Investor's Edge with Gary Kaltbaum - Week Ahead [12.02.2024 w Adam Sarhan]

Episode Date: December 2, 2024

https://garykaltbaum.com/

At CVS, it matters that we're not just in your community, but that we're part of it. It matters that we're here for you when you need us, day or night, and we want everyone to feel welcomed and rewarded. It matters that CVS is here to fill your prescriptions and here to fill your craving for a tasty and, yeah, healthy snack. At CBS, we're proud to serve your community because we believe where you get your medicine matters. So visit us at cvs.com or just come by our store. We can't wait to meet you. Store hours vary by location. Investor's Edge with Gary Cultbaum. Straight talk about you and your money. Now from the BizTalk Studios, here is Gary Cultbaum. And welcome once again to Investors Edge. I'm Adam Sarhan in for Gary

Kay, who's out today. Today is December 2nd, 2024. The year's almost over. We've got a great show for you Tonight, as always, I want to thank you very much for being here. A few housekeeping notes before we dive into the show. First off, Gary's mother passed away. I want to send all of our love and respect and condolences to Gary. It's a tough time when anyone passes, and it's very humbling. And before we go into the show or anything else, I just take a minute to be grateful for what we have. That's life.

Be grateful for all the blessings we have, because it's easy to go through a little. life and get caught up in the race, whatever the race is. The brain focuses on what we don't have. Oh, no, I want more. Enter whatever you want. More time, more money, more this, more that, whatever the case is. Gratitude, I've noticed in my own world is a superpower. And being consciously grateful for every breath I take and every moment I have this live and the impact I can make on others. on myself is a blessing. So focusing, you know, consciously focusing on the gratitude and really telling loved ones that you love them. It's not easy to do, especially men, I have a hard time doing that sometimes. Do it. Call the loved one. Say, hey, just want to let you know. I love you.

I'm grateful. Anything that you want to do, by all means, it's a, life is precious. I was in Cancun a few years ago with my family, if young kids, and it was 6 a.m. We're checking out of a hotel and had to go to the airport, tired, the kids are groggy, blah, blah, blah. Anyway, this was back when you checked out of hotels at a front desk. Now it's all online or whatever it is. But the guy behind me comes back and he was dripping sweat and he was in his shorts and his workout clothes and he came back from a run. So I'm curious. I'm like, what's this guy doing at 6 in the morning?

And he's at the front desk. I'm like, how are you? And he's like, Excellente. And that was a theme that staff was trained at the hotel to say, exeente, which means excellent in Spanish. But this guy's what looked like,

an American guy, turns out he was Canadian, and he spoke English. He didn't speak Spanish. But the joke, the whole weekend was Accente, excellente, exente, because anything you want, the staff would just reply,

Exente. So, ha, ha, ha, okay, great. What's your deal? I asked him nicely. So, so what are you doing? You know, blah, which turns out he's a doctor,

a surgeon from Toronto. And he was on a big, with his family. He was up in the morning. He told me, goes, every day above ground is the best day in my life with enthusiasm. And he was very loud and I can be much louder, but I want to, you know, throw people off right now. Six a.m. And this guy's next level. So he said, every day above ground is the best day in my life. I said, wow, that is so incredibly profoundly impactful. It's like, can I use that? He goes, yeah. So anytime anybody asks me, how are you? I always like to see. say, answer excellent or exeente, and say today, every day above grounds, you know, the greatest

day of my life. It's a blessing. And because he deals with death. I mean, he's a surgeon, right? People die while he's doing his day-to-day job. I mean, we buy stocks. Stocks don't go down. You're not dead.

You're a life. It's a gift. So this guy's dealing with death. And it's a really important to ground yourself and just bring you right back into the moment. the most important, most precious thing we have is right now. And then, right now. And then right now. Eternities is a series of never-ending right now's. It's a really good book. It's called The Power of Now written years ago by Eckhart Tolly. I'm not affiliated with him. No endorsements. It's just the book I read and I enjoy it. It's a slow read, but it's really profound. And in it, in a nutshell,

talks about the power of right now. That's it. It's all we have is right now. Let's end. I'm going to go ahead and do X, Y, Z in a week next Tuesday at 4 o'clock. All right. When that comes, it's going to be right now. It's not going to be next Tuesday at 4 o'clock anymore. It's going to be in that moment, right? Life is just that never-ending series of present moments. That's why they call it a present.

