
Speaker 1: of the business before I even start.
Speaker 2: So, you know, you know that scene in Wolf of
Speaker 2: Wall Street where where DiCaprio sits down the room and
Speaker 2: makes that first call. I worked with guys who were
Speaker 2: that good but came from that same sort of background,
Speaker 2: and they all seemed to be too impatient to get
Speaker 2: rich slowly. But a lot of these things really resonate,
Speaker 2: really come across as that was a real thing in
Speaker 2: the eighties and nineties.
Speaker 1: It was, and you know, I just learned that, you know,
Speaker 1: I just just the antennas were off, and I'm like, this.
Speaker 2: Is not where I want to be, to say the
Speaker 2: very least.
Speaker 1: And then and then the funny thing about it was
Speaker 1: when when I see those movies, both Boiler and Man
Speaker 1: Walf of Wall Street, the script that they're reading from
Speaker 1: is exactly the script that they gave us.
Speaker 2: You know, whoever did their research, you know, they found
Speaker 2: a bunch of stuff and it was it was pretty amazing.
Speaker 2: So you work, you leave that world, and you go
Speaker 2: to a few boutique shops, that's right. You work at
Speaker 2: Capital Growth Financial and informer global markets before you join
Speaker 2: investing Giant Merrill Lynch in two thousand and seven. What
Speaker 2: was that transition like from smaller shops to a really
Speaker 2: big one.
Speaker 1: Well, I mean, that's that's a great question. Let me
Speaker 1: just spend thirty seconds before answering that. I was lucky
Speaker 1: to have a dad in the business, you know, so
Speaker 1: he didn't take me on, you know, initially, and I
Speaker 1: had to go through kind of like that that McDonald's thing,
Speaker 1: working the fries at the boiler room kind of thing, right,
Speaker 1: And then in nineteen ninety six I actually worked for
Speaker 1: him for a little while and we went down to
Speaker 1: a firm in Florida, and then you know, I made
Speaker 1: friends with some people in the research apartment there, and
Speaker 1: that's when I started to focus on research. So first
Speaker 1: it was a hybrid technical fundamental, and then and then
Speaker 1: you know, went to fundamental and then went back to
Speaker 1: technical full time. So the reason why I went on
Speaker 1: to Merrill Lynch was, look, I was, you know, entrepreneurial.
Speaker 1: I worked for small firms that that we could have
Speaker 1: built into a big business. But the problem was we
Speaker 1: were charging four cents a share, and you know that
Speaker 1: make a long story short. Everybody else was charging one
Speaker 1: or you know, even less than that, and you know,
Speaker 1: we weren't able to compete, and that makes sense. It
Speaker 1: was very hard. So I'm like, let me get to
Speaker 1: somewhere more stable, big mother Merril in two thousand and seven,
Speaker 1: right stable, Perfect, little that I know what was gonna
Speaker 1: happen two years later? Perfect?
Speaker 2: Well, let's talk later. Let's jump ahead to a question
Speaker 2: I was going to ask you later. You join Merrill
Speaker 2: in March of two thousand and seven, right on the
Speaker 2: you know, verge of an epic a cusp of an
Speaker 2: epic meltdown? What was that year at Meryll like that
Speaker 2: had to be kind of wild.
Speaker 1: Yeah, of course, I mean it's just I just remember
Speaker 1: because I was a little bit more season, you know.
Speaker 1: I've been in the business fifteen sixteen, seventeen, no, no,
Speaker 1: fourteen years, fifteen years when that hit, and I just
Speaker 1: remember the weekend of you know, the shotgun wedding, you know,
Speaker 1: in two thousand and eight. I just remember sitting down
Speaker 1: with some of my colleagues who are a lot younger,
Speaker 1: and they're like, what do we do. I'm like, well,
Speaker 1: you know what, you do your job until someone says.
Speaker 2: You can't because your head down keep working.
Speaker 1: I mean, you know, I've worked at other firms where
Speaker 1: they had LAO like every few months, and you know,
Speaker 1: we knew when they were coming, and just like, you know,
Speaker 1: you just do your job until you told you can't.
Speaker 1: And that's that, you know.
Speaker 2: I mean, I have a vivid recollection of what was
Speaker 2: his name? Thane was the CEO of Merrill at the time.
Speaker 1: Yes, I believe so.
Speaker 2: And I remember that Whenning comes off and people were
Speaker 2: like really upset about it, and I was like, what
Speaker 2: are you talking about? He just saved the firm. How
Speaker 2: are you possibly? Oh, I'm sorry, your stock options are
Speaker 2: worth a lot less as opposed to zero. Something is
Speaker 2: better than nothing, right.
Speaker 1: Well, I mean, you know, look at the news on
Speaker 1: the weekend that weekend seeing everybody taking boxes out of
Speaker 1: liman embarrassed. So it's like, yeah, it's it's a totally
Speaker 1: it's it's very different.
Speaker 2: Door number one was much better than door number three
Speaker 2: in the circumstance.
Speaker 1: Yeah, I mean, of course, you know obviously after that,
Speaker 1: you know, emerging the two together, you know, the redundancies
Speaker 1: and things like that, and and you know, they took
Speaker 1: the opportunity to you know, at least in you know,
Speaker 1: on on teams that were big, you know, cut them
Speaker 1: essentially in half, right, you know.
Speaker 2: To take the people who they think are the top performers.
Speaker 2: And but that's pretty typical. And that's the way finance
Speaker 2: M and A. Right, that's how it goes. This just
Speaker 2: happened to be done so rapidly. There was hardly any
Speaker 2: time for planning. It seemed like everything was on the fly.
Speaker 1: Yeah. So the biggest thing I was we were worried about.
Speaker 1: So I was working with Mary on Bartell's at the time.
Speaker 1: Oh sure, she was running the department, and you know
Speaker 1: the biggest thing we were worried about. We weren't worried
Speaker 1: in one regard because you know, b of A did
Speaker 1: not have a dedicated technical analysis team. But at the
Speaker 1: same time we were worried that b of A did
Speaker 1: not have a dedicated you know what I mean because.
Speaker 2: Me, they may not appreciate the exact value of it, but.
Speaker 1: But they did. Then they kept us, they kept you know.
Speaker 2: So let me roll back. I jumped ahead. What was
Speaker 2: it that you know, you have a background as both
Speaker 2: the CFA and eventually CMT. Giving your background and fundamentals,
Speaker 2: what was it that attracted you to the technical side.
Speaker 1: Well, I started off technical, which is unusual. Normally is
Speaker 1: the other way around, and it was you know, my
Speaker 1: first research boss. His name was Stefan Haber. He worked
Speaker 1: at Williamarr Huffing Company, and he encouraged me to take
Speaker 1: the CFA exam. And I remember that first level was tough.
Speaker 1: I had no finance background. Accounting was very difficult.
Speaker 2: So it's about a fifty percent fail rate something like that,
Speaker 2: maybe even more.
Speaker 1: I mean the level one was I don't remember at
Speaker 1: that time, but all I do remember was the first
Speaker 1: half of the test. I felt like you know, I
Speaker 1: failed it. So then there on lunch, I guess I
Speaker 1: pulled the Harlem glob trotters and regroups and was able
Speaker 1: to get through the second part pretty easily. So but no,
Speaker 1: it it's that's that's what turned me on to And
Speaker 1: then you know, we had a very fundamentally oriented research group.
Speaker 1: Now I was a technical analyst, so he kind of
Speaker 1: you know, brought me on as a hybrid analyst and
Speaker 1: it was good. I mean I learned a lot from
Speaker 1: when I worked there. You know, I covered you know,
Speaker 1: the first stock I guess I was jointly covering with
Speaker 1: another analyst was J Bill Be you know, which was
Speaker 1: based in Saint Petersburg, So you know, so that was
Speaker 1: kind of fun. Yeah, so I got to learn a
Speaker 1: lot there.
Speaker 2: So so how do these compliment each other? How do
Speaker 2: the fundamentals complement the technicals and does one sort of
Speaker 2: dominate the other?
Speaker 1: Or you.
Speaker 2: Are you a technical analyst with a fundamental sort of
Speaker 2: in your back pocket? Not what the key driver is.
Speaker 1: No, my my primary work is technical. In terms of
Speaker 1: fundamental I rely on our analysts ratings at the firm.
Speaker 1: You know, I look and see, you know what stocks
Speaker 1: they like, what they don't like, and I look at
Speaker 1: the charts, and if it melts with what they're saying,
Speaker 1: I go with it, or if it looks like it's
Speaker 1: going to turn in favor what they're saying, I go
Speaker 1: with it, and vice versa. Of course, there's other times
Speaker 1: where I have a really compelling chart looks bullish, where
Speaker 1: they have underperform on it, I'll publish on it. But
Speaker 1: I always say, hey, here's here. You know, fundamental view
Speaker 1: is different, here's the research. I don't to look at that,
Speaker 1: you know. So I respect the work that they do,
Speaker 1: and you know, I try to try to enhance it
Speaker 1: as much as I possibly can. So for me, though,
Speaker 1: technicals are always first and foremost because that's my role.
Speaker 1: But I mean, obviously you want to own something that
Speaker 1: has some sort of intrinsic value. So I think that's
Speaker 1: the way I would probably think about it, you know,
Speaker 1: more of a you know, of a can Slim type
Speaker 1: of approach, because I was always a whim O'Neal fan,
Speaker 1: and he just passed away a few months ago, so
Speaker 1: that was kind of sad because I was I have
Speaker 1: that book on my on my shelf, you know, as
Speaker 1: we all do. So yeah, I mean it's it is
Speaker 1: a yeah, I mean, I look, I mean, I know
Speaker 1: in another world, you know, if you know, if I've
Speaker 1: ever moved on to somewhere else where, I was, you know,
Speaker 1: doing you know, something in a smaller shop. I'm sure
Speaker 1: I would put that fundamental a hat on a little
Speaker 1: bit more often than I do now. But I don't
Speaker 1: have to now because I got a whole team of
Speaker 1: fundamental analysts that that we rely on.
Speaker 2: You're reminding me of the Ralph akampoor A quote fundamentals
Speaker 2: tell you what to buy. Technicals tell you when accurate.
Speaker 1: I mean, I love the quote, but I don't necessarily
Speaker 1: believe it's entirely accuarate. And here's why I think technicals
Speaker 1: can tell you what to buy as well. Oh really,
Speaker 1: because if you can see a price pattern, you know,
Speaker 1: you can see a trend, and if a stock's building
Speaker 1: a big base, and say the analysts are ninety percent
Speaker 1: cell ratings and a lot of volume is surged down,
Speaker 1: you know, when the stock first declined to say five
Speaker 1: dollars from twenty right, and then volume surge, and all
Speaker 1: of a sudden, you're trading sideways for a long period
Speaker 1: of time unless volume you know your fundamental works saying hey,
Speaker 1: wait a second, you know this seems to be undervalued,
Speaker 1: or or maybe the earnings are going to improve next
Speaker 1: quarter or something like that. You know, that's something I
Speaker 1: would look at to potentially buy, even though technically speaking
Speaker 1: it's not very strong, but it is building a big base.
Speaker 1: And if the relative chart could I do absolute relative work.
Speaker 1: If the relative start chart starts showing outperformance versus you know,
Speaker 1: when compared to the absolute, meaning the market's corrected a lot,
Speaker 1: but this stock is starting to lead, that tells me,
Speaker 1: you know what, somebody may know something I don't, and
Speaker 1: I should, you know, maybe build a position in that name.
Speaker 1: So I think technicals are helpful with what and when.
Speaker 1: In fact, I'm probably more of a what to buy
Speaker 1: than a when to buy type of guy, because look,
Speaker 1: I have to put out a research node, and it's like,
Speaker 1: you know, I can't just say hey, buy this name
Speaker 1: here at this price. It may never hit it. So
Speaker 1: I just kind of say, hey, here's something that looks
Speaker 1: attractive technically. You know, our fundamental analyst has either a
Speaker 1: buy or sell on it, But technically it's attractive. You know,
Speaker 1: I think it's a stock to buy. And you know what,
Speaker 1: I would put the levels in there. If it hits
Speaker 1: these levels, then then it becomes you know, more time
Speaker 1: to buy. But either way, you know, I'm building a
Speaker 1: position there, you know, based on my research.
Speaker 2: So your title is chief equity technical strategist. What is
Speaker 2: a day in the life of the chief equity technical
Speaker 2: strategist at a big shop like Merrill?
Speaker 1: Look like yeah, so b of a when we you know,
Speaker 1: it's it's a combined hybrid world, right, So we service
Speaker 1: the global private clients. So the financial advisors are you know,
Speaker 1: a big part of what we do. We talk to
Speaker 1: them a lot. I do a weekly webcast on Wednesdays
Speaker 1: for them twelve noon. You know, you go on the road,
Speaker 1: you see offices, they ask you question about market stocks,
Speaker 1: things like that, and you try to help them out
Speaker 1: as much as you possibly can. You know, there are
Speaker 1: some financial advisor teams that have me do webcasts for
Speaker 1: you know, clients, you know, periodically, sometimes quarterly, sometimes monthly,
Speaker 1: and sometimes just internal you know, just so they can
Speaker 1: because one thing financial advisors say about the research that
Speaker 1: we put out on the technicals is that I may
Speaker 1: not be a technical analyst, but when I read you know,
Speaker 1: be of a technical research report. It gives me something
Speaker 1: intelligent to tell my clients, especially when times are tough,
Speaker 1: and even if they're not using it other than that purpose.
