The Compound and Friends - Wait 'Til The VIX Spikes

Episode Date: September 30, 2022

On episode 64 of The Compound and Friends, Katie Stockton joins Michael Batnick and Downtown Josh Brown to discuss bear markets, separating the signal from the noise, the VIX, technicals vs fundamentals, and much more! Thanks to our friends at Groundfloor for sponsoring this episode. Groundfloor is an award-winning wealth-tech platform offering high-yield, short-term, real estate debt investments directly to the general public. Learn more at: https://groundfloor.us/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/disclosures/ Inclusion of advertisements by podcast sponsors does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Josh and I get nautical on our jet skis, which speaking of, when are you taking yours out of the water? Are you going out again? It's out? Oh, that's too bad. The water temp's still okay, right? I almost went yesterday, but I didn't have time. You can still go. I find it to be a huge distraction this time of year. I'm just too busy, and I feel guilty every day that I know it's sitting at the marina, and it's a beautiful day out, it's 80 degrees the marina and I like, it's a beautiful day out. It's 80 degrees.

Why aren't I? So I closed the pool. You do. And I put the jet ski away and I'm just, that's it. That's, yeah. I get it. I totally get it. I got one more. What's your last one?

Is that the maiden voyage? No, it's your first one. Wait, what? What's your last voyage? Is it your bond voyage? The maiden voyage is the first one, isn't it? The bond voyage. Bone voyage. The final voyage, the first one, isn't it? The bond voyage. Bone voyage.

The final voyage, I guess. Good trip. I don't know. Yeah, what is the final voyage? I don't know. The final voyage is when they fire arrows, flaming arrows into the sky and it hits your vessel. What is the final voyage called? I'm asking Google.

There is none. It's my swan song. The final voyage? There is not. It's my swan song. Final voyage. So the San Francisco Bay is like rough. That's not like the Long Island Sound at all.

It's really rough. And here's the thing. These boats, because they're like really paying attention to the weight and everything, they wouldn't have motors. So these guys have to be good enough not only to like get out there to the race course on time without a motor. To get home. To get home. And there's like a narrow channel that they have to come in through to get into it's called the saint francis and it's like the the channel is bordered by like this massive stone wall and then like a bunch of other expensive boats so like you're tacking up this like narrow channel it's pretty intense um like somebody gives you directions and they're like, if you see Alcatraz, you've gone too far.

Yeah, what do we do with that? Yeah, it's true. Put it on the wall. Can we put it on those probably? All right, so we use the headphones because you're going to hear yourself in them. And you're going to know if you're too close or far from the mic or if you're talking too well. Oh, I'll hear myself. It won't be like an echo though.

No, it's great. Okay. No, it's great. It might feel weird for a second. Yeah. But it gives you a sense of, oh, I'm talking too close talking too low. I'll hear myself. It won't be like an echo, though. No, it's great. Okay. No, it's great. It might feel weird for a second. Yeah. But it gives you a sense of, oh, I'm talking too close or too far. Yeah, stop that. I have to make sure everything's working.

Surely you're aware of that. Mike, give me a market check. Surely you can't be serious. We are on the lows. New lows. Well, yeah, we're there. Is it new lows for the year? Well, if it's new, we're there. Is it new lows for the year? Well, if it's new lows for the day, it's new lows for the year.

Actually, that's not true. But all of yesterday's gains are gone. Where is the S&P? 36.14. Oh, wow. Yeah. Oh, wow. Yeah.

We closed yesterday at 37.18-ish. So, a bit of a head fake. So, this is like the real, like this is active. Yeah, you're on what's called the hot mic. Okay. So, all right. How are we doing on time? We need another minute.

Another minute? Another minute. I mean a couple minutes. Unbelievable. It took a few minutes. All right. Let me bang out a few trades real quick then. Are you putting on some hedging wands or taking them off?

No, I would take them off right here. So, Josh, while we're waiting for Duncan to get ready, I love you, Duncan. Look at this year-over-year change in global

app store revenue on Apple. What is it? How is that possible? Oh, my goodness. Global app store revenue. This is from, my goodness. Global App Store. This is from Bank of America. Global App Store revenue declined 5% year-over-year in September.