It's a gift. So anyway, take time, enjoy life, express gratitude, open up the world, your vibration, your frequency, your energy, any of that kind of stuff. it just, it feel, it's a much better way. I've tried the opposite. You know, I grew up in a pessimistic world, family, friends, everybody around me, negative, negative, negative. Uh-uh. Optimism, today's the best day in my life.

And guess what? The second half of that, tomorrow's going to be even better. On that note, just take a moment and just really, really get that gratitude out. All right. When I'm feeling down, I'm human, right? Ups down, sideways. is, you know, the ups. It's normal. Everybody. Just go right back to the present moment and the gratitude and just make a list and write it down or just say it over and over and over

again. All the things you're grateful for. Even being able to stand, being able to speak, being able to think, being able to walk. All right. So next housekeeping note. Let's see, this is a show about you and your money, all the fun points in between. Just as a reminder, if you don't get this show in your city, you can go to GaryK.com. Listen live or archive. We're live Monday through Friday, 6 to 7 p.m. Eastern. Also, GaryK.com. You can follow Gary on X, formerly known as Twitter by just pressing the button. You can subscribe to Gary's morning notes sent directly to your inbox for free. You can email Gary, ask about his money management services, or if you want his premium subscription service, you can join Convictionleaders.com.

That's Conviction Leaders with an S.com. There's a 30-day free trial for everybody that want to try it. I recommend it. It's very, very, you know, Good. Gary shares notes several times a day, does in-depth market webcasts, where he shares his thoughts about the market, lets people know what he's seeing in real time, and a whole lot more. All that's available at convictionleaders.com. All right, few notes from Gary about today. We're seeing a change of, let's see here. Let me read you exactly says, semi-s semiconductors, ticker symbol SMH may be coming out of their bearish slumber. I'll expand a lot more on later, but that's one note. Second note, mega cap tech getting somewhat of a bit again. Apple is

actually breaking out and moving above the highs of a four-month range, which is bullish for major indices because Apple's a big component of the indices. All right. So I have a term it's called the great mini rotation. And what it means, folks, is that the market tends to go higher, the major indices. But from time to time, there's areas underneath the surface that pause, leading areas. So, for example, the first half of this year, up until July, semiconductors, the SMH, were one of the strong, actually was the strongest group in the market. Semiconductors were on fire.

They did very, very well, and they were up over 40%, I think 43% year-to-date, somewhere in that range, if not more. So that was a huge move. Really, it started last November. And then what happened? They paused. That's the great mini rotation. So in the old days, there used to be something called the Great Rotation.

Money would flow out of bonds into stocks and vice versa. So I came up with this term, I think it was like 15, 16 years ago. I can't even remember now called the Great Mini Rotation where I'd see money flow out of one sector that's leading, like the semiconductors in July. They pause for a few months. They pull back for a few months. and then almost like a relay race where they pass the baton over to the next group and the next group shows up in this case were the financials. Look at the XLF.

Huge move. Breaks out, runs. Breaks out again, runs. Higher and higher and higher. Big banks, we had earnings season and then Trump wins the election. Boom, boom, boom. Super bullish action in the XLF. The KRE, the regional banks.

Remember, the first half of last year, they were. under a lot of pressure. Silicon Valley Bank failed and a few other banks also got in trouble, those regional ones. And then what happened? Boom. Takes off and goes while semiconductors are resting. Then the financials pause. And then another group shows up, the transportation stocks, the IYT. Financials are XLF, for those of you following at home. And the transportation stocks are IYT. Very good action. What happens there? Boom. You get a big point. pullback in semiconductors or in biotech or healthcare stocks. You know, healthcare is XLV. Biotech is XBI. And then all of a sudden, you see transports wake up and go or race higher or the next

group and then so on and so forth. And then after a while, the financials, which took the baton from the semiconductors, they need to pause and catch their breath. And then what happens? They pass the baton to the next group and then eventually gets passed back to the semiconductors. And then they wake up and they run while the other groups pause. And that's the great mini rotation. Meanwhile, the major indices continue to grind higher. I've seen this phenomenon play out again, folks, over and over and over again multiple times. Over multiple market cycles.

It's just the way the market works. And it's healthy because what it shows you is demand for equities or for stocks remain strong. And you see that rotation, it gives one area or two areas or three areas, you know, room to breathe. They pause. They digest. They consolidate. And then the next group shows up and runs. And race is higher. Until they get tired, they pause, they consolidate. And then the process repeats itself over and over and over again. And that's the great mini rotation. So we'll see if the semiconductors wake up and come out of their slumber. Up next, we've got a lot more to cover. I'm Adam Sarhan. This is the one and only Investors' Edge.