Speaker 1: I mean, that's a victory right there.
Speaker 2: Right, No, that makes a lot of sense. So let's
Speaker 2: talk a little bit about how technicals work. And I
Speaker 2: want to start just by asking, how do you define
Speaker 2: technical analysis? I've heard lots and lots of different definitions.
Speaker 2: What's yours?
Speaker 1: Yeah, it's a great, great question. I mean, I'm sure
Speaker 1: it's changing as days go by, But for me, I mean,
Speaker 1: we're we're you know, you're using mathematics quantitative methods to
Speaker 1: identify and spot trends and patterns in the financial markets.
Speaker 1: I guess that keeps it pretty simple. So for me,
Speaker 1: it's really just trend following and pattern recognition. I will
Speaker 1: occasionally throw in second derivative type of indicators a price like.
Speaker 2: You know, an RSI or relative strength in that's right.
Speaker 1: Relistrate the indicator generate overbought, over soul, but also involves
Speaker 1: things like breath sentiment. I do a lot of credit
Speaker 1: market work too, you know, just looking at credit spreads
Speaker 1: and things.
Speaker 2: So let's define our terms along the along the way,
Speaker 2: when you're talking about breath, we're talking about the numbers
Speaker 2: of advancers versus decliners. Is is it a broad markets
Speaker 2: in a narrow market?
Speaker 1: And that's one of bob Arrels ten rules. Remember, you know,
Speaker 1: markets are stronger when they're broad and weaker when they're narrow.
Speaker 1: So again, way us a measure market breath would be
Speaker 1: the advanced of client lines you just mentioned, also new
Speaker 1: fifty two week highs, new fifty two week lows. You
Speaker 1: also use four week lows, twenty four week eyes and lows,
Speaker 1: things like that. The other things would be diffusion indicators,
Speaker 1: like the percentage of stocks above moving averages. So if
Speaker 1: you have I mean, you know, interestingly, if you have
Speaker 1: the SMP, you know, above a two hundred day moving average,
Speaker 1: yet you know a few and the fifty percent of
Speaker 1: the stocks are above it, and it kind of tells
Speaker 1: just something about breadth of the market. You know, the
Speaker 1: markets stronger, but more stocks are below the moving averages,
Speaker 1: So I mean, I think that's something to look at.
Speaker 1: So some of these indicators, like the percentage of stocks
Speaker 1: above ten day movement averages, can also be used as momentum,
Speaker 1: you know, so sometimes you can use breath as a momentum.
Speaker 1: So the other thing I mentioned was sentiment, So that
Speaker 1: basically is sentiment and positioning lump and positioning as well.
Speaker 1: So if you're watching sentiment, it's a surveys, you know,
Speaker 1: the the Investors Intelligence Survey, bullbear and correction, and then
Speaker 1: you got aaii bowlbear and neutral you have. So those
Speaker 1: are centiment indicators. What are they telling us what investors
Speaker 1: are doing? Now? Hopefully investors are saying, I mean, what
Speaker 1: investors are saying right right, not doing. Hopefully what they're
Speaker 1: doing is close to what they're saying. That's what sentiment implies.
Speaker 1: But then you overlay that and look at something like
Speaker 1: a POOT call. You know, that tells you more what
Speaker 1: they're doing. You know, the volume of puts are higher
Speaker 1: in the volume of calls that goes above one, that
Speaker 1: means investors are fearful. Another one I look at that
Speaker 1: I find very useful for tactical lows in the market.
Speaker 1: But sometimes more meaningful and tactical would be taking the
Speaker 1: three month VIX the volatility index and dividing it by
Speaker 1: the one month miix. So when that is high like
Speaker 1: one point twenty five or above, investors are like I'm
Speaker 1: not concerned about volatility in the immediate future. I'm more
Speaker 1: concerned about it, you know, later on. But when that
Speaker 1: goes below one, that means the VIX is higher in
Speaker 1: the three month bix. So investors are more concerned about
Speaker 1: volatility now, which means are more fearful. And when you
Speaker 1: have that set up, the market is often closer to
Speaker 1: a lot.
Speaker 2: So everything you've just described as a loaded series of
Speaker 2: follow up questions you've given me. I want to talk
Speaker 2: about sentiment. But you mentioned Farrell. And for folks who
Speaker 2: may not know who Bob Farrell is, tell us a
Speaker 2: little bit about the legendary Bob Farrell.
Speaker 1: Well, I mean he was the dean of technical analysis
Speaker 1: at Merrill Lanch, you know, for a better part of
Speaker 1: had to be forty fifty years right. He has his
Speaker 1: ten rules to remember.
Speaker 2: Which, by the way, have become you know, almost biblical
Speaker 2: for a lot of people in markets, a lot of
Speaker 2: tech technicians, for sure.
Speaker 1: I mean, those are you shoes to Phil There's no
Speaker 1: question about it. And if I mentioned any of these things,
Speaker 1: any of his rules to follow my research notes, it's
Speaker 1: like my readership doubles, you know what I mean, Like
Speaker 1: forget about him. I mean, I mean, forget about me.
Speaker 1: It's all about him, right, you know, I just kind
Speaker 1: of have to invoke that presence, you know, in my job,
Speaker 1: I guess because some financial advisors actually, when you know,
Speaker 1: you see some of the commentary they write. The greatest
Speaker 1: compliment I think they ever paid me was he he
Speaker 1: invokes Bob Farrell pretty well. And I know that's not
Speaker 1: one true because nobody can do that, But just to
Speaker 1: have half of that, I think is is a compliment.
Speaker 2: That's great. What other technicians do you admire? Who else
Speaker 2: in the business do you think does a nice job?
Speaker 1: I mean, look, I mean, I you know, I obviously
Speaker 1: I compete with a lot of guys that do good work.
Speaker 1: But going back to the day, some of the folks
Speaker 1: that have influenced my work influenced my work the most,
Speaker 1: I would say initially was John Murphy with the book.
Speaker 1: I mean, I have the torn up, dog eared book,
Speaker 1: you know, Technical Analysis of the Futures Market. You know
Speaker 1: that was you know now it's called Technical Analysis of Financials.
Speaker 1: So I got an old, dog eared copy at my desk. Still,
Speaker 1: I would say Martin Praying I learned a lot from,
Speaker 1: you know, through his pray, oh really, and you know,
Speaker 1: some good cycle stuff there. Momentum. I got his book
Speaker 1: on Momentum, which which I found very useful. And I
Speaker 1: guess a third one I think that that impacted me
Speaker 1: quite a bit was doctor Alexander Elder, who wrote Trading
Speaker 1: for a Living, and what I liked about that was
Speaker 1: a there's a lot of market psychology, investor psychology in there,
Speaker 1: but also how to run a you know, trading systems
Speaker 1: based on indicators. And I think that helped me out
Speaker 1: a lot. And much of in that book has influenced
Speaker 1: the way I thought about markets and picking stocks, you know,
Speaker 1: as the equity technician, that's kind of what I need
Speaker 1: to do is identify stocks that I think can go
Speaker 1: up or down or at a minimum, you know, underperform
Speaker 1: or outperform. And you know, I use some of the
Speaker 1: techniques that he put in there, in particular, like a
Speaker 1: triple screen trading system where you have your your you know,
Speaker 1: your weekly time frame, but you you make your decisions
Speaker 1: off the daily. But I managed to do it all
Speaker 1: on a weekly chart because if you put three different
Speaker 1: movement averages on a weekly chart, you can look at,
Speaker 1: you know, a long term moving average and a short
Speaker 1: term moving average and do it that way. You know,
Speaker 1: where you decline below the shorter term one and hold
Speaker 1: the longer term one. I generally can I generally view
Speaker 1: that as a positive for a stock and look to
Speaker 1: buy it.
Speaker 2: So you're mentioning folks who've been around a while, like
Speaker 2: John Murphy and Praying and Farrell and I took the
Speaker 2: class with Ralph Akmpora. I know a lot of people
Speaker 2: back in the day who used to do their charts
Speaker 2: by hands every day, and now there's just so much
Speaker 2: computing power around. How has the computerization of everything change
Speaker 2: technical analysis? What do we do with all this horse power?
Speaker 1: Well, I mean it definitely can allow for more rules
Speaker 1: based signals. In some regard, it allows us to do
Speaker 1: things with a greater universus stocks, and I think, I
Speaker 1: think it is useful to have that. But when I
Speaker 1: first join Merrill Inch in two thousand and seven, we
Speaker 1: were still we still had point and figure charge that
Speaker 1: we were updating by hand x's and o's.
Speaker 2: You know, of course, Tom Dorsey, that crowd.
Speaker 1: Yeah, I mean they they, I mean they, yeah, Tom Dorsey.
Speaker 1: I believe investment intelligence also has a product on point
Speaker 1: and figure I mean, very popular among the financial busor crowd,
Speaker 1: but not so popular among the institutional crowd. You know,
Speaker 1: the intuitional crowd probably looks at It's like I'm looking
Speaker 1: at a letter from my grandmother with the x's and
Speaker 1: o's on it, you know, and she gives me.
Speaker 2: Huggs, and it's at precise. It's not as.
Speaker 1: I mean, it depends.
Speaker 2: It seems to be more general than I mean.
Speaker 1: You can make it more precise if you want to,
Speaker 1: but that requires a lot more effort and work, and
Speaker 1: you know, with the computing power and a day, I
Speaker 1: think the one thing that's changed is, you know a
Speaker 1: lot of people can think they can pull up at
Speaker 1: Bloomberg and all of a sudden call themselves a technical
Speaker 1: analyst because it's just very easy to create these things.
Speaker 2: I'm glad you brought that up because I recall when
Speaker 2: I started on a desk in the nineties, if you
Speaker 2: wanted to put charts on a computer screen, you had
Speaker 2: to subscribe to a very specific package, even the terminal.
Speaker 2: Back then, you couldn't do what you could do. Today's
Speaker 2: light years ahead today kind of Now you go to
Speaker 2: any website and have unbelievable access to all sorts of
Speaker 2: technical studies. I'm curious what sort of impact does charting
Speaker 2: software for free everywhere have on the practice of technical analysis.
Speaker 1: Well, I mean it's again, it's still a market where
Speaker 1: people will you know, trade and you know, make decisions
Speaker 1: to buy and sell. I mean I do look at
Speaker 1: stock charts dot com. I mean when I'm on the road,
Speaker 1: that's very easy to pull up and work with. I mean,
Speaker 1: does it make it more of a self fulfilling prophecy?
Speaker 1: Who knows? I mean, but I think the general it doesn't.
Speaker 1: It wouldn't negate. You know, the one major thing that
Speaker 1: dominates financial markets, it's fear and greed, you know, and
Speaker 1: maybe it accelerates that process a little bit more. I
Speaker 1: mean the other thing, it's really not just technical analysis,
Speaker 1: but the availability information and instant analysis, right, you know,
Speaker 1: analysis can be done. I mean, just let's face it,
Speaker 1: there's there's businesses built on that premise where you know,
Speaker 1: they have high frequency trading where they calculate things and
Speaker 1: you know, millisecond I don't even know, but you know
Speaker 1: what I mean.
Speaker 2: It's like really fantantly.
Speaker 1: Yeah. Probably the more accurate way of saying that nanoseconds.
Speaker 1: So I mean it just makes things very quickly, and
Speaker 1: you know how I adapt it to it. I focus
Speaker 1: more on a long term timeframe, not not like monthly,
Speaker 1: but weekly. I you know that daily gets a bit noisy,
Speaker 1: very noisy. Back in the day, it was inter day
Speaker 1: charts that got really noisy. But now daily charts have
Speaker 1: gotten noisy. You know. I hope weekly charts don't get noisy,
Speaker 1: because that would complicate things even more.
Speaker 2: I'm curious if the zero day options that expire every
Speaker 2: single day have an impact on trading and have an
Speaker 2: impact on charts.
Speaker 1: Probably, you know, I'm not sure what the impact exactly is,
Speaker 1: but but yeah, I mean I think just instant you know,
Speaker 1: you know, instant what you know, whatever the term is,
Speaker 1: I can't even know, but just instant information. I mean,
Speaker 1: it just it just makes things more volable. Generally speaking,
Speaker 1: you wouldn't know by looking at the fix, but it
Speaker 1: looks like inter day price action, day by day price action.
Speaker 1: It's like you got stocks that have multi billion market
Speaker 1: caps that are moving like two to three percent, you know,
Speaker 1: within the span of fifteen minutes. I mean, that's that's
Speaker 1: that's a lot, you know.
Speaker 2: I mean, you mentioned fear and greed, tell us a
Speaker 2: little bit about how you can use technical analysis to
Speaker 2: look at sentiment.
Speaker 1: Yep, so a lot of different ways. First and foremost,
Speaker 1: I mean, you got the surveys that we talked about earlier,
Speaker 1: got the book call Ratios, you got the bill.
Speaker 2: Let me interrupt you and ask you about the surveys
Speaker 2: because I always find that what people say they're doing
Speaker 2: and what they're actually doing on those surveys don't always
Speaker 2: seem to line up right how how and they seem
Speaker 2: to spend most of their time in a sort of
Speaker 2: nomend's zone where there's no signal. It's at the extremes
Speaker 2: when they're useful. How How useful do you find sentiment
Speaker 2: surveys generally where we're asking people how bullsh are you?