What is that? Less internet usage? Why would App Store revenue decline? Recession? Maybe post-COVID people are going out more. Wait, did their cut decline? Their 30% rake? No.

There's an advertising slowdown. Yeah. And a lot of the revenue into the App Store is coming from Facebook and Google Apps. And there's like a meaningful slowdown in advertising spend. I could only imagine. I could only guess that that's where it would be coming from. Where's Apple right now? It's curved.

Bad. It's going to be bad. Down bad. Remember- 6% is a big- Is it down to 6? And 141 was- Oof.

Eef oof. Remember like two weeks ago we were saying King Apple relative to the S&P? Yeah, it says 141. Apple relative to the S&P hit all-time highs like two weeks ago. It did, but it pulled back off the August high. So mid-August to whatever, a couple weeks later. So it showed signs of exhibiting downside leadership. Not good.

Now, they shouldn't have done this during the week that Buffett is in Cancun. Because I feel like he would be supporting the stock right now. I don't think he has be supporting the stock right now. I don't think he has Wi-Fi where he is. So JC says triple tops aren't a thing. I don't know what you would call this. What do you think? Is that a triple top or do you not believe in those or is that just – I'm not a big believer.

That would be like too extended for it because it requires like the sort of M-ish pattern and then a support level that's broken. So it doesn't really have that. Sorry. That's okay. No, I was looking for non-confirmation no obviously that's obviously a resistance level though yeah 177 doesn't have to be a triple top is that apple that's apple okay yeah down uh shit down six today this might be it's worth where's today decline in a while is that going back to the june we're not at the june low though no No. It was like 133. No, it's like 130-something.

Yeah, that's right. And then there's a big Fibonacci retracement level, 127-ish. Let's see this. That's bad. Yeah, it's not good. So I put it, I don't know if you saw this morning's note, but I put some risk metrics in there, and this was like kind of one of them. Yes.

What do you call that note? The head start or something? The starting line. The starting line. I don't know if you saw this morning's reference, like the starting line at the race. I love it. I've got to. Yeah.

Are we about to get nautical right here on this podcast? Do it. I think it's a thing that could happen. So are you in Manhattan a lot now? Not too much. Just when you have meetings or conferences. Yeah, it's like, right, because I don't really have a home base here, so I find myself, like, floating around to hotel lobbies.

Yeah. I might try to be in town more, but my husband's in town three days a week, so, you know, meet him for dinner and stuff too. Yeah, it's always good. I kind of like coming back. Yeah. I did two days this week. You did?

Baby steps. So your office seems pretty full. Yeah. Well, you know what? We have a lot of young people and they don't want to sit in their apartment. Mm-hmm. And you wouldn't either. No, of course not.

You have like a studio apartment with the bed in the background too. Think back to your early 20s. Imagine whatever that – I don't know if you lived in where'd you live san francisco or here san fran so imagine your apartment in your early 20s would you want to sit there five days a week now no way no way it's a good point yeah yeah so they you know we have 5 000 square feet we have air conditioning yeah their colleagues are here good lighting good yeah good spot next to the park yeah we have chipotle next door. Like, what else?

So NASDAQ is about to make a year today at Lowe's. Can't even bounce for more than a day. It's a bear market. It's what it is. All right, coming in with three claps. All right, let's do this. Let's do this. What episode number?

64. Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's absolutely phenomenal, outstanding, in my humble opinion, episode of The Compound and Friends is brought to you by GroundFloor.

Duncan, here's who they are. GroundFloor is an award-winning wealth tech platform offering high-yield, short-term real estate debt investments directly to the general public. And when I say directly to the general public, I'm talking about almost 200,000 users with over $800 million invested on the platform to date. If you want to learn more, where do they go, Duncan? Groundfloor.us. Groundfloor.us.

Compounded Friends, episode number 64. Thank you, John. Katie, I wrote this awesome introduction for you. And by when I say I wrote it, I mean someone wrote it for me, but I'm going to read it. Katie is the founder and managing partner of Fairlead Strategies, an independent research. You're nodding. I could do it. Trust me, I got an independent research firm and advisor focused on technical analysis.