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422-5-5-9. That's 888-4-22-5-5-9. Investment Advisory Services offered through Colbomb Capital Management. Hello, hello. I'm Malcolm Gladwell, host of Smart Talks with IBM. I recently spoke with IBM's new director of research, Jake Mbata. We discussed his vision for the future of quantum computing. At IBM research, what we always do is answer what is the future of computer. whether it's coming up with new algorithms, coming up with better AI, coming up with quantum, or coming up with just how do different accelerators go together. It's our DNA to answer the question of what is the future. Isn't it a perfect problem for IBM because you kind of need to have a legacy of building stuff?

Yes. Building actual physical machines. Yeah, it's why I came to IBM. I wanted the experience, the culture of building, hard things that others have not done before. Where do you imagine we are in the timeline of this technology? There will come a point when it will mature. Right?

My cell phone is a mature technology at this point. How far are we from that point with Conton? By 2029, we'll build the first fault-tolerant quantum computer. That is one that can run a very, very large, large problem. To learn how IBM is building the future of computing, visit IBM.com slash quantum. Hi, I'm Dr. Jake Goodman, host of Beyond the Script, the podcast where I sit down with pharmacists to answer the health questions

you didn't even know you could ask at the pharmacy counter. In this episode, we are diving into gut health with CVS pharmacist, Victoria Motola, who explains why so many of us live with stomach issues we should not accept as normal. A lot of what I see is just like chronic bloating. chronic stomach aches. Like, I get a stomach ache every time that I eat. And it just becomes like a lifestyle where, oh, yeah, you know, I just have a stomach

ache every day. Or I'm constantly feeling like gassy. And all of those things are not something that generally, if you have a healthy gut, you should be living with. So that's when we deep dive. We deep dive into your medication. We deep dive into your OTC medication. And then at that point, we can probably identify something that we can change.

Hear the full conversation plus some fascinating. facts about how gut health affects so much more than just your stomach on Beyond the script, a podcast from CVS Pharmacy and IHeartRadio. Listen now wherever you get your podcasts. OnDec is built to back small businesses like yours. Whether you're buying equipment, expanding your team, or bridging cash flow gaps, OnDex loans up to $400,000 help make it happen fast. Rated A-plus by the Better Business Bureau and earning thousands of five-star trust pilot reviews, Deck delivers funding you can count on. Apply in minutes at on deck.com.

Depending on certain loan attributes, your business loan may be issued by OnDec or Celtic Bank. OnDec does not lend in North Dakota. All loans and amount subject to lender approval. It's time to switch on the integrator units and get the brain cells working. You're listening to. Hey, this promises to be fun. Investors Edge.

The last bastion of quality programming. With Gary Coltbaum. It doesn't get better than this. And welcome once again. Again, to Investors' Edge. This is the gratitude segment or the show of, not segment, the theme of the show today is gratitude. But let's go ahead and talk about the market. We're grateful to be able to talk about the market.

Grateful to be able to invest in the market. So, spoke about the great mini rotation. It's not a technical term. It's something I came up with. It's, you know, if you go talk to people about it, they're not going to be aware of it, most likely, unless if they read my book. but even then they're probably not, it's not front and center. So if they look at you not quite understanding what you're saying, hey, you've got an edge, hence to name the show, Investor's Edge, right?

That's the whole goal here is to give you as much of an edge as possible. So a few thoughts here. What we wanted to talk about the market. So when you look at groups waking up, that great mini rotation, right? Semiconductors are coming back to life here. The next thing is you always want to ask yourself, what's next? when placing trades or investments, you really want to look at risk versus reward. You know, keep it really simple.

One of my themes I like to keep things very, very simple. So, okay, if I buy now, where do I get out if I'm wrong? Remember the three most important questions, folks I always ask, is where do I enter, where do I exit, and how much do I risk if I'm wrong? Again, first question, where do I enter? It doesn't matter what it is. If I'm buying a piece of real estate, if I'm buying a stock, if I'm buying anything or selling, shorting anything. It's buying or selling.

That's all you can do. Go long and go short. But in this case, I'll just use go long as the example. Where do I enter? Number one. Where do I exit number two? And how much do I risk if I'm wrong? Why?