Speaker 2: How much equities do you have, how much bonds do
Speaker 2: you have, et cetera.
Speaker 1: I would say it's more useful in calling lows and
Speaker 1: it is in highs because when you think about a
Speaker 1: low in the market and fear in the market, there's
Speaker 1: more urgency. Complacency by definition is not urgent. So that's
Speaker 1: why I think that sentiment surveys work better when you
Speaker 1: know bear surge about fifty five sixty percent, which is
Speaker 1: where they stood September of last year.
Speaker 2: You know, complacency is not urgent, It's not that's that's
Speaker 2: a great sentence.
Speaker 1: Yeah.
Speaker 2: I always think of it as it's hard to identify
Speaker 2: when people kind of get bored and stop buying. But
Speaker 2: it's easy to see when everybody's panics sell exactly.
Speaker 1: That's what sentiment shows you. Uh, you see it on
Speaker 1: the book calls. You can see it also in futures positioning.
Speaker 2: H what what are you looking at in futures positioning
Speaker 2: in order to identify a bottom?
Speaker 1: It's it's usually it is aggressive shorts from leverage funds
Speaker 1: on SMP futures.
Speaker 2: And are these professionals or these punters and amateurs.
Speaker 1: No, they're professional. They're professional. But even professionals can form
Speaker 1: a crowd and a hurd. I mean, that's that's the
Speaker 1: point of the indicator. You know, that's the reason why
Speaker 1: you know there's a hedge funk. You know, clients that
Speaker 1: that you visit outside New York City they want to
Speaker 1: you know, avoid the herd. Right. But the other factor
Speaker 1: is asset manager positioning. Those are the smarter I think
Speaker 1: I view them as smarter. So when they're over sold,
Speaker 1: the market's usually down as well, but when the market
Speaker 1: starts to bounce, they start to go with it, and
Speaker 1: you know, they hit their lows two of them last year,
Speaker 1: one in June and one October, and it was great.
Speaker 1: It worked out really well using that sentiment indicator, So
Speaker 1: I think there is still use for them, I will admit,
Speaker 1: though sometimes I do wonder whether sentiment, you know, becomes
Speaker 1: more of a momentum indicator, which which I think makes
Speaker 1: sense because let's face it, I mean, if the market
Speaker 1: rallies fifteen percent and the asset matters are still here
Speaker 1: and not buying the rally, then something else is happening,
Speaker 1: you know, So sentiment does need to turn into momentum,
Speaker 1: meaning that sentiment needs to start to confirm price action.
Speaker 2: Can can everything be charted? I mean we're talking about sentiment,
Speaker 2: we're talking about trend What about things like fundamentals? Can
Speaker 2: you chart the rate of change on earnings? Where do
Speaker 2: you draw the line of Hey, technicals aren't going to
Speaker 2: help you there?
Speaker 1: No, I'm sure you can. I mean I haven't done
Speaker 1: that much work. I mean, you know, a pe ratio
Speaker 1: you can chart that, I mean pretty easily and do
Speaker 1: analysis on that. I think I think it's probably more
Speaker 1: useful in economic indicators like the unemployment rate or the
Speaker 1: claims data. And you know, we actually did some scenario
Speaker 1: analysis around that recently, just talking about, hey, what happens
Speaker 1: if the employment rate rises versus falls? What environments does
Speaker 1: the SMP work better in? And you know the obvious
Speaker 1: the answer is the obvious answer, right, So, but it's
Speaker 1: not necessarily true because there's some periods of time where
Speaker 1: the unemployment rate does rise where the SMP actually does rally,
Speaker 1: and there's other peerogs where the SMP does not. And
Speaker 1: I really you know, it's it depends on what your
Speaker 1: market tide is.
Speaker 2: How do you think about intermarket analysis? So you're looking
Speaker 2: at the stock market is doing this relative to what
Speaker 2: the bond market is doing? How important are looking across
Speaker 2: different Here's what the US is doing, Here's what's developed
Speaker 2: x US, Here's what emerging markets are doing. How do
Speaker 2: you consider different geographies, different sort of asset classes? Do
Speaker 2: they do they interrelated? All?
Speaker 1: I mean I think they do. I think we've seen
Speaker 1: that over the last year or so. So so here's
Speaker 1: here's a whay I'm looking at it in your term
Speaker 1: not not making any sort of forecast or anything like that.
Speaker 1: But last year where we stood, market was very nervous.
Speaker 1: SMP around the two hundred week moving average finally started
Speaker 1: bottoming out. But what was the ingredient to get that
Speaker 1: low in the market. It was the.
Speaker 2: Dollar topping peak inflation.
Speaker 1: Yeah, that that, Yeah, that happened I believe in June
Speaker 1: of last right, right, and that that's helpful. Also yields
Speaker 1: topping out as well in September October last year. So
Speaker 1: there's a negative correlation between the dollars and between stocks.
Speaker 1: The dollar in bonds, so meaning you know, higher interest rate,
Speaker 1: lower stocks, higher dollar lower stocks. That's been the trend.
Speaker 1: So the SMP rally from last October ran into trouble
Speaker 1: this summer, you know, and you know which is where
Speaker 1: in the dollar bottomed out and yields started to really
Speaker 1: rise again in earnest and now here we are.
Speaker 2: Oh god, it was a massive surgeon yields from August
Speaker 2: September October and stocks one's the exact opposite direction.
Speaker 1: Yeah, have had a ten percent correction, and you know,
Speaker 1: we'll see what happens going forward. But I would think,
Speaker 1: you know, not that this is a prediction or anything,
Speaker 1: but if that correlation holds, and if the S and
Speaker 1: P gets a seasonal bounce, which normally is something that
Speaker 1: happens around this time of year, one would think that
Speaker 1: if this correlation continues to hold, that a seasonal bounce
Speaker 1: for stocks likely requires yields to be stable to lower
Speaker 1: or the dollar stable to lower. And you know, we'll
Speaker 1: see how that plays out. But that seems to be
Speaker 1: the correlation, the innermarket correlation that that seems to be,
Speaker 1: in my mind, the most important one right now.
Speaker 2: So what do you think generally people misunderstand about texting?
Speaker 1: Yeah, I mean I think I mean sometimes I get
Speaker 1: emails where they think I'm like a you know, a
Speaker 1: magician trying to pull a rabbit out of a hat.
Speaker 1: You know, they're asking for something technically didn't do right,
Speaker 1: you know what I mean. They're like, they're you know,
Speaker 1: I mean, look, I mean, if you give them a
Speaker 1: few good calls, they think you can predict the future,
Speaker 1: but we can't. You know, we're just gauging risk and reward.
Speaker 1: And I think that's.
Speaker 2: What's a really good way to express that. You're looking
Speaker 2: at various patterns and setups to identify your best risk
Speaker 2: reward set.
Speaker 1: And I think that's a big misunderstanding because most people
Speaker 1: are of the mentality in the DraftKings world that you know,
Speaker 1: technical analysis is a good way to enhance their gambling habit,
Speaker 1: you know, But what we're really looking to do is
Speaker 1: manageer's reward. I mean, you know, I always tell like
Speaker 1: hedge fund clients when I'm talking to them, you know,
Speaker 1: they're I mean a lot of them along short. But
Speaker 1: they're like, I'm like, here's how you identify. Here's how
Speaker 1: I would identify a corelong. You first and foremost, you
Speaker 1: identify what your benchmark is. How are you measuring your
Speaker 1: before ormans? And you take your absolute price, and if
Speaker 1: the absolute price is trending up along with the relative price,
Speaker 1: that's where you look for core lungs. And if it
Speaker 1: got good fundamentals there even better on this other side,
Speaker 1: you know, weak relative weak absolute, that's where you get.
Speaker 1: You call it core shorts. And I tell them, like,
Speaker 1: you know, where it becomes really interesting is when you
Speaker 1: have a stock that's been trending up for a while,
Speaker 1: but all of a sudden, the relative ratio starts lagging,
Speaker 1: meaning that if I'm a fund manager, at the end
Speaker 1: of the quarter, oh my god, you know, Apple's up
Speaker 1: fifteen percent. Oh wait, but the market's up twenty I'm lagging,
Speaker 1: you know. Then they kick that out of the beforeil
Speaker 1: and guess what happens. You know, the stock starts the
Speaker 1: former top because of selling pressure and the same thing
Speaker 1: on the other side. So it's like you and.
Speaker 2: To be to clarify, you're not saying this about Apple, No, no,
Speaker 2: you're just using as a example as.
Speaker 1: An example, not not talking about Apple or a prediction
Speaker 1: there at all. But you know what I'm saying is
Speaker 1: it's like you can find a time using technical analysis
Speaker 1: to say, you know what, I've been bullish this stock,
Speaker 1: but it's starting to lag the market. Maybe it's time
Speaker 1: for me to revisit my fundamental thesis. And that's and
Speaker 1: that's good, that's useful information to somebody, because what I've
Speaker 1: noticed is when a stock and an ups trend starts
Speaker 1: underperforming the market, guess what they I mean, I haven't
Speaker 1: tested this yet, but the theory is. And if I
Speaker 1: test the hypothesis and the theory and this theory works,
Speaker 1: the theory is a weakening relative often precedes fundamental information
Speaker 1: that's less bullish than people expect. And I've seen it
Speaker 1: happen a lot. And on the other side too, a
Speaker 1: stock trending down all of a sudden, the relative ratio
Speaker 1: is starting to improve. In fact, I mean this is
Speaker 1: the environment now with the market correcting, where you look
Speaker 1: for names like that, you know, where the relative charts improving,
Speaker 1: meaning that, oh my gosh, you know the SMP's corrected
Speaker 1: ten percent, this stop's only down five All right, why
Speaker 1: is that? Is there something going on? Fundamentally I need
Speaker 1: to look into And that's and that gets you know,
Speaker 1: the fundamental analysts thinking. And if I was doing more
Speaker 1: fundamental work, it would tell me, all right, I really
Speaker 1: got to look at these companies to see, hey, what's
Speaker 1: going on or estimates coming up? Or are the revision
Speaker 1: improving or you know what I mean. So, and I
Speaker 1: think that's how not only not only a good way
Speaker 1: a to interact with some of the institutional client base,
Speaker 1: but also and private client base as well, but also
Speaker 1: just as a process because technical analysis is nothing, you know,
Speaker 1: without fundamentals. I mean technical analysis somebody once coined it
Speaker 1: lazy man's fundamental work, you know, and.
Speaker 2: Free writing on other people's number crunch.
Speaker 1: Because think about it. I mean, you know, if it
Speaker 1: stocks rallying, it's doing it for a fundamental reason most
Speaker 1: of the time.
Speaker 2: I mean, and you may not know what it is,
Speaker 2: but you can identify the footprints in the charts.
Speaker 1: I mean, think about where we were a year ago.
Speaker 1: One hundred percent of economists calling for recession in the
Speaker 1: market rallies.
Speaker 2: Two years, right, I mean, that's been ongoing, the calls
Speaker 2: for recession.
Speaker 1: And guess what I mean. Guess when the markets started correcting,
Speaker 1: when people started taking those calls off the table and
Speaker 1: calling for a soft landing. So, you know, as as
Speaker 1: the market was rallying, it was telling us something, and
Speaker 1: then as soon as the economists start confirming what it
Speaker 1: was telling us, that's when it correct it. So now
Speaker 1: we need to see what event that we're discounting now
Speaker 1: and hopefully eventually, you know, we discounted completely and things
Speaker 1: can get a little bit better.
Speaker 2: Huh. Really interesting. Let's talk a little bit about what's
Speaker 2: going on in the current market environment. We're recording this
Speaker 2: Halloween twenty twenty three. Where are we today? Are we
Speaker 2: in a secular bull market or bear market? Are we
Speaker 2: in a cyclical bull or bear? What's the state of
Speaker 2: equity markets and bond markets today.
Speaker 1: Well, I mean, I keep it simple with those sort
Speaker 1: of trends. So whenever we go on television, we always
Speaker 1: pull up the same chart S and P. Five hundred
Speaker 1: with a forty week moving average and a two hundred
Speaker 1: week moving average. The forty week moving average for those
Speaker 1: who look more at daily charts, can associate that with
Speaker 1: a two hundred day moving average. So we gauge the
Speaker 1: cyclical trend of the market using the forty week moving average,
Speaker 1: and we gauge the secular trend as the two hundred
Speaker 1: week moving average. So when you have a rising forty
Speaker 1: week moving average, which we do now, and a rising
Speaker 1: two hundred week moving average, which we do now, the
Speaker 1: pattern is a cyclical uptrend or bowl market, and a
Speaker 1: secular uptrender bowl market. Where are we now in the
Speaker 1: context of that, Given the ten percent pullback that we've
Speaker 1: gotten since the July highs, it is a correction of
Speaker 1: that pattern. The we are below the forty week moving
Speaker 1: average around forty two to fifty. So that's on the
Speaker 1: that's on the S and P. Five hundred.
Speaker 2: Yes, what about how does the NASDAK clock a little.