Analysis. Prior to forming Fairlead Strategies, Katie spent more than 20 years on Wall Street providing technical research and advice to institutional investors. Welcome to the show, Katie. Thanks for coming by. Thanks. Yeah, good to be with you guys. You excited to be here? Of course I am. I forget where I first started to either watch you or read you. What firms did you work at prior to Fairlead? Oh, gosh. Yeah, where would I start with that? You know, I started my career in San Francisco, and I worked for a buy-side firm. Do you guys remember Wall Street Week?

Yeah. Louis Rukeyser Show. There was one of the elves, was Frank Cappiello. Okay. So I picked up a job. My first job out of college was under him. The elves were like his regulars. Yeah, his regulars.

Like our JC Peretz. Like Gail Dudak, if you remember. Yeah, yeah, yeah. You got it. Got it. And so that was my first job. And I sat in this big office hand charting point figures. I know.

Because that's what it was back then. That's what it was. I didn't even have email. You had graph paper. That's right. And honestly, there's no better way to stay close to the market, right? And yet, here we are with it. You know who says that too?

Louise Yamada always says, I still do my charts by hand. I think for that reason. way to stay close to the market right um and yet here we are with you know who says that too louise yamada always says i still do my charts by hand i think for that reason so because it like forces you to really focus on what you're putting on the graph the day-to-day right just knowing you get that close to it um today of course that's gonna be a little rough for those hand charters but yeah yeah um so okay so that was your first exposure to technical analysis by virtue of who you worked for. But you stayed with it. Yeah. And not everybody that starts in a discipline on Wall Street continues with it.

So there was obviously some element to TA that really resonated with you. Yeah. And, you know, honestly, it started before I got to that shop. It was actually in college. I had an internship, and I went to, it was at an advisory firm. They had on their desk the point and figure charts, and they were from Dorsey Wright. Do you guys know Tom Dorsey?

Big personality in our small industry. And he just was the best mentor for me. So I worked for him in college for a couple of years. So they got you early, yeah, I was on the track. I was already into, you know, I was sort of a math nerd. I was into finance. So I was already into markets. And I guess the way I think about the world was more sort of left brain. And it really resonated with me. And that was just my path established very early on. And I'd say the formative parts of my career were on the sell side. I worked for Morgan Stanley when I first moved back to New York City

under Rick Benson. He taught me a lot of the methodology that I use today. Worked for MKM Partners for nine years and BTIG most recently for four years. How would you describe your style of technical analysis? Are you patterned? Is this supply-demand? Like, what is it? I would say primarily top-down and oriented to indicators. So it's all about the indicators to me

because I think that's where we can get that sort of mathematical takeaway. Is it a buy signal? Is it a sell signal? It's binary in a way. And it takes out some of the guesswork. And that's what I ultimately. So top down, meaning like market level, index level first, and then what are the sectors doing? And then what are the stocks doing? That's right. Because I believe in this, this year is a great example that the top down influences are so strong. And if you've got that wrong, like you're pretty much wrong. And like 70%

of the stocks that you're owning. All you need to know is dollar and rates, right? Like that type of thing. Well, nowadays, yeah. The macro picture is so key. Like to your point, yes, you could look at 300 stocks a week if you want to. But I don't want to say cheat code, but if you understand that the market is in a very well-defined downtrend, you will probably get less excited by any of the charts that stick out among those 300 because you already know you're fighting upstream. Yeah, completely. And I mean, we still do the

bottom up work. We still look at a lot of charts, hoping, I think, to see something different than what we're getting from the major indices. But in a bear market cycle, it's like everything is going down. I mean, there's no stone or no stock left unturned by it. So, you know, we really defer to the S&P 500. We also start long-term and then kind of drill into the closer timeframes. Long-term is going to set the tone. When you look at the intermediate term gauges, you'll give them more weight one way or the other, depending on the long-term setup, right? So we know that we're in a downtrend with negative long-term momentum. Well, then when we look at a MACD buy signal or some kind of buy signal on a weekly chart, we're going to be less likely to believe it, right?

It's, you know, breeds more skepticism around certain signals. Right, everything is suspect as opposed to everything is confirming like bullishness. Yeah, yeah. Okay. Everything is confirming like bullishness. Yeah. Yeah. Okay.