Because that is the most important, in my opinion, the most important thing, the framework structure that allows me to make decisions in real time. over and over and over again and have some kind of control over the risk side of the equation. You know, most people come into the market and talk about, oh, I'm going to go buy thousand shares of X, Y, Z. If it goes up a dollar, if it goes up a dollar, I'm going to make a thousand dollars or a million dollars or a million shares at $10 and it goes to $10. Scramble to export the calculator. Oh, I'll buy a new house. I'll buy a Porsche. I'll buy a Tesla. Whatever. The reward side of the equation. And most people don't beat the market. Hmm. Riddle me that, Batman. Why? The risk. Risk is not a subject that most people

like to discuss. Successful investors do. Successful traders do. But it's not the Kardashian-style headlines that people like. People like stuff that's simple. It's fun. Hey, how much money am I going to make if I buy X, Y, Z? Well, sure, let's figure it out. That's fun. That's exciting. That's, you know, it's attractive. But how much money could I potentially lose if I buy XYZ? Nobody wants to think about that, but it's so important. So important. Moly important, right? Why is it so important? Because most trades, if you're an active trader, don't work. And it's okay if you keep your loss as small. Where you get in trouble is when you let those losses get too big. and then they happen over and over and over again.

And then over time, you start dealing with big drawdowns. And the drawdown is simply your portfolio when it goes down from a high. Let's say I have $100,000 or $100,000 or a million, it doesn't matter. Just keep it easy. I have a dollar in my portfolio and it's up 20%. So now I've got $1.20, right? Or $120. It doesn't matter.

That's the beauty of money. It scales, right? This applies to any amount of zeros you want to put after. this. So you had $120 or $1.20 and now all of a sudden that's what's called a high watermark. All right. Get down the, you say you lose, I don't know, 10% of 120. So it's 12. Okay, great. Do the math. You now down to 108. All right. That's a drawdown from 120 to 108. But you started with 100. You're still above the initial amount, your inception value, but you have a little bit of a drawdown. Jardons happen to every investor I know experiences drawdowns.

Now what you do with those drawdowns, how you handle the drawdowns is really a superpower. Because most people get angry, they get upset, they get off, they get emotional, and then they start making more silly trades, and then what ends up happening? They get in trouble because the drawdowns get bigger and bigger and bigger. more importantly, they throw their rules out the window, and then you have a situation where, oh, no, I dug a hole too deep for myself. It's almost like you black out and trade and the next thing you know, you wake up, like, what just happened?

I've been there, not a good feeling. Key is to slow down, be aware of the drawdown. It's inevitable. It's going to happen. Befriend it. Respect risk. It's going to happen. You're going to have losing trades, folks.

It's just the way the market works. If somebody has 100% win ratio 100% of time, please call me. Let me know what you're doing. And it's legal and ethical. I'd love it. Outside of that, no interest. People have losing trades. It happens.

We have drawdowns. It happens. There's risk and there's a reward. It happens. Right? So these concepts of breakouts, these concepts, and then let me finish that drawdown section, a conversation, and I'll move to the next point. Let's say you have a nice run.

so you go down to 108, and now all of a sudden you have a few good trades or the market goes back up or whatever it is. Now you're back to 120, so the drawdown is officially over, and now you get all the way up to 130 or 140. And then you have another drawdown. And then it rinse, wash, repeat, so on and so forth. The key folks is to keep those drawdown small whenever possible. How do you do that? For each of their own. The way that I do it is by focusing on two things.

Number one is risk from entry. you know, I enter something, my capital is at risk. Okay, so if I buy a stock at 100, first question, I'm always asking, where do I enter, second one, what do I exit if I'm wrong? And third is how much I risk? So where's my exit if I'm wrong? Let's say at 100, I'll get out at 95. Okay, I'll risk 5% from entry to exit, not 5% of my portfolio, but 5% from my entry point

to my exit point. That's my second question. So my entry would be 100, first question answered. Second question would be exit at 95 or 93, 92, whatever, depending on the chart and the stock and all that kind of stuff. Great. Let's just say 5%. Great. Then the third question is how much I risk if I'm wrong. If I'm wrong and it goes down to 95, what happens to my portfolio? How much am I going to lose?