Speaker 1: Stronger, stronger, stronger. Yeah, I mean, so when we look
Speaker 1: at then the Nasdaq one hundred, for instance, it is
Speaker 1: still I mean it just tested the forty week moving
Speaker 1: average last week, so and well about the two hundred
Speaker 1: week moving average, so still stronger. If you'll get relative
Speaker 1: strength charts, you know, the the NASAK one hundred still
Speaker 1: has a stronger pattern than the SMP at this stage. Technology,
Speaker 1: you know, the sector itself a technology still has a
Speaker 1: stronger relative chart patterns been sideways, but in a stronger trend.
Speaker 1: And you know, you look at the r RG on
Speaker 1: Bloomberg for instance.
Speaker 2: Which is our lego yet, listeners, what what is that?
Speaker 2: What does that show you?
Speaker 1: Oh, it's a great it's a great it's a great tool. Actually,
Speaker 1: I think I use it a lot in my work.
Speaker 2: RRG stands for.
Speaker 1: Relative rotation graph And what it's telling us now is
Speaker 1: that some of the cyclical sectors, like financials, materials, industrials,
Speaker 1: they had a chance to rotate into a bigger leadership
Speaker 1: position and failed where and technology and discretionary and comm
Speaker 1: services had a chance to rotate into a more bearish
Speaker 1: leadership position and did not do that. So looking at that,
Speaker 1: it's like you just got to think about what is
Speaker 1: the risk here? You know, to investors that are, you know,
Speaker 1: looking to get more part in the not participation, but
Speaker 1: more outpha in the market from a greater number of stocks.
Speaker 1: The risk is that doesn't happen. If this pattern holds,
Speaker 1: the risk is that tech can continue to lead, comp
Speaker 1: services continue to lead, and the cyclical sectors can continue
Speaker 1: to lag since they weren't able to take on the
Speaker 1: mantle of relative leadership in the relative rotation graph, so
Speaker 1: they were not able to move into an upshrend, and.
Speaker 2: So industrials have looked like they've been on the verge
Speaker 2: for a while. They have, hasn't happened?
Speaker 1: Hasn't happened.
Speaker 2: On the other hand, same with financial same thing looks like,
Speaker 2: oh now there's some spread. Financials can make more money.
Speaker 2: Hasn't really happened. On the other hand, energy seems to
Speaker 2: really be cleaning itself up. What's going on in the
Speaker 2: oil sector?
Speaker 1: Oh yeah, so that's that's the one cyclical sector that
Speaker 1: has started to work. In fact, it does look an
Speaker 1: awful lot like the pattern that we had for that
Speaker 1: on a relative basis, meaning outperformance off the low relative
Speaker 1: low from ninety eight to two thousand, and that relative
Speaker 1: uptrend continued.
Speaker 2: Ninety eight to two, Like we're looking back twenty five years,
Speaker 2: twenty plus years.
Speaker 1: And it was a similar pattern that we have now
Speaker 1: and it's it's maybe a third of the way through it. Wow,
Speaker 1: because that if that continues, you know, energy should be
Speaker 1: able to outperform if history rhymes, right, I mean the
Speaker 1: oil chart, and it looks like it could be building
Speaker 1: a base. You know, it broke out and moved back
Speaker 1: and retested some some levels of support. But yeah, we'll
Speaker 1: see how that pattern develops. I mean, you know, I mean,
Speaker 1: but it does. It does have more of a a
Speaker 1: look of building a base within an uptrend for that.
Speaker 1: So if that does work in oil stays stable to higher,
Speaker 1: energy should work to some extent. I mean, obviously this
Speaker 1: week or last couple of weeks, there's been some m
Speaker 1: and A activity where some from the bigger names start
Speaker 1: to get hit a little harder, but it didn't derail
Speaker 1: the sector at all. Huh.
Speaker 2: Interesting, I couldn't help but notice that very quietly, a
Speaker 2: lot of cryptocurrency, most specifically Bitcoin, hit new fifty two
Speaker 2: week highs. Nobody's talking about that. Really, What does that
Speaker 2: mean when not only a particular stock or asset hits
Speaker 2: a fifty two week high, but it seems to be
Speaker 2: off the rail, blow the radar. What do you what
Speaker 2: do you make of that?
Speaker 1: Well, I can't talk about bitcoin. I don't think I'm
Speaker 1: allowed to do that at via a security of the course.
Speaker 1: But yeah, I mean, look, I mean if that and
Speaker 1: we're seeing that in you know, in other areas in
Speaker 1: the market as well. No, it just means nobody's there.
Speaker 1: Nobody cares.
Speaker 2: And which is now? Is that bullish or bearish? If
Speaker 2: nobody cares that something's making a fifty two week high,
Speaker 2: that might mean a lot more people could come into
Speaker 2: that space. Forget bitcoin, any type of any type of
Speaker 2: quiet fifty two week high.
Speaker 1: I mean it happened. I think it probably happened with
Speaker 1: energy names not long ago, you know, coming off the
Speaker 1: lows of twenty two twenty, you know, they they moved
Speaker 1: up a lot. Oh it's already up thirty percent. Well
Speaker 1: it went up another fifty percent after that, you know
Speaker 1: what I mean, that's that's people People actually have that argument.
Speaker 1: Oh I missed it, So I'm gonna wait for it
Speaker 1: to dip. And it doesn't dip. I mean, that's what
Speaker 1: happens in that sort of environment. You know when when
Speaker 1: you start to see that happen. So I'm sure over
Speaker 1: the next few weeks there's gonna be patterns developing in
Speaker 1: other pockets of the market where things that have been
Speaker 1: left I mean, I don't want to use the term
Speaker 1: left for dead, but I guess that's the only term.
Speaker 1: It's Halloween, so might as well, right, I mean that,
Speaker 1: you know, though they can rally quickly twenty thirty percent
Speaker 1: and people be like, oh, I missed it, and then
Speaker 1: three months later it's up another twenty or thirty percent.
Speaker 1: I mean that that's the path, that's the way those
Speaker 1: patterns tend to work.
Speaker 2: You mentioned Halloween. What's the scariest chart you've seen recently?
Speaker 1: Well, I what I don't want. There's one breath indicator
Speaker 1: and I don't like right now, and it's just I mean, hopefully.
Speaker 2: What's the breath indicator.
Speaker 1: It's the percentage stocks pepture movement averages. They had some
Speaker 1: devilish divergences in the summer and they broke to new
Speaker 1: you know, year to date lows.
Speaker 2: Mm hmm. Now and you don't like that.
Speaker 1: It just I mean, I don't know. I mean, we
Speaker 1: have to let's see if they get back to you know,
Speaker 1: over soul levels. But you know, yeah, that's that's something
Speaker 1: that's a bit challenging, you know. But they again, I
Speaker 1: think it all has to do with the fact that,
Speaker 1: you know, the equal weighted index has been lagging the
Speaker 1: cap weighted index pretty much all year.
Speaker 2: You're anticipating my next question, what does it mean when
Speaker 2: you have this divergence between the S and B five
Speaker 2: hundred the way we think of it as market cap
Speaker 2: weighted versus the what is an SPW the that's equal
Speaker 2: cap weighted. Uh that that divergence is about as big
Speaker 2: as it's ever ever gets.
Speaker 1: I mean, and that is a scary chart when you
Speaker 1: look at it, relever the S and P scary because
Speaker 1: if the technicals work on this, there's still more underperformance
Speaker 1: coming for that the powder meaning that if you look
Speaker 1: at the pattern going back a decade or more, there
Speaker 1: is a potential that the equated index is forming what
Speaker 1: would be called a head and shoulders top versus the
Speaker 1: SMP the cap weighted index. I hope it doesn't work
Speaker 1: because in our firm, you know, we have strategists that
Speaker 1: you don't want to see the equo weight to work,
Speaker 1: and I think it would probably be healthier for the
Speaker 1: market if it did work.
Speaker 2: It suggests that the market is relatively narrow at present, right, right,
Speaker 2: I mean if the cap weighted is radically outperforming the
Speaker 2: equal weighted, it means the biggest twenty stocks are the drivers.
Speaker 1: Yeah, that's where you're getting your alpha. I mean in
Speaker 1: terms of market breadth itself, I mean the advanced the
Speaker 1: client on the S and P went to at all
Speaker 1: time high over the summer, should be bullish, right, it
Speaker 1: should be bullish, and it gets warisomewhere in my world.
Speaker 1: When this lack of performance for equal weight versus cap
Speaker 1: weight leads to weakening breadth indicators, which is why that
Speaker 1: percentage of stocks about two hundred tay MoveOn average, it
Speaker 1: seems scary to me. Now, I will say, when you
Speaker 1: look at the equate versus cap weighted ratio lagging equate
Speaker 1: lagging cap weighted, Guess what period of time that happened
Speaker 1: in the past where the equity market was really strong
Speaker 1: nineteen ninety four to two thousand.
Speaker 2: Yeah, right, that that that was all driven by the
Speaker 2: biggest tech companies at the time.
Speaker 1: And also I think pharma was involved in that too,
Speaker 1: and other large cap stocks here's the other interesting thing.
Speaker 1: You look at the S and P one hundred index
Speaker 1: right now, it does appear to be breaking out from
Speaker 1: a multi year bottom versus the SMP meaning megacaps leading
Speaker 1: large caps. The last time I saw a breakout like
Speaker 1: that was nineteen ninety eight. I find it curious that
Speaker 1: it's half that's happening and the equal weight lagging the
Speaker 1: cap weighted because in the late nineties or the middle
Speaker 1: eate nineties, the FED did hike rates quite a bit
Speaker 1: and then they took some off and then hiked into
Speaker 1: you know, ninety ninet two thousand with this environment for
Speaker 1: these particular names. So it just seems to me with
Speaker 1: these particular you know, size fragments working better than others.
Speaker 1: So megacap market potentially at this point, just looking at this,
Speaker 1: if it changes, I'll change, you know, I'll change my
Speaker 1: view pretty quickly if it starts to change. But right now,
Speaker 1: you know, I know a lot of people really want
Speaker 1: to see more alpha generated by more stocks, but the
Speaker 1: DERISA doesn't happen. But I do think instead of being
Speaker 1: the magnificent seven, maybe it's a nifty to fifty because
Speaker 1: the oex is breaking out.
Speaker 2: Well, well, we also know how the nifty fifty ended.
Speaker 1: So but it takes time, you know, it takes time,
Speaker 1: a lot longer than people think. I mean, I'm sure
Speaker 1: people were calling for a bubble in nineteen ninety eight, right,
Speaker 1: and you had a huge run up.
Speaker 2: They said, a long time, a long way to go.
Speaker 2: You mentioned the Fed raising rates. Let's talk about the
Speaker 2: bond market. What do you see in in treasuries and
Speaker 2: the fixed income half of the portfolio.
Speaker 1: Well, I mean, obviously that's not my call, is the
Speaker 1: equity strategist at BFA. But when you look at the
Speaker 1: tenure yield, the view is a secularize and interest rate.
Speaker 1: And if I'm putting on my equity hat, and I
Speaker 1: have to say, all right, what was the last time
Speaker 1: you had interest rates rising from you know, levels around
Speaker 1: one percent? I mean here we went a lot lower
Speaker 1: during COVID, obviously, but mid nineteen forty, so nineteen forty
Speaker 1: six into sixty six, a twenty year rise from about
Speaker 1: one and a half to about five seven five over twenty.
Speaker 2: Years, it's about about this, maybe a little smaller than
Speaker 2: the current range.
Speaker 1: Right. You know. The interesting thing is, I mean, if
Speaker 1: COVID didn't happen, where would your yield low be, It's
Speaker 1: either twenty twelve or sixteen, you know what I mean. So,
Speaker 1: I mean maybe this secular rise and yielded a little
Speaker 1: longer than people think it is. But I mean again,
Speaker 1: the market did drop on the ten year note yield
Speaker 1: to like what point three on the ten during COVID.
Speaker 1: So and this is when you look at the yield chart,
Speaker 1: it's like the fastest rise we've ever gotten. So if
Speaker 1: we are going to follow you know, that period in
Speaker 1: the fifties, I mean, right now, I think we're probably
Speaker 1: I mean, if I'm looking at stocks and overlaying it
Speaker 1: with interest rates and just trying to think about how
Speaker 1: most you know, where we are in that particular analogue,
Speaker 1: it's probably late fifties, early sixties. In some regard we've
Speaker 1: been secular bulls. But what is not a characteristic of
Speaker 1: a secular bull Its interest rates above five seven five,
Speaker 1: and it's inflation, you know, surging again. You know, we
Speaker 1: can't have that happen. It's very interesting when I get
Speaker 1: people asking me stuff like when is the market going
Speaker 1: to get back to normal? I'm like, well defined normal?
Speaker 1: Well interesting, its need to be lower, you know, one percent.
Speaker 2: I'm like, well, that's not normal, and you know, I
Speaker 2: find out right, five is pretty normal.
Speaker 1: I mean the average ten you note, yell, going back
Speaker 1: to nineteen twenty, if you know, looking at the data,
Speaker 1: is around four points seven.
Speaker 2: So we're a little elevated.
Speaker 1: We're right there, right, not not terrible.
Speaker 2: Right, We're kissing five as we record this. What's a
Speaker 2: quota point between friends? Right, it's not that. That's a
Speaker 2: couple of days of you know, whild trading action, right.
Speaker 1: So I mean, I mean, look, I mean get a
Speaker 1: return on your cash, which is great. A lot of
Speaker 1: people have taken advantage of that. So you know. The
Speaker 1: other factor is, I mean, when is that record level
Speaker 1: of cash going to be put to work in stocks?