So you, my analog for what's going on right now, and this might be like availability bias because you know what I've personally lived through, but when we were in 2021, I was saying this is 1999. I really feel like this year, 22 reminds me so much of like my formative experience from 2000, 2001. This doesn't remind me at all of 08. Like it, I'm sure there's some elements that are common, but I'm not even saying technically, but just like the nature of the types of stocks that are getting hit the most, the fact that it started with the most speculative stocks for a year before it started to hit like everything. Like all of those elements remind me so much of the 2000 bear market.

But you've probably looked at this a little bit more closely technically. Like, does that idea resonate with you? Yeah, for sure. I mean, they are different in the way that I think duration is going to be an impact. From that environment, it was, you knowand-a-half-year bear market. Unfortunately, that's the takeaway in a way. I agree. It's like the character of where the bear market cycle has been finding its downside leadership on those higher growth names like the ARKK type names.

That feels the same to me. Those broke 18 months ago. John, can you throw this chart up? So I made this today, Katie. It's almost hard to believe, the down 80% club. So we're looking at, I'll just go through it real quick. Square, SoFi, BuzzFeed, DocuSign, Coinbase, Shopify, Unity, Twilio, Zillow, Robinhood, Zoom, Roku, Allbirds, Wayfair, Teladoc, Opendoor, Peloton, Stitch Fix, and Bird.

These are all down 80%. And you look at the chart and you're like, okay, Teladoc's down 91, Peloton's down 96. Same thing. What's the difference? No, no, no. For a company to fall 91% and then go down to 96%— He's wearing penny stocks, by the way. No.

He's a multi-billion dollar— Peloton was a $49 billion market cap. It's now two. But the difference between down 91 and down 96 is another 55% decline. It's a good point, right? So like these are – I mean it's massive. It's unbelievable. So to the point of like this being similar to the dot-com bust in that respect.

Yeah, because – right. So like in the dot-com bust, you had companies that people were calling blue-chip B2B internet companies. Shopify was. It's down – it's 16 cents on the dollar. We were looking at – I don't think they were $50 billion market caps then. I think maybe they were 20 or 30, but that was huge at the time. And we were referring to companies that had come public in 1998 as blue-chip purely because they were so big and well-known.

But those stocks would be down like 80%, 90% like these. Yeah, it felt like it was more about the branding than anything else, and they rode this parabolic uptrend. The hard part about that bear market cycle was how, I guess, abruptly it started or how quickly the bull market cycle ended. It was like an inverted V.

Do you feel that this was much different, though? Yeah, a little bit on that side of it, just in that we actually had our longer-term momentum gauges go roll over in October of last year. And that wasn't really the beginning yet. It was more we moved to a neutral long-term bias. We moved bearish in January. But you had more time.

That was the top. We had more time. Let me answer this. So JC, we joke around, in January. But you had more time. That was the top. We had more time. Yeah. Okay, let me ask you this. So JC, we joke around, but he gives me a hard time saying that the market peaked in February 21. And maybe we're like talking past each other. Yes, enthusiasm.

All of these arc names peaked in 2021. When do you think the bear market, when do you think the market peaked? I think it was October. So I think it was late last year. I mean, obviously some segments topped well before that. And those segments probably are into a basing phase already. And yet you showed the risk exactly of buying into that weakness. I mean, a basing phase is usually a drawn out process. We saw this at the end of the 2000 bear market. And the retest can be super nasty.

We're seeing it now. Yeah, cutting out the lows. Yeah, we're seeing it now, as we speak. By the way, Shopify went from $212 billion down to $33. It's just wild. Right, and this is the problem about looking for value in these names because we just want to wait for it, wait for the market to be ready to embrace them again. There were five major bounces in that 2000 to 2002 bear market.

There were five episodes where stocks bounced more than 10%. And I think one or two of them were 21%. 20, 25. Right. So what's so difficult about that and what I worry about in this version, we really had three bear markets then. They were all like one after the other. But if you think about like you had the initial bear market where the dot-coms got killed, the Berkshire Hathaway-esque stocks were really fine during that. But then all of a sudden you had the corporate scandals, which was Enron, WorldCom. Those were two of the biggest companies in the market. And so that was another leg down. And then you had 9-11.