Half of 1%? 10 basis points? 1% of my portfolio. Whatever the number is, but calculated before I enter. And am I okay with that? being able to invest during bull markets which we're in now and sideways markets which inevitably happen and bare markets which inevitably happen also and understanding from a risk standpoint first it's really a superpower because if you can figure out oh hold on a second here let me keep the risk side of the equation small the reward side most of the time not always but most of the time takes care of itself because you can let the winners run. There's no magic rule. It has to be up

X percent or this, that, and the other thing. There's no way. I mean, I used to, in the old days, but I'm going to cap it. I'm going to be, if it goes up 20 percent, I'm going to sell it. And then it would double and triple and quadruple without me. Oh, man, those are some serious errors. So I've learned to just let those guys go. When they're running, let them run. And be patient with my winners and impatient with my losers. All right, hope all that helped. I'm Adam Sarhan. This is the one and only Edger's got a lot more to cover. Thank you very much for being here. Hello, hello. I'm Malcolm Gladwell, host of Smart Talks with IBM. I recently spoke with IBM's new director of research, Jake Gambata. We discussed his vision for the future of quantum computing.

At IBM research, what we always do is answer what is the future of computing, whether it's coming up with new algorithms, coming up with better AI, coming up with quantum, or coming up with just how do different accelerators go together? It's our DNA to answer the question of what is the future. Isn't it a perfect problem for IBM because you kind of need to have a legacy of building stuff? Yes. Building actual physical machines.

Yeah, it's why I came to IBM. I wanted the experience, the culture of building hard things that others have not done before. Where do you imagine we are in the timeline of this technology? There will come a point when it will mature. Right? Yeah. My cell phone is a mature technology at this point.

How far are we from that point with quantum? By 2029, we'll build the first fault-tolerant quantum computer. That is one that can run a very, very large, large problem. To learn how IBM is building the future of computing, visit IBM.com slash quantum. Hi, I'm Dr. J. Goodman, host of Beyond the Script, the podcast where I sit down with pharmacists to answer the health questions you didn't even know you could ask at the pharmacy counter. In this episode, we are diving into gut health with CVS pharmacist Victoria Motola, who explains why so many of us live with stomach issues we should not accept as normal.

A lot of what I see is just like chronic bloating, chronic stomach aches. Like I get a stomach ache every time that I eat. And it just becomes like a lifestyle where, oh, yeah, you know, I just, I have a stomach kick every day. Or I'm constantly feeling like gassy. And all of those things are not something that generally, if you have a healthy gut, you should be living with. So that's when we deep dive.

We deep dive into your medication. We deep dive into your OTC medication. And then at that point, we can probably identify something that we can change. Hear the full conversation, plus some fascinating facts about how gut health affects so much more than just your stomach on Beyond the Script, a podcast from CVS Pharmacy and IHeartRadio. Listen now wherever you get your podcasts. Cashflow Crunch. OnDak's small business line of credit gives your business immediate access to funds,

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And welcome once again to Investors Edge. In case you're just joining us or miss any part of the show, you can go to garyk.com. Rewind fast forward at your convenience 24-7 anytime you want. All right, a few more things. We spoke about a lot so far. Gratitude is super, super important. It's a super power for life, not just markets, but for life itself. That's number one.

Number two, spoke about markets, how to handle drawdowns, what are drawdowns. I spoke about the great mini rotation, how sectors can lead, they pause, new sector leads, pause, so on and so forth. I spoke about the fact that I like to look at risk first, defense first. You know, I have my own investment system. It's called AMP, A-M-P-D. The D is defense first. So it's really important that you focus on defense because some of the best, you know,

championships can't just be won by offense only, you know, in any sport or any performance-based business that I know of at least, for the most part, there's got to be an element of offense and defense. And in investing, risk is defense. but risk is a superpower when you learn how to use it, right? And learn that you're going to have drawdowns. It's inevitable. It's okay. Instead of being upset or angry when they happen, embrace them.

Okay, great. It's another one of those is what Ray Dalio talks about. This has happened before. It's going to happen again. Let's get used to it. Let's mitigate the risk. Let's keep those drawdowns as small as possible. Let's focus on the risk side of the equation.