Speaker 1: You know, I mean with people making five to six
Speaker 1: percent of money market funds, it's it's going to take
Speaker 1: a little bit more, which is by design. You know,
Speaker 1: the FED a lot of people take on risk with
Speaker 1: rates at zero. Now you know, they don't want people
Speaker 1: to take on as much risk in some regard, so
Speaker 1: it's going to take a little more confidence, you know,
Speaker 1: and equities too, because you get your hurdle retire, you know,
Speaker 1: So it makes sense. So I mean that's the reason
Speaker 1: why I think we are moving into a more normal environment.
Speaker 1: We're actually getting a really normal type of correction rather
Speaker 1: than something that lasts only you know, three to five percent,
Speaker 1: We're getting a normal ten percent plus type of pullback.
Speaker 2: You mentioned how COVID changed when what the lows were
Speaker 2: in the bond market. It's a fascinating piece in the
Speaker 2: Economists this week about in the post COVID world sentiment
Speaker 2: data has you know, just gone off the rails. In fact,
Speaker 2: if you look at the bottom of the sentiment data
Speaker 2: in twenty twenty two, and I've been struggling with this
Speaker 2: for a while, worse than the eighty seven crash, worse
Speaker 2: than the dot Com implosion, worse than September eleventh, worse
Speaker 2: than the Great Financial Crisis, and worse than the COVID lockdowns.
Speaker 2: What do you make of this wildly noisy sentiment data?
Speaker 1: So wait, which which data points were?
Speaker 2: I believe it was the University of Michigan sentiment data.
Speaker 1: And now it was the worse during COVID than any
Speaker 1: other period.
Speaker 2: Twenty two at a record low, worse than COVID, worse
Speaker 2: than GFC, worse than dot COM's just unprecedented levels that
Speaker 2: we've never seen. The economist is implying COVID just disrupted
Speaker 2: our sense of the world.
Speaker 1: It probably did. It probably did to some extent. And
Speaker 1: I think, you know, in twenty twenty two you started,
Speaker 1: I mean, I mean, you're already in a bear market
Speaker 1: from peaks in twenty twenty one. You already had indicators
Speaker 1: topping out in twenty twenty one, in the middle of
Speaker 1: the year and then late in the year. So we
Speaker 1: were well entrenched with economists looking for you know, you know,
Speaker 1: a massive hard landing at that point. So it would
Speaker 1: make sense the sentiment would be off the rails to
Speaker 1: some extent, you know, give given that.
Speaker 2: Outlook makes some sense. You frequently use a phrase that
Speaker 2: cracks me up in your research. Let's discuss your indicators.
Speaker 2: The Good, the bed, and the Ugly one of my
Speaker 2: favorite movies of all time. Looking at the world that's
Speaker 2: out there today. What's good, that's bad, what's ugly?
Speaker 1: Right? So, yeah, we we just you know, wanted to
Speaker 1: be a little tongue in cheek with some of our
Speaker 1: stuff here. So so we noticed that the percentage of
Speaker 1: stocks of a fifty day moving averages on the SMP
Speaker 1: actually did not go to a lower low, as the
Speaker 1: SMP went to a lower low just last Friday, so
Speaker 1: that has the potential to be good, you know, maybe
Speaker 1: triggers a seasonal rally. Another indicator we threw in there
Speaker 1: was the I think they call it the NAAIM exposure Index,
Speaker 1: that around twenty four percent versus over souls in the
Speaker 1: low twenties. That's getting closer. So so exposure among asset
Speaker 1: managers and market participants in equities is a lot lower
Speaker 1: than it was. So a lot of the I mean
Speaker 1: I always use the term a lot of the froth
Speaker 1: has been blown off the cappuccino, you know, over the
Speaker 1: last three months. So those are those are some you know,
Speaker 1: better looking indicators. I would argue that when you look
Speaker 1: at the Chicago Fed Financial Conditions Index, it's held in
Speaker 1: like a champ. So that's not what does that mean, Well,
Speaker 1: just means financial conditions aren't deteriorating, you know, to any
Speaker 1: great extent based on that indicator, you know, which is
Speaker 1: an indicator I like to use. Credit markets haven't blown
Speaker 1: out either, you know, So that's that, you know, spreads
Speaker 1: haven't blown out either, at least on.
Speaker 2: And there are people were warning that that was about
Speaker 2: to happen in the spring when Silicon Valley Bank and
Speaker 2: First Republic blew up. This is it. You're going to
Speaker 2: see credit markets turned go upside down, and that'll be
Speaker 2: it for equities.
Speaker 1: Not so much, not so much. I mean the corporate
Speaker 1: BAA to ten year spread is one I look.
Speaker 2: At a lot, meaning investment grade to just below investment grade.
Speaker 1: It's the tenure spread versus that. So I look at
Speaker 1: the lowest tier of investment grade versus the tenure yield
Speaker 1: versus the treasure got Yeah, And what I'm trying to
Speaker 1: say is, all right, when does stuff start to creep
Speaker 1: into investment grade, you know, the lower tier, and it
Speaker 1: hasn't happened. I mean that is well below two percent,
Speaker 1: and when you get aboup two point five, that's when
Speaker 1: things really start.
Speaker 2: To Let's talk about your sector work. How do you
Speaker 2: utilize different sectors and how does that work into your
Speaker 2: overall approach to macro.
Speaker 1: Well, I mean the sectors. I mean this is this
Speaker 1: is I've been shying away from having bold sector calls
Speaker 1: this year, and the reason why is you can find bullish,
Speaker 1: embarrassed stock charts everywhere no matter what sector you're looking at,
Speaker 1: even utilities.
Speaker 2: What does it mean when a sector is strong and
Speaker 2: an individual company is weak. Is it just reflecting that company?
Speaker 2: How do you draw a conclusion from that?
Speaker 1: No, I mean what you want to see. I mean, sure,
Speaker 1: that's a good question. So you know, if you have
Speaker 1: a bullish sector, I mean, I would argue tech is
Speaker 1: still a tech and comm services are still in quite
Speaker 1: bullish position. So if you have a stock and a
Speaker 1: bullish sector is not acting well, jazz are it's an
Speaker 1: idiosyncratic problem with that stock or chart, you know, probably
Speaker 1: a fundamental reason for it too, more so than a
Speaker 1: technical reason, because you know, the technicals are reflecting the
Speaker 1: fundamental situation to some extent. So I mean, I think
Speaker 1: right now, just looking at sectors and looking at you know,
Speaker 1: the way things look on the relative price charts along
Speaker 1: with the absolute price charts, it seems like, you know,
Speaker 1: tech is holding in fine comm services, holding in fine
Speaker 1: semi conductors, trying to hold their trend industrials, you know, trying,
Speaker 1: but you know, not not really convincing energy holding in
Speaker 1: just fine materials. It depends on the stock. You can
Speaker 1: find some winners, find some losers, and financials. It's really
Speaker 1: challenging because you know, you know two things. One, the
Speaker 1: absolute chart looks okay as long as it can hold
Speaker 1: those prior highs from two thousand and seven, which it
Speaker 1: has done, but the relative chart not okay. But within
Speaker 1: that group, you can find winners in things like exchanges
Speaker 1: and stuff like that that look really strong relative to
Speaker 1: the laggers of the group, which just happened to be,
Speaker 1: you know, the sector near and dear to my heart, the.
Speaker 2: Banks, you know, you know, just because you work for that,
Speaker 2: just to set you up to really like right, I mean,
Speaker 2: why not?
Speaker 1: I mean it's like, you know, it's you know, you
Speaker 1: want to see your companies, you know, Yeah, well of
Speaker 1: course you know.
Speaker 2: It's like so, so let's talk about the macro what
Speaker 2: goes into what you look at most when you're doing
Speaker 2: an overall view of the equity markets.
Speaker 1: Yeah. So, I mean, one of my favorite indicators, and
Speaker 1: I would lump it in with the good, would be
Speaker 1: the seventy three country Index of market breadth. So the
Speaker 1: advanced a client line for seventy three country indices. The
Speaker 1: US is one of those.
Speaker 2: So it's not just looking at the domestic equity markets.
Speaker 2: You want to see the whole world doing well at once.
Speaker 1: Yes, and that advanced a client line broke out during
Speaker 1: the summer, and even though the market correction has taken
Speaker 1: a lot of indicies below the summer breakout points, this
Speaker 1: particular advanced to Client I remains above its breakout point,
Speaker 1: meing that there are pockets of the world that are
Speaker 1: working better than others, you know, out there. So yeah,
Speaker 1: I think I think that's important to point out. And
Speaker 1: and so global breath has a roll over, So it
Speaker 1: tells us that we're in a corrective phase within what
Speaker 1: could very well be a market that may yet have
Speaker 1: another upleake to it, not just in the US, but
Speaker 1: also you know, globally.
Speaker 2: So since we're talking about global the world always is
Speaker 2: kind of a scary place lately. You flip on the news,
Speaker 2: geopolitics is everywhere. It's Russia and the Ukraine, It's the
Speaker 2: things that are going on in Israel. It's the economy
Speaker 2: in Europe and especially China seems to be falling into
Speaker 2: its own problems. How do you think about all these
Speaker 2: big geopolitical events or do you not? It's really either
Speaker 2: in the charts or not.
Speaker 1: No, I would say it's a latter, and the charts
Speaker 1: are not. So I mean, put it this way. Market
Speaker 1: is a discounting mechanism, and sometimes it discounts things in advance,
Speaker 1: of course, but when things are surprised, it discounts things quickly.
Speaker 1: And I think that's really the way to think about it.
Speaker 1: And what's interesting I've noted. I mean maybe there's a
Speaker 1: little bit of gold taking on to old fashioned.
Speaker 2: Safe harbor, a little apocalyptic currency.
Speaker 1: Yeah. I mean, if you look at the research that
Speaker 1: you know, my colleague puts out, you know, policy on
Speaker 1: I mean, there's like a huge base on gold. You
Speaker 1: know that that if it ever breaks out, it can
Speaker 1: go up a lot. And the events of the world
Speaker 1: have enhanced that pattern a little bit.
Speaker 2: So the question I have for your colleague is, Hey,
Speaker 2: the past decades, so a lot of really crazy things happen,
Speaker 2: and gold, you know, quote a little bit of a bid,
Speaker 2: but never really could get out of its own way.
Speaker 2: In fact, I don't think it got over the two
Speaker 2: thousand and eight nine highs. What do we make of
Speaker 2: gold sort of forming this long? Is this a base
Speaker 2: or is this a top?
Speaker 1: No, it looks like the mother of all cup and handles.
Speaker 2: You know, coin and a cup and handle pattern looks like.
Speaker 1: Yeah, I'm gonna define it because it's like it's it's
Speaker 1: bill and Eel coined it right, right, So the cup,
Speaker 1: the handle, the cup is this big rounding type of
Speaker 1: base stock rally. Sometimes it goes to a new high,
Speaker 1: which it did, so I did go above where it
Speaker 1: was briefly, right, yeah, a few times though. Now you
Speaker 1: have three probes up and then and the probe down.
Speaker 1: So you got the cup and now you're forming the
Speaker 1: handle and the handles a lot shalloiler in terms of price.
Speaker 2: Decline, meaning buyers are coming in higher.
Speaker 1: Prices, meaning that there's demand for gold at higher prices.
Speaker 1: And if this technical formation works, I mean, and gold
Speaker 1: can clear those hives that have heard over the last three,
Speaker 1: four or five years, then you got the pattern and
Speaker 1: you can go much higher than where gold is today
Speaker 1: if we do complete that pattern. And gold was interesting too,
Speaker 1: because if I put my equity hat on and look
Speaker 1: at gold the way I look at a stock, it
Speaker 1: tagged its two under week moving average perfectly rising two
Speaker 1: under week moving average, which means secular uptrend. You know,
Speaker 1: even though gold is consolidated, it just lends more confidence
Speaker 1: that the pattern we're in now is more more likely
Speaker 1: to break higher than breakdown, and you know, just looking
Speaker 1: at just evidence based type of technical analysis.
Speaker 2: And you mentioned towards the end of twenty one there
Speaker 2: were lots of warning signs. What did the technical say
Speaker 2: about twenty twenty two, And let's revisit the June and
Speaker 2: October twenty twenty two bottoms. What were the technical saying? Then?
Speaker 1: Sure, so we put out our year ahead for twenty
Speaker 1: twenty two. Buckle up, it's going to be a rocky year.
Speaker 2: That's a pretty good, pretty good call.
Speaker 1: Yeah, I mean, you know it was. Yeah, I felt
Speaker 1: good about it. I mean, look, when you're looking at
Speaker 1: credit spreads peaking in the summer, you're looking at financial conditions,
Speaker 1: you know, hitting their best levels in the summer twenty
Speaker 1: twenty one and then deteriorating through the end of the year.
Speaker 1: When you're looking at the percentage of stocks for two
Speaker 1: hundred day moving averages diverging for six months, you know
Speaker 1: a few other indicators I could point out, but it's
Speaker 1: a laundry list. And the SMP going to a new
Speaker 1: high in January, whereas the Nasdaq one hundred NASDAK comp
Speaker 1: topped out in November. It's telling you something's going on,
Speaker 1: and it just suggested to us that the rally that
Speaker 1: we've gotten from the COVID lows was at risk and
Speaker 1: we were entering into a corrective phase. And you know,
Speaker 1: we were targeting levels like thirty eight hundred, and we
Speaker 1: also throughout the two hundred week moving average, which you
Speaker 1: know when it eventually tested, it was like thirty four
Speaker 1: to ninety, you know, around thirty five hundred on the
Speaker 1: two hundred week we would average. So that was the pattern.