So you had really three bear markets. So these are the bounces that you're talking about. So on top, those are the bounces from the lows. That was savage. So the S&P fell almost 50. Here we go. I'm sorry. It's on the biggest screen now. The S&P fell almost 50% in the dot-com bubble. It was worse for the NASDAQ, obviously. But the S&P alone saw a 19, a 21, and another 21 on the way to all new fresh lows. And we already had one of those with the summertime relief rally. We just had a 21% retracement. It doesn't feel like it, though.

No, that was in there. But people said you've never seen a bear market rally retrace more than 50% of the losses and then make new lows. Another unprecedented thing, right? Yeah. But this is the concern now. So that was three bear markets. It was really one after another after another. So you couldn't recover.

You were almost about to recover from Enron WorldCom shock, and then the planes are hitting the bill. Right. Okay. So the concern now is, all right, we just had an inflation-driven bear market and completely reasonable, we should have. We had a combination of overvalued stocks and 0% monetary policy that very quickly went to 4%. The bear market makes sense.

Even if there were a recovery here, then it's like, all right, well, what's the next bear market? It's either this maniac in Russia does something, China does something, or S&P earnings start to get ratcheted down substantially. Like you could almost have a bear market after a bear market. So like that, I think, is why there's still so much volatility, even if rates are kind of like. And it's impossible to know what the next trigger would be. But I think when you see names like Apple crack, right? And Apple was the first go-to for the retail investor for safety, right?

So when you take away that perceived safety from the market, that in and of itself exacerbates the psychology that drives the next bear market. And it's 7.5% of the market, of the S&P. Yeah, that doesn't help you. The nowhere to hide thing. The nowhere to hide. If you can't rely on Apple, Apple is like an aircraft carrier. So it's like you could sink some of my rowboats.

I understand that. And you know what's making new 52-week lows right now? Staples. I know. And, you know, we showed that a couple weeks ago. Staples and healthcare were breaking down. So what the hell? And so, right, so what are we left with in terms of long-term uptrends?

There just aren't really any— The dollar. And rates. And so not really a lot of people are willing to invest that way. So it really does leave us kind of thinking about the buy and hold strategy, right? I know a lot of advisors feel that markets are cyclical and you just kind of set it and forget it and it will come back. I agree. I think it'll come back. I think we're still actually in a secular bull trend going back to the 09 low. Do you think that's intact?

I do. Yeah. And I think, you know, 3,200 though, between here and there is very reasonable. You know, 3,200, though, between here and there is very reasonable. And, you know— Would you change your mind? Would you say the secular bull is dead below 3,200 on the S&P? You know, it depends on the timeframe over which that happens because there's some support levels and trend lines that we're watching to that end. But hopefully we'd have an indication that the cyclical bear is turning into a secular bull before that actually happens. But we'll be kind of just rolling with it. We want to stay on the right side of the prevailing trend.

And I think as it pertains to the buy and hold strategy, if you can just limit your drawdowns and remove, I mean, it's hard to be completely out of the market. And at a younger age, you don't want to be that. But to reduce your exposure to some degree, it just sets you at a higher bench for when you come out of this, right? So I really think this kind of environment is a testament to why market timing is so important. I know it used to have a bit of a bad reputation. But why wouldn't you? We agree with that. Actually, one of the premises behind the way that we founded the firm was that we actually don't think somebody with eight figures in the market should sit there fully invested no matter what happens.

Like that's not – you can't have a meeting with a high net worth investor who's retired. And say, don't worry, the market always comes back. And say, don't worry, it'll come back. You could say that to a 40-year-old. Well, it's true, but it's tough. I mean, yeah, they do come back, but how long are you willing to wait? And how much pain are you willing to endure along the way? It could be 11 years. Who knows?

And what if you didn't have to endure all of that pain? Yeah, there just has to be an answer for how do you manage risk? We do that with technicals as well, probably not the same way that you might do it, but like we, like very early on, we realized like you could take

economic data, you could take sentiment, you could take earnings, you could like take valuation, you could take all these things, or you could almost outsource that to the millions of investors who are buying and selling on all of those things and just take price. Yeah. And in the end, when you answer to clients, you're answering to them about price. So price is the signal that we use. I think we're all comparing ourselves to the S&P 500 when we get those statements. And so right or wrong, like it or not, that's what's happening.