What happens in my portfolio if I'm wrong? So on and so forth. All right. A few things this week to keep in mind. Friday. We've got the always fun jobs report. We have earnings. Z-scaler reported earnings after the bell today, ticker symbol ZS. They're down over 8% as I speak now. That could change by tomorrow. But focusing on earnings, I'm going to speak about that for a minute here because we have more earnings coming out this week and they're slowing down over the next few weeks because typically you see

earnings heavy at the beginning of the quarter and then middle of the quarter it slows down towards the end of the quarter, it kind of just dries up a little bit. But let's go ahead and go there. Earnings. So stocks report earnings once a quarter, right? Four times a year. And when you have earnings, there's a few things I look at because I get this question a lot. What do you do during earnings season, you know, blah, blah, blah, blah, blah. The most important thing I'm looking for is the reaction to earnings. You know, Tuesday, tomorrow, we have Salesforce.com reporting earnings. We have Octa reporting earnings. We have Marvell, MRVL reporting earnings. We have Box,

B-O-X reporting earnings. You know, throughout the week, we've got earnings coming out. More and more companies are reporting earnings. Chewy reports the next day, footlock reports, dollar tree, you know, so on and so forth. Pretty much every day we've got earnings coming out this week, except I don't think Friday's got much of maybe one or two things.

That's more retailers later this week, five below, American Eagle Outfitters, you know, so on and so forth. So let's go ahead and talk about earnings for a little bit. I'm looking for the reaction. To me, that's the most important thing. Why? Because it tells me what the big investors

are doing with their money. Not what they're saying they're going to do. It's what they actually do. Notice the difference there. I can go out there and say, oh yeah, I'm really bearish on XYZ or I'm really bullish on XYZ.

Guess what? What am I doing? I want to lose weight. I want to have a six-pack. Meanwhile, I'm eating cookies and I'm not doing. doing setups. Raise your hand if that's also you. It's not just me. Do I really want the six-pack? Yeah, I want the six-pack. But look at my actions. They say otherwise. Same with investors.

It's humans. People are people or people, right? I'm not interested if a big investor comes on TV or goes and publishes on X or Twitter or whatever and says, oh yeah, I'm bullish on L-MN-O-P. What I am interested in is price and volume. That shows me what the big investors are doing. Z-scaler, ticker symbol ZS, I do not not have a position, gap down over 8% after reporting earnings, the reaction is not good. Meaning, it's down, not up. You know, good reaction to be up, that allows your reaction to be down. Okay, great. The second thing I'm looking for, the actual numbers. I want to see this quarter that just ended, the third quarter that's over, right, ended the end of September. What were those numbers compared to the same period last year? Let's say a company earns a dollar in this third quarter of 2024. What did they earn in the third quarter of 2023? 70 cents? Great. That's a big

jump on a percent basis. From 70 cents to a dollar. They earned a dollar this quarter, but last year they earned $2 in the same quarter. Not good. No bueno. But if the stock gaps up because they raise guidance, which is the third thing. The next thing I look for is their guidance. The The reaction trumps everything else. Remember, the reaction, folks, it tells you what big investors are doing with their money. And that is so important. Next thing I look for the actual numbers versus consensus. So I want to see the reaction to the numbers.

That's the most important thing by far. I want to see the actual numbers compared to the same period last year. So I'm not going to compare fourth quarter to the first quarter. not a good comparison. Third quarter to fourth quarter, not a good comparison. Third quarter to third quarter, year over year? Yeah, that's good. Because what they do last, because, you know, holiday season, black Friday. People, you know, retailers have a lot stronger numbers in Q4 than doing Q1 or in Q1 or in Q any other quarter. So, okay, compare the same quarter, same apples to apples, right? And I want growth. Doesn't have to, but I'd like growth. I'm a growth

investor. I like growth. Next, guidance. If the company's bearish on and they lower guidance, why would investors be bullish? Now, there's a caveat here. Sometimes investors, CEOs play a game here, not maliciously, but they lower guidance. They beat and they lower guidance. But they beat again. They lower guidance because they want to lower expectations. they have a lower bar to beat the next time around. Think about that. You're the CEO of a company. Apple did this for years.

Other companies do this for years. They have very strong number, quarter after quarter after quarter. But if they keep beating and raising, beating and raising, beating and raising, the analysts get too excited. They just have astronomically high expectations. They come out with strong numbers,

but they miss estimates because the estimates are so high, the bar is way too high. The CEO stuck. So lots of times you see companies that have super strong growth, they beat and they lower guidance. That's okay in my world because the numbers speak louder than words, right? The numbers are so strong. And I know what they're doing. It's an expectation game. It's kind of like I tell you, hey, go watch this movie. It's the greatest movie in the world. And you watch it, it's good. It's not great. You're disappointed. Didn't beat