Speaker 1: And then we looked at twenty twenty throughout the year
Speaker 1: twenty twenty two, and you did hit a nice low
Speaker 1: in June and you were able to rally, and then
Speaker 1: guess what happened. You stalled a declining forty week two
Speaker 1: hundred day moving average in August, and then you went
Speaker 1: down and undercut the June low I just by a
Speaker 1: little bit. And I would say that was a nice
Speaker 1: retest of that low. There were some indicators. I believe
Speaker 1: the fourteen week RSI had a higher low, meaning price
Speaker 1: momentum improved even though the SMP went to a lower low,
Speaker 1: so it was so that was a positive. I believe
Speaker 1: there are also fewer new fifty two week lows, and
Speaker 1: the other ingredient was that we just talked about earlier,
Speaker 1: you know, versus June and November. You actually started to
Speaker 1: see the dollar peak and yield's peak in October, so
Speaker 1: that helped the market stabilize and bottom out. So was
Speaker 1: their capitulation, because that's what a lot of people, you know,
Speaker 1: hung on. We didn't get the capitulation in October twenty
Speaker 1: twenty two, and I would argue we did. The one
Speaker 1: indicator I would point to to support two indicators. First, AAII,
Speaker 1: Bears went to the highest level the most bears since
Speaker 1: early two thousand and nine.
Speaker 2: That's pretty big level.
Speaker 1: That's a huge level. So that's one, and the other
Speaker 1: one is that three month miix versus vix went below
Speaker 1: one late September early October of twenty twenty two to
Speaker 1: suggest to us that the tactical medium term you know,
Speaker 1: momentum of medium term sentiment did capitulate. So bears capitulated
Speaker 1: from institution from retail investors h and the three month
Speaker 1: versus vix moved below one to suggest, you know, capitulation
Speaker 1: on that indicator. And the other thing that was very
Speaker 1: interesting about October of last year was that entering the month,
Speaker 1: we had two extraordinarily bullish breath days ninety percent up
Speaker 1: days on the NYFC in a row, and that helps
Speaker 1: slidify a bottom too, even though the first few sessions
Speaker 1: after that it gave up all the rally from those
Speaker 1: two days, but the market did find support, you know,
Speaker 1: with those days. So it was a very complicated market. Normally,
Speaker 1: when you get those two types of things, you just
Speaker 1: rip to the upside. But huh, it's just so volatile now,
Speaker 1: you know.
Speaker 2: So let's sum up the secular view of the markets.
Speaker 2: We had a thirty four percent downturn in twenty twenty
Speaker 2: during the pandemic. The rest of the year from those lows,
Speaker 2: I think we have plus sixty eight percent the following
Speaker 2: year plus twenty nine percent, and then we come into
Speaker 2: twenty twenty two. Where are we broadly? Have we been
Speaker 2: in a cyclical correction within a longer secular bull market? Is?
Speaker 2: Is that how you're describing this? And if we are,
Speaker 2: how long could that secular bullmarket run for?
Speaker 1: Yeah? So it's a great question. So first, the view
Speaker 1: of the twenty twenty two correction was secular cyclical, cyclical correction,
Speaker 1: secular bull market. We made comparisons with the year zone
Speaker 1: crisis in twenty twelve very similar to that. Also twenty
Speaker 1: sixteen Brexit and the election that year and trade war
Speaker 1: in twenty nineteen, and one can even argue COVID twenty
Speaker 1: twenty similar setup where you went down tested the two
Speaker 1: hundred week m cross above the forty week and then
Speaker 1: corrected to undercut the forty week. You did it twice
Speaker 1: twice in twenty twelve, once prior to summer rally and
Speaker 1: once prior to the year on rally twenty twelve. Twenty sixteen,
Speaker 1: you hit it right when the brigs of vote happened
Speaker 1: and then boom ripped into a summer rally fall correction
Speaker 1: year end rally after Trump got e liket to president
Speaker 1: of twenty sixteen and then tried to trade war. Two
Speaker 1: similar type of dips, one in the right ahead of
Speaker 1: a summer rally and one ahead of the year end rally.
Speaker 1: So here we go. We had one in March, which
Speaker 1: is a little early, but it happened. You rallied above
Speaker 1: the forty week, then moved below it, and then rally
Speaker 1: back up by the time you're in April, and you
Speaker 1: got a nice summer rally and then right on. C
Speaker 1: seasonality always says going back to nineteen twenty eight. Well,
Speaker 1: you know, seasonality says, going back to nineteen twenty eight,
Speaker 1: the worst three month period of the year is August
Speaker 1: through October. And that's exactly what's going on right here.
Speaker 1: We're getting that traditional correction which usually proceeds the best
Speaker 1: three month periods of the year of November through January.
Speaker 1: So I think that's where we are now. So we
Speaker 1: could very well be ending this cyclical correction soon if
Speaker 1: we follow seasonal patterns. Now, how long can the secular
Speaker 1: bull market last? Well, there's a financial advisor who helped
Speaker 1: me coin this term. I guess he was a Marilyn
Speaker 1: Monroe fan. The seven year itch, So seven years after
Speaker 1: the breakout of twenty thirteen was COVID and the marketer spike.
Speaker 2: Low and thirty four percent is normally considered a pretty
Speaker 2: substantial bear market.
Speaker 1: I mean, the only only one in the secular bowl
Speaker 1: trend that matched it was the eighty seven crash. And
Speaker 1: guess what eighty seven, seven years after the eighty breakout,
Speaker 1: So seven year itch there, I call it halftime. You know,
Speaker 1: not everybody knows Marilyn Monroe is, you know, I mean
Speaker 1: I did a Jaws reference in one of my Morning
Speaker 1: call appearances, you know, talking about how the market needed
Speaker 1: to build a bigger base. You're going to need a
Speaker 1: bigger base, and sure enough, I bet you if that
Speaker 1: trading floor, probably google what's jaws? Because no, think about
Speaker 1: think of the average age down there. But bottom line
Speaker 1: is this, and I just digress, So let me get
Speaker 1: back to what I was talking about. So the seven
Speaker 1: year low eighty seven will market lasted until twenty two thousand,
Speaker 1: and then fifty seven fifty breakout in the SMP above
Speaker 1: the thirty seven high, and then you rallied into you
Speaker 1: know prior to nineteen fifty seven, had a correction in
Speaker 1: nineteen fifty seven, which was recession and a pandemic, so
Speaker 1: go figure. And then that lasted another nine years. So
Speaker 1: I mean, if I'm just saying, hey, midpoint twenty twenty
Speaker 1: from twenty thirteen, maybe it lasts until twenty twenty seven,
Speaker 1: but some of these other bowl markets lasted longer. Maybe
Speaker 1: I have to get a little bit of haircut. Given
Speaker 1: where inflation interest rates are. I mean that's quite a possibility. Sure.
Speaker 1: In fact, I mean for order for the secular call
Speaker 1: to really work, I mean, let's face it, inflation does
Speaker 1: need to come down and cannot spike you know, ten
Speaker 1: twelve percent. I mean, if it does, that's not what
Speaker 1: happens during secular bowl markets, you know what you know,
Speaker 1: the nineteen fifty secular bowl market started with you know,
Speaker 1: inflation high, and then it went down and stayed fairly contained.
Speaker 1: You know, higher interest rates not what you want to see.
Speaker 2: You know.
Speaker 1: Nineteen eighty short started with interest rates double digits, but
Speaker 1: our friend Vulker, you know, did what he needed to
Speaker 1: do and solve that problem, or heights went down. So
Speaker 1: you know, ten to to note yield is trending through
Speaker 1: five and a half five point seven five, and inflation's
Speaker 1: going back up. You know, I think it's going to
Speaker 1: be very difficult for this secular bowl trend to be sustained.
Speaker 1: Because it hasn't happened before. It doesn't mean it can't happen.
Speaker 1: But I can't find, you know, you know, any history
Speaker 1: to support that case. Huh.
Speaker 2: Really interesting. So let's talk a little bit about what
Speaker 2: follows the worst three months of the year. You mentioned August, September,
Speaker 2: October tends to be seasonally the worst part of the year.
Speaker 2: I've seen all sorts of explanations for why that is harvest,
Speaker 2: people distracted with summer vacation, going back to school, whatever
Speaker 2: it is. The last three months tend to be pretty good.
Speaker 2: What are the odds that we're going to see Santa
Speaker 2: Claus come to Wall Street?
Speaker 1: I hope they're pretty good first and foremost, When you know,
Speaker 1: we use traditional seasonality work, So traditional seasonality, what does
Speaker 1: it tell you? You know, everybody talks about selling May
Speaker 1: and go away, but do you ever see anybody go
Speaker 1: on the media and say, hey, buy in October and stay.
Speaker 1: They don't because that doesn't sell.
Speaker 2: And it doesn't rhyme. That's you know, it's true, and
Speaker 2: it runs. That's the key.
Speaker 1: Yeah, that's true.
Speaker 2: Buy in October trend as your friend. If there's no
Speaker 2: rhyme there, it's no good except for the bend at
Speaker 2: the end of course.
Speaker 1: Yeah. But it's really what's really funny about it is,
Speaker 1: I mean, November starts the best three and six month
Speaker 1: periods of the year for the S and P, which
Speaker 1: I think, going back to ninety twenty a is really
Speaker 1: encouraging for those looking for the market to stabilize. But
Speaker 1: when you think about where we are in the presidential cycle,
Speaker 1: we're in year three, so year two to year three
Speaker 1: has the best part of the cycle, from fourth quarter
Speaker 1: year two, which was last year around this time, through
Speaker 1: the middle of year three. So and we fought, we
Speaker 1: did that perfectly. And now we're you know, we're doing
Speaker 1: the getting ready for year four. We're getting ready for
Speaker 1: year four. But right here, right now, it's tough in
Speaker 1: year three August, September, October, November, so seasonality might be
Speaker 1: pushed into December. We could struggle into November because that
Speaker 1: can happen in the third year of the presidential cycle.
Speaker 1: So in the third year of the presidential cycle, positive
Speaker 1: Q four performance is typically a Santa Claus rally event.
Speaker 1: So and then the next part of the cycle calls
Speaker 1: for a choppy pattern into May of next year. But
Speaker 1: then you follow traditional seasonal patterns summer rally, fall, dip
Speaker 1: and correction and rally after the election, and it doesn't
Speaker 1: matter who wins or loses. I mean, in twenty sixteen,
Speaker 1: everybody thought Trump was a disaster. Everybody thought Biden was
Speaker 1: a disaster, and the contested election was a disaster.
Speaker 2: Market loth cases, market did well, market.
Speaker 1: Did well, So I think, you know, granted, I mean
Speaker 1: that we're into an interesting period of time here where
Speaker 1: it may take a bit longer for the market to stabilize.
Speaker 1: But I do think if we follow, you know, the
Speaker 1: pattern were December should be good.
Speaker 2: So let's talk about another sort of historical pattern, not
Speaker 2: quite seasonal. I've seen a lot of studies that suggest
Speaker 2: when the FED finishes its rate hiking cycle shortly thereafter,
Speaker 2: we're off to the races and the equity side. It
Speaker 2: almost feels like the market isn't sure if the Fed
Speaker 2: is done, and once the market is comfortable, hey, we're
Speaker 2: done raising rates, the next leg up can begin. Does
Speaker 2: that sound reasonable or what are your thoughts on that?
Speaker 1: I mean it does sound reasonable. I mean clarity around
Speaker 1: when that final rate cuts happening probably would be helpful.
Speaker 1: I mean, I think that's one reason why the market
Speaker 1: is struggling a little bit, because there's that last hike
Speaker 1: just sitting out there creating uncertainty.
Speaker 2: Plus you have a lot of Fed governor's jaw boning
Speaker 2: back and forth. It doesn't seem like there's a consensus
Speaker 2: there yet.
Speaker 1: Yes, I mean, my dad was a bond guy all
Speaker 1: his life, and he point he told me FOMC stands
Speaker 1: for Federal open mouth Committee, meaning they talk a lot
Speaker 1: and sometimes confused markets. And back when in the day
Speaker 1: when he was trading bonds, they didn't tell you what
Speaker 1: they were doing either at the FED meetings. You had
Speaker 1: to figure it out from price action.
Speaker 2: They didn't even announce that. People don't realize when you
Speaker 2: talk about some people who have only been in the
Speaker 2: business for ten or twenty years, the FED didn't even
Speaker 2: tell you were hiking rates. You would just have to
Speaker 2: see what would take place in the in the bond market.
Speaker 2: Suddenly it's like, hey, who's uh, who's buying all these
Speaker 2: equities or who's selling all these bonds? You had to
Speaker 2: figure out what was going on.
Speaker 1: I mean, we are spoon fed, that's for sure. I
Speaker 1: mean then, you know, I don't know whether that's a
Speaker 1: good or bad thing. I mean, you know again, I
Speaker 1: mean information just comes at us so quickly, quickly digested.