So that's why we use, right. So we don't, on the way up, you're worried about S&P 500 FOMO. Like the client is not long enough. If they're out of the market, they're looking at the – on the way down, it's the same thing. It's like, oh my god, the S&P is crashing. Am I okay? So we use S&P as like the primary price signal that we're looking at. But like I just – I feel very strongly that all things being equal, you should do very little.

So if you are going to be tactical, your tactical model should not force you into doing trades all the time. Yeah, I agree. So then we're talking about – It's a longer-term approach. Right. So then we're talking about like triggers that aren't overly sensitive but sensitive enough, timeframes that are relevant to a wealth management client versus a hedge fund. Yeah, that I understand. So there are five names in the S&P 500 that are within 5% of their 52-week high.

How many? Five. Oh, my God. Five. And Citrix. Do they all make cheese and crackers? It's Citrix, General Mills, Humanity, Eli Lilly, and Nielsen Holdings. There are 187 stocks that are within 5% of their 52-week low.

And that's the breadth, right? So broad participation on the downside. We actually got an oversold reading in breadth coming into this week, but it looks like it's not mattering. Does oversold matter in a bear market? Take Citrix off your list because that was an LBO from January that I guarantee you, Elliott wishes they never did. We all have some mulligans in our portfolio. But does oversold readings matter in a bear market? You know, for short periods, they can.

And it just depends on how bad it is. And right now, it's seemingly pretty bad. So we're not getting the reactions that you would expect, especially when they're so widespread. I mean, we came into today with a 91% reading of stocks in the S&P 500 that are oversold based on our daily stochastic measure. And that's a very unusually high number. So we would expect normally some kind of rebound, even just days in duration from that, especially we also had a bunch of DeMarc signals. We call them DeMarc signals, short-term countertrend signals that are derived bunch of DeMarc signals. We call them DeMarc signals, short-term counter-trend signals

that are derived from Tom DeMarc's indicators. Can you explain that to us? I feel like that's- I wanted to ask you about that because DeMarc indicators are in a lot of your work. But a lot of professional technicians like swear by it and most people just don't know what it means. Like Josh was on TV yesterday

talking about the 13 or whatever. No, I was talking about a DeMarc count, but then I realized there's not enough time on TV to like even get into why that might be relevant. Katie, why don't you please explain it for us? They're hard to explain. I mean it's explaining like a mathematical formula, right? I do understand it. It's exhaustion in either direction. But what are the numbers measuring?

What are we looking at? So think of it as having probably some basis in the Fibonacci sequence, which is something that is recurrent in nature and also in markets. Tom DeMarc's a brilliant guy. I think he was even up for the Nobel Prize for Economics at one point as a nominee. They gave it to Barry Ritholtz that year. Yeah, but Tom was right there. Yeah, and so Tom has just developed a suite of indicators of which we use his two kind of primary base level indicators. And they assign little numbers to price bars

based on certain qualifiers that he back-tested like crazy and found to have relevance in terms of identifying potential inflection points. So our goal is to not only know what the momentum is behind something, but if something's exhausting itself, and that's the goal of these indicators.

I know it's exhausting. Yeah, it's exhausting. It's like how extended is a trend? When is the rubber band going to snap back in both directions? So what's interesting about this indicator, as far as I can tell, is people say that tactical analysis is part art, part science. It seems to me that this is pure science. Are you assigning these numbers or is it done automatically?

No, I'm like a reporter. Okay, right. So it's purely quantitative. It really is. But in how you're using them and applying them, that's where the art comes in. So the interpretation can be. Interpretation because like, you know,

we talked about with the longer term picture, that's going to influence how we're looking at a daily signal or a weekly signal. So we're going to be less likely to listen to the oversold buy signals. This event happened to have tons of the signals, which is when we really pay attention. It's when you have collections of signals. We also pay attention when a lot of our market internal measures flash green all at once. So when you have not just like percentage oversold or not just the VIX, not just the put calls, but a collection

of these. What makes them turn green when they're all extended to the downside? Is dark red, does dark red turn into green? Yeah. So they, well, they're not all oscillators, but most of them are. So you can look back over history and see the market internals. Think about like the percentage of stocks about their 50-day moving averages. That would be a great example of one breath measure that we track. When you have not just one breath measure that we track.