your expectations, right? What's the definition of happiness? It's a formula. Real simple. The event occurs, external event, compare it to your expectations. If it's above your expectations, more or less you're happy. If it's below it, you're not happy. You know, best way of explain that is rain. Rain itself is neutral. Okay. If you're trying to sunbathe and you're going on expensive vacation in the Caribbean and it rains every day, you're not happy because you're expecting sun. If there's a huge drought and you need water and it rains, you're super happy. Again, it's the event versus expectation. So lots of times CEOs lower expectations on purpose. But if it's a lousy quarter and they lower

guidance, no good. So notice a difference there. And then of course, I want to see what the numbers are compared to the estimates and revenue earnings. You know, do they beat the numbers, so on and so forth. And some of the biggest winners come from stocks that explode higher during earnings. They report earnings. They gap up. Look at William Sonoma, WSM, for example. Gaps up, sets tight for a few days and now it's getting ready to break out again. Now it hasn't broken out. It can easily race and go higher. Now the odds of this stock going higher after a huge gap up before they report their next earnings, it's pretty high. Doesn't mean it has to, by the way. That's a really important caveat too. Sometimes they gap up on earnings and they roll right over. But that's a nice setup.

WSM is a ticker there. You know, if you look at something like Best Buy, BBI is a ticker there. They reported earnings back. I'm going to go back to August. On August 29th, the explosive gap, up 14% in one day, closed just near 100, 118, hit a high of 103 that day. Now it's at 90. So you had an explosive gap in August on earnings and it drifted lower, drifted lower, drifted lower since then. Went all the way down to the $85 or just below $85, hit the 200-day moving average. It hit 83. 81 and now it's back to 90 and they reported earnings just a few days ago and earnings didn't really impress stock still gapped up and then it fell the next day and gap down so just because the stock gaps up doesn't mean it has to keep going up but if you have a big breakaway gap lots of times it paves away for higher prices going forward okay that's good with earnings like it's really important we're in the end of earning season so it's Not going to be heavy earnings, but keep that in mind as you go through stocks and you look for reactions to the numbers.

Because those reactions show you what the big investors are doing with their money, not what they're saying. Okay. Next, a few more things. Let's talk about, okay, hold on, before I go to the next point. Let me make sure I'm clear with these earnings because the earnings are really, really important. and you can have a bad reaction and it rallies right back up. So again, in the moment, the now, it's just a matter of probabilities, folks. It's all we're trying to do. Up next, we've got a lot more to cover.

I'm Adam Sarnan. This is the one and only Investors' Edge. Hello, hello. I'm Malcolm Gladwell, host of Smart Talks with IBM. I recently spoke with IBM's new director of research, Jake Gambata. We discussed his vision for the future of quantum computing. At IBM research, what we all... always do is answer what is the future of computing, whether it's coming up with new algorithms,

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You're listening to. What are we waiting for? Well, what are you waiting for? One, two, ready, go. Investors Edge. With Gary Culpa. And welcome once again to Investors Edge. In case you're just joining us or missed any part of the show, you can go to garyk.com

or wind fast forward, listen at your convenience anytime you want 24-7 for free, all on garyk.com. If you heard some scratching over the last few minutes, we apologize. I spoke with our team and hopefully the issue is resolved. If not, then hopefully we'll fix it. It's a technical difficulty. It's nothing that we're doing. So again, thank you for your patience. All right.

We spoke about a lot of. so far. Again, if you missed any part of the show, you go to garyk.com, rewind, fast forward at your convenience 24-7, any device all for free. Finally, in closing, I want to give you a week ahead some of the things that I'm looking for this week. Now, we have some earnings coming out, Z-scaler today, Salesforce, and a few other stocks that are coming out to earnings reactions. Monday, today, we had the ISM manufacturing to PMI data tomorrow. We've got the Jolt's job openings for October. Wednesday, we have the ADP. non-farm private employers report. Wednesday, also we have Fed Chair Powell speaks. See how the market

reacts to that. Thursday, we have the initial jobless claims data. Friday, we have the November jobs report. Remember the first Friday of every month, folks, we have the jobs report. And it tends to be an important metric. It does move markets. It's the first data point of the month, for the most part, like the big data point. Obviously, there's other data points that just came out I just mentioned a minute or two ago. But the big data points that the market focuses on, you've got the jobs report, you've got inflation, CPI, PPI,

that come out after the jobs report. And those are the two big ones right now, oh, sorry, the three big ones right now that the market's really focused on. Because if inflation begins a tick higher, what happens? The Fed might have their back against the wall, and they might have to either not cut or raise rates to combat inflation.