Speaker 1: You got machines that help you digest the information and
Speaker 1: do and make trading decisions. But yeah, the environment has
Speaker 1: definitely gotten, you know, more complicated. I mean, my dad
Speaker 1: taking the train back in the day, he wasn't getting
Speaker 1: emails on the you know, he could he could actually
Speaker 1: play bridge with a few other guys on the train,
Speaker 1: you know.
Speaker 2: So let me let me ask you a related question
Speaker 2: to that about the Fed spoon feeding us. Say what
Speaker 2: you will about Jerome pal and the Federal Reserve. He said,
Speaker 2: we're going to raise rates, and he started raising rates.
Speaker 2: In fact, he said we're going to raise rates aggressively
Speaker 2: to combat inflation. Now we could say they were a
Speaker 2: little late to the party. They should have started a
Speaker 2: year earlier. But hold that aside. It seems like the
Speaker 2: equity market didn't believe the Fed chairman when he said,
Speaker 2: hold my beer, watch what I'm about to do with rates.
Speaker 2: Nobody seemed to believe him.
Speaker 1: Well, I mean, I think it's good that the equity
Speaker 1: market was able to you know, I mean, obviously at
Speaker 1: first it corrected, but he will rally again because again,
Speaker 1: I mean, you know, people say, hey, rates, they're increasing
Speaker 1: rates drastically, and I'm like, no, I would I would not.
Speaker 1: I would call it normalization of rates.
Speaker 2: You know.
Speaker 1: You know, I think it's a freely what's going on.
Speaker 1: It's not. It's not I mean, as aggressively hiking they did,
Speaker 1: but they got it to a more normalized level. So
Speaker 1: I and you know, again I mean, is it normal
Speaker 1: to get a return on cash investment? To answer that question,
Speaker 1: I would argue is yes. So this is the most
Speaker 1: normal environment we've been in a long.
Speaker 2: Time, which is kind of crazy to think about the
Speaker 2: previous two decades. We're abnormal. And think about everybody who's
Speaker 2: you know, first started investing in these twenty years. You
Speaker 2: had a ten year bear market right from two thousand
Speaker 2: to I don't know, cold twenty twelve, twenty thirteen. Is
Speaker 2: this normal or is this normalizing? We may not quite
Speaker 2: be it normal yet.
Speaker 1: Are we Well, we'll see. I mean, it takes time
Speaker 1: to really figure that one out, but you know, I
Speaker 1: think I think we're a lot more normal than we
Speaker 1: were ten years ago.
Speaker 2: You mentioned different market cycles in the fifties and the sixties.
Speaker 2: Use a lot of historical references. How informative is going
Speaker 2: back decades or centuries The world was so different, you know,
Speaker 2: in an era of telegraphs and railroads. Can we really
Speaker 2: carry forward lessons from that era from chart action to
Speaker 2: the modern world.
Speaker 1: I mean, I think you can. The primary reason you
Speaker 1: can is because dynamics of human nature and fear and
Speaker 1: greed haven't changed. Now people will say, well, there's more
Speaker 1: mechanical trading this you know these days with high frequency
Speaker 1: trading and things like that. I'm like, well, who created the.
Speaker 2: Programs, who's running those algos?
Speaker 1: It's human beings who created it. So I mean, there
Speaker 1: is a human element touching all of that. So maybe
Speaker 1: if we're coming back in ten years, twenty years and
Speaker 1: the machines are creating things, then maybe we have a
Speaker 1: different argument to talk about. But one would think if
Speaker 1: the machines were working the market, it wouldn't be as
Speaker 1: emotional as it is. And yeah, it is very emotional.
Speaker 2: It very much is. You know, it's funny. I read
Speaker 2: a book a while ago. I think it was published
Speaker 2: in the nineteen twenties by Richard wa Cough How I
Speaker 2: Trade Stocks, And what was so shocking was Okay, it
Speaker 2: was about railroads and telephone companies, but you could swap
Speaker 2: in internet and technology and nothing is different. It reads
Speaker 2: as if it was written last month. It's it's really
Speaker 2: quite fascinating. That is human nature, Isn't it exactly?
Speaker 1: Progress? I guess is the term. I mean, maybe maybe
Speaker 1: we fear greed and progress, and I hope progress continues.
Speaker 1: I mean, look, I mean maybe this is maybe the
Speaker 1: secular driver of this is the AI theme or you know,
Speaker 1: things like that. I mean, because every secular bowl trend
Speaker 1: has some sort of theme behind it.
Speaker 2: You think, give us some examples. I like the concept
Speaker 2: of that.
Speaker 1: Well, well, I mean, you know, obviously, I think the
Speaker 1: fifties was more of a build back after World War two.
Speaker 2: Post war right, and for people who may not know
Speaker 2: their history. You had the build out of the interested
Speaker 2: highway system. You had the rise of suburbia, the rise
Speaker 2: of automobile companies and the commercialization of passenger air travel
Speaker 2: and the electronic insurt There were a lot of things
Speaker 2: that took place in the fifties and sixties that drove
Speaker 2: everything forward. Every time we have a secular bull market,
Speaker 2: do you see something similar.
Speaker 1: To this should be? Yeah, I mean I think so.
Speaker 1: I mean because the eighties, you know, you know, I
Speaker 1: guess acknowledge of birth out of the computer and thing internet, sure,
Speaker 1: and then yeah.
Speaker 2: Mobile, Yeah. You just that twenty year period saw a
Speaker 2: lot of new industries pop into existence.
Speaker 1: And then when it gets too exciting, such as the
Speaker 1: tech bubble, that's when things change and it doesn't seem
Speaker 1: like we're there now. Because we talked about these indicators
Speaker 1: peeking out in advance of the market in twenty twenty one,
Speaker 1: I don't really have that here, you know, as we're
Speaker 1: on this corrective phase, except for the percentage stocks about
Speaker 1: doing in a day movement averages that does have the divergence.
Speaker 1: But credit spreads confirmed the rally. Financial addition confirm the rally.
Speaker 1: You know, a lot of other indicators confirm the rally.
Speaker 1: So you know, there's you know, a little different than
Speaker 1: say two years ago at this point.
Speaker 2: So I'm glad you brought that up. I want to
Speaker 2: talk about what you called the Magnificent seven and compare
Speaker 2: it to prior eras when you take the seven biggest
Speaker 2: companies on the SP five hundred, their revenues collectively are
Speaker 2: something like one point eight trillion dollars. Their profits are
Speaker 2: a quarter of a trillion dollars. Put on your CFA
Speaker 2: hat for a moment, and let me ask you, hey,
Speaker 2: they're a disproportionate part of the S and B five
Speaker 2: hundred with good reason? Is that a fair statement? We've
Speaker 2: never seen any group of seven companies make so much
Speaker 2: in revenue and so much in profits. How wrong is
Speaker 2: it that these are? You know, the the Darling stocks it.
Speaker 1: Might not be wrong, and quite frankly, I would argue
Speaker 1: that could very well be a factor of a secular
Speaker 1: bowl market. And here's why. During secular bowl markets, what
Speaker 1: outperforms large caps are small caps.
Speaker 2: Large caps, you know, they're international, they have a broader reach,
Speaker 2: they have great access to capital. Small caps graduate, that's right,
Speaker 2: graduate to mid caps. Mid caps graduates slash gaps, sluge gaps,
Speaker 2: become big caps.
Speaker 1: So you know, the interesting thing is like in the
Speaker 1: equal weight, you know, had its best period during the
Speaker 1: two thousand to twenty thirteen bear market for equities. So
Speaker 1: one would argue that having a greater concentration, you know,
Speaker 1: not not to the extent I mean, you know, maybe
Speaker 1: it's magnificent fifty, maybe a magnificent one hundred going forward.
Speaker 1: I mean that I would take that as a bullet
Speaker 1: sign if if we went from the seven to the twenty,
Speaker 1: maybe even more. But but you're rewarding the winners and
Speaker 1: and you know, I guess that's capitalism for you in
Speaker 1: some regards, you.
Speaker 2: Know, so makes a lot of sense. Before we get
Speaker 2: to our favorite questions, let me throw you one curveball.
Speaker 2: You you you do both broad analysis and I don't
Speaker 2: know if I would call them just outright market calls,
Speaker 2: but you certainly share opinions about where we are and
Speaker 2: where we could go. What were some of your most
Speaker 2: memorable calls that have stayed with you? What do you
Speaker 2: what do you remember most fondly and what are you
Speaker 2: not so keen on prior calls?
Speaker 1: Well, I mean, I think the Secular Bowl market call
Speaker 1: has been a great one since that. What are the
Speaker 1: dates of the twenty thirteen when we broke out and
Speaker 1: twenty twelve we broke out in the S and P
Speaker 1: and the Nasdaq.
Speaker 2: I'm twenty thirteen on the S and P above the
Speaker 2: two thousand and fifteen seventies yep, seven highs yep.
Speaker 1: And you know that was that was that was really
Speaker 1: the big call.
Speaker 2: And a ton of pushback, right I remember remember twenty
Speaker 2: thirteen people were like, no, no, no, this is just
Speaker 2: a bare market rally and it's going to end.
Speaker 1: So well, we did a radio show on that. I
Speaker 1: remember back in the day, you and me talking about it,
Speaker 1: and I was explaining, well, I mean, you know, a
Speaker 1: big trading range you break out of it. You know,
Speaker 1: this is like nineteen fifty, nineteen eighty, it should continue.
Speaker 2: For a while, and it did for seven years until COVID.
Speaker 1: I mean the call I want to forget though, is
Speaker 1: being so bold up on value over growth entering this year,
Speaker 1: because quite frankly, it looked like a classic double top
Speaker 1: that supported the case for value to beat growth, and
Speaker 1: obviously that didn't work.
Speaker 2: That value did have a good cup of twenty one
Speaker 2: twenty two, pretty good years compared to the prior decade.
Speaker 2: In fact, that might be the longest run we've seen
Speaker 2: of value underperforming growth until twenty one.
Speaker 1: That is that a fair yes, I think so it was.
Speaker 1: I think it bottomed out in two thousand and six.
Speaker 1: So and you know, one would thought that you would
Speaker 1: have seen a peak in that, you know, not that
Speaker 1: you have to sell all your tech names and buy
Speaker 1: all the value names, because you know that is obviously
Speaker 1: not what you want to do. But but yeah, it
Speaker 1: was surprising that that technical formation did not work, you know,
Speaker 1: a nice classic double top formation on growth relative value.
Speaker 1: A little bit surprising, and the NASDAC stall I'm not
Speaker 1: the knavesac yet. The technology sector stalled at its two
Speaker 1: thousand high relatively SMP entering this year. And then, of course,
Speaker 1: when growth versus value didn't work. I mean, when value
Speaker 1: beating growth did not work and growth took the mantle
Speaker 1: leadership again, gets what happened? Tech broke out to all
Speaker 1: time highs of relative to the SMP, going all the
Speaker 1: way back to two thousand. I mean, maybe that's the
Speaker 1: message we need to take here. As long as that
Speaker 1: breakouts in place. You know, how is how is value
Speaker 1: going to be growth?
Speaker 2: Huh? Really really interesting? All right, let's jump to our
Speaker 2: favorite questions that we ask all of our guests, starting
Speaker 2: with what have you been streaming these days?
Speaker 1: Give us your.
Speaker 2: Favorite podcast or Netflix Amazon type of shows?
Speaker 1: Sure? So, in terms of TV shows and things like that,
Speaker 1: I uh, well, I've been watching Loki Disney plus a
Speaker 1: big Star Wars fan, so obviously I watched the Mandaloria
Speaker 1: and Ahsoka.
Speaker 2: I'm way behind on Ahsoka, so no, I will not
Speaker 2: say anything.
Speaker 1: Yeah, but it looked really the.
Speaker 2: First couple episodes looked really interesting.
Speaker 1: Yeah, solid show. I mean I'm into all those superhero
Speaker 1: shows like I mean even some of the gory and
Speaker 1: vraunchy ones like The Boys.
Speaker 2: The Boys was great, and the second season, you know,
Speaker 2: there's a third season coming also.
Speaker 1: I hope so and now I'm watching this v university
Speaker 1: show or something like that with same same concept, same
Speaker 1: same people, but young kids that are in school.
Speaker 2: Oh okay, I saw a preview few. It looks interesting.
Speaker 1: It's gory, you know, so as The Boys was totally gory. Yeah,
Speaker 1: and then you know, of course I'm sitting this looks interesting.
Speaker 1: It's about kids, you know. Splat, and I'm like, turn
Speaker 1: it on, and all of a sudden, oops, it's turn
Speaker 1: that off.
Speaker 2: You know.
Speaker 1: My son was in the room. He wasn't watching it,
Speaker 1: but he was doing something else, right, And I'm like,
Speaker 1: all right, this come right off.
Speaker 2: So if you liked The Boys, there are two shows
Speaker 2: that were on Amazon Prime that you might like. I
Speaker 2: think everybody knows The Expanse was pretty popular.
Speaker 1: I didn't see that one yet. It's a great sci
Speaker 1: fi and that's right.
Speaker 2: But something that's a little more eclectic and not well
Speaker 2: known was Altered Carbon. It was only two seasons. Amazing.
Speaker 1: Yeah. Last year I was into a Stranger I went
Speaker 1: through I binged Stranger Things.
Speaker 2: How'd you like that?
Speaker 1: Oh? I love that show because I was in nineteen
Speaker 1: eighties Dungeon and Dragons Kid. So now I'm playing it
Speaker 1: now with my son, some of his friends. So COVID
Speaker 1: actually brought a few things out. You know, he got
Speaker 1: that into some old hobbies, you know, just kind of
Speaker 1: a fight.
Speaker 2: During COVID, we broke out all of the kitchen appliances
Speaker 2: and winning gifts that just had not been touched. Like
Speaker 2: that's literally like the Jonana things like that where you're
Speaker 2: putting frozen fruit into this device and turning it into
Speaker 2: that's so cool scream and the air fryers and it's
Speaker 2: really funny. Everybody went to the basement or garage or
Speaker 2: were at storage room and pulled out the stuff that
Speaker 2: had been gathering dust for years. It was that was
Speaker 2: the best part of COVID.
Speaker 1: I found. I found, yeah, my dungeon master's guy, my
Speaker 1: player's handbook with the duct tape holding it together. And
Speaker 1: you know by the time, yeah, I mean, you know,
Speaker 1: my son taught my son. My daughter played for a
Speaker 1: little while, but wasn't her a thing. But right, and
Speaker 1: now now we're continuing a uh. I started a little
Speaker 1: club in town, so we got a few people playing
Speaker 1: every other Saturday. So it's fun. It was a good
Speaker 1: thing to do.
Speaker 2: That sounds like fun. Tell us about your mentors who
Speaker 2: helped shape your career.
Speaker 1: Yeah, sure, I mean, you know, obviously all the people
Speaker 1: I mentioned earlier in the podcast. Of course, you know
Speaker 1: my dad, Marriyan Bartel's uh uh, you know my boss
Speaker 1: at Whereamar Huff, Stephan Haber, very very you know, helped me,
Speaker 1: you know, steer again into the fundamental side of the business,
Speaker 1: you know, as far as like technical analysts and things
Speaker 1: like that. Books I've read, I mean, mostly influential by
Speaker 1: John Murphy, Martin Bring, and doctor Alexander Elder. I mean
Speaker 1: that's those are my go tos as far as uh yeah,
Speaker 1: the Norman Farce back too. I have that book Stock
Speaker 1: Market Logic. I love that book. I open.
Speaker 2: I have that book. I've had that for a long time.
Speaker 2: It's very really an interesting book. So since you mentioned books,
Speaker 2: what what are you reading currently? What do you read
Speaker 2: for fun?
Speaker 1: Well, I mean right now, yeah, it's a I don't
Speaker 1: want to sound too dorky, but it's really it's a
Speaker 1: dungeon and dragon. It's what's the name of the book,
Speaker 1: Water Deep Dragon Heist, Water.
Speaker 2: Deep Dragon Heist. So that doesn't sound dorky at all.
Speaker 1: Now, it's a part of the adventure and stuff like
Speaker 1: that that you know, running the running the campaign through.
Speaker 2: By the way, I know guys in our industry that
Speaker 2: you would never in a million years. Guess still do
Speaker 2: a weekly d Dungeons and Dragons and have for like
Speaker 2: twenty thirty years.
Speaker 1: Geez, sign me up. I'd do that in a second.
Speaker 1: It's fun now. But other than that, I mean, obviously,
Speaker 1: when I was in college, you know, part of the
Speaker 1: English writing major is you had to take literature classes.
Speaker 1: And my favorite literature classes was the epic hero So
Speaker 1: it was The Hobbit, Lord of the Rings. You know.
Speaker 1: Of course I read the Hobbit prior to that class,
Speaker 1: but I read it again. I read some of the
Speaker 1: Lord of Rings prior to that class. It was a
Speaker 1: lot of intense reading. I mean, it's Lord of the Rings.
Speaker 1: I can't even say it, this Summarian, I can't even
Speaker 1: say it. But and then also the Odyssey and the Iliad. Sure,
Speaker 1: and in high school I read the Iliad in Latin.
Speaker 2: You're not fluent in Latin, no, no, no, no, that's
Speaker 2: it was high school.
Speaker 1: But it did help me out with the English language,
Speaker 1: so which was what you know, a lot of the
Speaker 1: words get derived from Latin, and you know, and obviously
Speaker 1: German too, so I did take some German in college.
Speaker 1: Unfortunately forgot most of that as well.
Speaker 2: But that's really that's really interesting. So let's let's jump
Speaker 2: to our final two questions. What sort of advice would
Speaker 2: you give to a recent college grad interested in a
Speaker 2: career in either finance or technical analysis?
Speaker 1: Well, I mean finance, I think, believe it or not,
Speaker 1: specially we are now. Creativity is very important. Also, curiosity
Speaker 1: is very important. When I was looking for a job
Speaker 1: in finance, coming from a different background, it was tougher,
Speaker 1: you know, and I just didn't I really, I didn't
Speaker 1: really start making headway until I was up on the news,
Speaker 1: you know, the Wall Street Journal and consistently reading that
Speaker 1: for like a month. Then I was ready to go
Speaker 1: in and talk to people about careers to some extent,
Speaker 1: you know, obviously not an expert on anything, but just
Speaker 1: expressing the interest.
Speaker 2: But I would say not meaning not not professionally relying
Speaker 2: on the media for information, but to be able to
Speaker 2: have interview an intelligent conversation.
Speaker 1: Because that comes up. I mean, because when we interview people,
Speaker 1: you know, there's always you know, there's always Hey, did
Speaker 1: you read that story in a while? And Most of
Speaker 1: the time people say, no, I don't do that, listen
Speaker 1: to podcasts, but they still get the same information, you know,
Speaker 1: similar information.
Speaker 2: Not quite as in depth, not quite as you know focused.
Speaker 2: But that's a good advice. Going prepared and be able
Speaker 2: to talk about that you're up to speed and ready
Speaker 2: to start knowing what's happening.
Speaker 1: And whenever I interview people, I always want to know
Speaker 1: what they're doing outside of business and finance. Could I
Speaker 1: find that more interesting in some regards? You know, it's like,
Speaker 1: you know, if you have like I think, let me
Speaker 1: think the last like if they were professional cross player,
Speaker 1: not professional, a college Division one lacrosse prayer, that's kind
Speaker 1: of interesting. You know, it's like they know how to
Speaker 1: be part of a team. You know, you know some
Speaker 1: of those intangibles. So I would say, you know, some
Speaker 1: of the intangibles and things outside you know, you know,
Speaker 1: are interesting. I mean, somebody looking to get into technical analysis,
Speaker 1: I mean I would say, probably avoid that, like the plague,
Speaker 1: why not? I mean, are there a lot of technical
Speaker 1: analysts on the street these days? You know? Probably not.
Speaker 1: You know, you can count them on maybe two hands.
Speaker 1: But I would say, if you want to get a
Speaker 1: role in finance or as an analyst or as you know,
Speaker 1: financial advisor. Learning technicals will save you, it will help
Speaker 1: you a ton, but you're not going to be getting
Speaker 1: a role as a technical analyst. It's just that there's
Speaker 1: just not that many of them, and often they're just
Speaker 1: placed at the back of the bus. And as Ralph
Speaker 1: affanpoor Or said, that's where they have the beer is.
Speaker 1: So I'm perfectly happily being in the back of the bus.
Speaker 1: But still, I mean, I would say, you know, again,
Speaker 1: here's another quote. I don't remember who I heard this
Speaker 1: one from, but it says the CFA designation will get
Speaker 1: you a job, but the CMT designation will allow you
Speaker 1: to keep your job. So I look, I mean, if
Speaker 1: you want to become a technical analyst and work at
Speaker 1: a Bowls Bracket research firm as a technical analyst, it's unlikely.
Speaker 1: You know, I'm very lucky to be sitting where I'm sitting.
Speaker 1: You know, it's like and who knows how long it's
Speaker 1: gonna last, you know what I mean, It's like, you know,
Speaker 1: I mean the business is tough.
Speaker 2: I mean, yeah, I know, it's definitely and it's gotten
Speaker 2: tougher on the institutional cell side because of the advent
Speaker 2: of either free or practically free trading.
Speaker 1: But it's very interesting though, because you run into a
Speaker 1: lot of folks on the institutional side that aren't technical
Speaker 1: analysts but use technical analysis, and some of them, you know,
Speaker 1: even pursue the CMT designation, which is Charter market technician,
Speaker 1: the credential that's the equivalent of the the CFA Charter
Speaker 1: financial analyst, and you know they do it. I would say,
Speaker 1: if you're interested in a career where you're going to
Speaker 1: be doing some technicals, I mean, obviously a trading desk
Speaker 1: type of role might be suited for that. An equity
Speaker 1: analyst would be suited for you know, I know a
Speaker 1: few equity analysts that do not that they're making fundamental
Speaker 1: views based on technicals, but if they want to upgrade
Speaker 1: a stock and they look at a chart saying, wow,
Speaker 1: I love the fundamentals on this company, but the chart
Speaker 1: looks like it can break below fifty and head to
Speaker 1: forty five, maybe I should wait for that to happen.
Speaker 2: Let me ask you a question that I love asking
Speaker 2: people who use both fundamentals and charts. If you're going
Speaker 2: to buy a stock and in our hypothetical you can
Speaker 2: only either read a fundamental research report or look at
Speaker 2: the chart. Which do you do?
Speaker 1: Yeah, that's obvious because it's look at the chart, no
Speaker 1: question why, Because the chart reflects fundamental information. I don't mind.
Speaker 1: I mean, look what is the price reflect It reflects
Speaker 1: you know, you know, a little bit of the funny
Speaker 1: money from the high frequency trading, which we have no
Speaker 1: idea what that's all about. But it also reflects people's
Speaker 1: opinion on price action to summary some extent. But it
Speaker 1: actually reflects what fundamentals are to some extent too, you know,
Speaker 1: So it's psychology and you know what actual factual information is.
Speaker 1: I mean, it's discounting what the fundamentals are or will
Speaker 1: be in the future. So you know, I would say,
Speaker 1: you know, you could have an analyst note saying sell
Speaker 1: this stock like it's you know, it's unholdable or you know,
Speaker 1: hard sell on this name, but you look at a
Speaker 1: chart and it looks like it's forming a double bottom.
Speaker 1: I may look at the chart more so on the
Speaker 1: fundamentals because you know, if the chart works, guess what
Speaker 1: that analyst has to do.
Speaker 2: We'll eventually you have to change that sell to a hold,
Speaker 2: and that hold to a buy.
Speaker 1: And if there's forty of these analysts doing that over
Speaker 1: a period of time, guess where that stock's gonna go.
Speaker 2: Do you look at you know, the analysts collective ratings,
Speaker 2: how many buys, how many sells, how many holds?
Speaker 1: I do say, yeah, there's there's a feature in n R. Yeah,
Speaker 1: exactly an R. And also there's like I have this
Speaker 1: recommendation ratio line on my Bloomberg chart I pull up
Speaker 1: every once in a while. Sometimes I find it really informative,
Speaker 1: other times I don't. But but there are times when
Speaker 1: when I can, when I can see a chart like
Speaker 1: bottoming out and everybody hates it, and then it breaks out,
Speaker 1: and it's like, it's amazing how the analysts start. And
Speaker 1: you know, you've got a lot of time when that happened.
Speaker 1: So I would I would always gravitate towards a chart,
Speaker 1: and I would say, it's really funny, like even even
Speaker 1: folks that consider themselves fundamental investors do the same thing. Huh.
Speaker 2: Really really interesting. And our final question, what do you
Speaker 2: know about the world of investing today? You wish you
Speaker 2: knew twenty five years or so ago when you were
Speaker 2: first getting started.
Speaker 1: Yep, I think the biggest thing I wish I knew
Speaker 1: when I was first getting started is and you can
Speaker 1: say it in technical mumbo jumbo and fundamental mumbo jump
Speaker 1: with the same thing a stock. An oversail stock can
Speaker 1: always become more over sold, and an undervalue stock can
Speaker 1: always become more undervalued. And when I learned that, I
Speaker 1: think things improved a lot. You know, I wish I
Speaker 1: knew that early on.
Speaker 2: I learned that as cheap stocks can always get cheaper,
Speaker 2: and expensive stocks can always get more expensive.
Speaker 1: Right, Yeah, that's right. That's probably a better way of
Speaker 1: saying it.
Speaker 2: Really interesting, Steve, Thank you for being so generous with
Speaker 2: your time. We have been speaking with Steve Soutmeyer. He
Speaker 2: is the chief equity technical strategist for b of A Securities.
Speaker 2: If you enjoy this conversation, well check out any of
Speaker 2: the previous five hundred interviews we've done over the past
Speaker 2: nine years. You can find those at Apple Podcasts, Spotify, YouTube,
Speaker 2: wherever you find your favorite podcasts. Sign up from my
Speaker 2: daily reading list at ridolts dot com, follow me on
Speaker 2: Twitter at ridolts, follow all of the Bloomberg family of
Speaker 2: podcast on Twitter at podcast and be sure and check
Speaker 2: out my new podcast at the Money, coming January first
Speaker 2: on Apple Podcasts. I would be remiss if I did
Speaker 2: not thank the Cracked team that helps put these conversations
Speaker 2: together each week. Rich Subnati is my audio engineer at
Speaker 2: Tika Vlvron is our project manager. Anna Luke is my producer.
Speaker 2: Sean Russo is my researcher. I'm Barry Rittolts. You've been
Speaker 2: listening to Masters in Business on Bloomberg Radio.