Remember, public enemy number one is inflation. The economy's strong. We know the economy's adding jobs. Trump's coming in in January. He's got pro-growth policy. That should help the economy. Okay. So jobs aren't really that big of a concern just yet.

Now, if we start seeing big revisions down, or if the jobs report comes in and it's a big expectation breaker, and we see the economy lose a few hundred thousand jobs, that will completely change the dynamic. But as of right now, the jobs report, the jobs environment has been strong or decent. Let's put it that way. The bigger concern is inflation.

Inflation's a massive problem because if inflation increases, the Fed has to either stop cutting rates or raise rates. So we'll see how that dynamic is. plays out. For now, inflation's been coming down, and that's a good sign. Meaning, you haven't had the Fed come in and have to raise rates. In fact, they've been cutting rates. They did 50 basis point, another 25. They're in the cutting the easy money phase. Markets like easy money. That's been a bullish tailwind for stocks, the Fed, right?

There's some contention between Trump and Powell. We'll see what happens there. I'm not expecting any major change until the data changes. Right? It's as advertised. We know Trump wants lower rates. We know Powell and Trump might clash. Okay. More importantly, let's see what inflation does. Because if inflation starts increasing, that can change the dynamic and change the Fed's stance. Go from cutting rates to either not cutting rates or raising rates. You know, it's either quantitative easing or quantitative tightening. QE or QT.

Tightening for the most part isn't really bullish for stocks. We saw what happened in 2022. The market fell while the Fed was tightening. Then the Fed said, hey, we're going to stop tightening in November of 23. And the market took off. And then I said, oh yeah, we're going to actually

cut in December of 23. He said, yeah, in 24, we're going to cut. And then what happened? Market took off. So the Fed's one of the elephants in the room, right? Government spending, fiscal policy, monetary policy, these things are big for stocks, but we'll see what happens with inflation. If inflation begins to tick higher, that could be a concern. Just leave it at that. For now, we're looking for high

setups. We're looking for stocks that are leading, outperforming their peers. They've earned the right to be number one or number two, number three, number four, number five, the top quartile, let's put it that way. They've outperformed their peers, they've out-performing the market, that's called strong relative strength, and they're setting up in a favorable risk to reward relationship. They're pulling into the 50-day moving average. They're bouncing off of a trend line. They're about to break out above resistance like Apple did today,

or NVIDIA was near the 50 just recently, or, or, or, right? We're looking for clues. Low-risk, entry points, where if we're wrong, we're out small, and then high reward potential high reward when it works if it does work we can have a nice run and then do it again and again and again and again and the formula is real simple when you're wrong be wrong small when you're right try to be right as big as possible be patient with your winners and that folks is a really really important superpower so a few more thoughts in closing number one the idea of fomo fear of missing out is very powerful in the market very very very

powerful. I missed the stock. It went away without me. It's up so much. I'm going to chase it and buy it extended. In other words, let's say it's trading six months near 100 to 95. Every time it gets 100, it falls 95, goes back towards 100. And then one day it breaks out above 100. That's a breakout. A hundred to be resistance in that example. Support would be 95. Okay, great. Now it breaks out and then it runs up to 105, 110. And I look at it every day. 102, 103, every day just goes higher, higher, higher, higher. Now all of a sudden I can't take it anymore, and I buy it at 110. But what happens? After every green light, you get a red light.

And after every red light, you get a green light. What's a green light in the market? Stock goes up. Red light, stock goes down. FOMO is chasing it and buying it all the way up there at 110. Like Gary says, in the trees. Don't want to do that. Why? Because where's the exit point? 100? That's 10% below your entry. That's a lot. Remember, keep the losses small. So keep all this in mind.

I hope this is helpful for you. Again, trying to give you a timeless advice here you can use because I'm not here on here often. Most importantly, as always, do what Gary says. Hug the children. Enjoy the present moment. Love. Share your love. Have that gratitude off the charts.

I'm very grateful to be here. Gary, I believe we'll be back tomorrow. Thank you, everybody. This is the one and only Investor's Edge. This has been Investors Edge with Gary Cultbaum on BizTalk. To listen to past episodes or to get in contact with Gary, go to GaryK.com. That's GaryK.com. Success starts with your drive, and American Public University is here to fuel it.

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