So that's washed out. I'm looking at your chart right here. It's totally washed out. They're all washed out, but they were washed out two weeks ago. They can stay that way. And that's the hard part, right? So you should defer to momentum before you go to the market internals. And that's, at least in my process, I think it's- Momentum is still deeply negative. Yes, it is still to the downside. And that's the risk. So when we talk through these things, we say here it is. Here's the level of conviction.

And here are levels to watch on the downside just in case they fail, which is apparently happening right now. Do you ever get asked by clients, okay, all of these signals are showing deeply oversold conditions. They're going green, meaning like- They're so bad, they're good. The mean reversion is about to kick in. Do you ever get asked by clients like, okay, so what do I do about it? Do I want to own the worst shit

that's like down 70 or 80% for the bounce? I'm just, I'm not assuming the bear market's over. I'm assuming a huge bounce. Or- The leaders. Am I looking for the stocks that held up the best because the buyers will return to them fastest if the market goes green? Like what's the right answer? Gosh, I mean it really depends on time frame, right?

Short term, if you know a bounce is coming, go for a high beta, high growth. I'm not going to make that prediction. That's not ridiculous. Don't tie me to Peloton here.'s a trend i would never i would never let's not get ridiculous no but like theoretically if you know the bounce the high beta names because you're looking for outperformance what is that now are we saying high beta mega cap or high beta there are some semis that would be high beta but i would say it's probably more like small and mid-cap software names right now. Really, really good.

SaaS stocks. Yeah, yeah. Okay, biotech maybe even? Some in biotech too, yeah. And that's a little bit harder because there are some binary situations in biotech as well. Katie, you make such a good point about time frame, right? Because I think oftentimes people are talking past each other, and it's like we just have a different time frame. You're talking about literally like the next 30 days.

We're talking about the next 36 months or whatever. So I looked at yesterday, going back to 1996, the NASDAQ 100, when less than 10% of stocks are above their 200-day moving average, which is fairly rare, right? That's like a complete washout. There's never been a period in time since 1996 to today where it was down a year later.

However— Welcome to 2022, though. Well, yeah, I'm going to say this is probably the year it fails. But between now and a year, it could still go down a lot more. And then recover. And if you look back at corrective lows like the COVID low, we had these same types of green readings, if you will, in the market internal measures. And they stayed that way for about three weeks, right? So it was, you know, in hindsight, better to adhere to the short-term momentum gauges

than it was to believe in this market internal. How do you track a URSI, or what are you looking at? We like the MACD, so Moving Average Convergence Divergence Indicator, and it's just based on moving averages and price. Why do you prefer that you know it smooths it out and we're all about smoothing out the noise um up until today is my middle name yeah there you go noise is my other middle and it's um it's treating this day actually even like noise um so we'll see of course by the end of the day oh the matty is not

reacting to today um not when i look last, but that was an hour ago. Maybe you should wake it up. I assume you would rather be late to the bottom than early? Oh, yeah, by all means. I mean, I think you want always to wait for confirmation. Very important in our process for breakdowns and breakouts because shakeouts or false breakdowns are so common. So even for the S&P 500, as we get into the summertime low, 36-36,

two closes blow to us as a breakdown, not one. You wrote about the VIX, and you pointed out something that we've been pointing out on the show all year, which is that VIX 32-33, I don't care what you think of Ukraine. Just buy something. Like that has actually worked really well this year. This year, yeah. As long as you didn't stick around too long.

36 is the high on the VIX this year. We're like 32, 33. That seems to be like blowing out here. The problem with that strategy is that at some point, the VIX is going to run to 44 and destroy you. Yeah, the new bench will be higher. Why isn't the VIX spiking? But what – like, yeah, that's what – I wanted to ask you about the behavior of the VIX.

Given what we're looking at on our screen, I feel like that should be a 2011-esque VIX. And it just isn't yet. It's not even close. Yeah, yeah. So, I mean, there's some theories out there. There's really no way of knowing. But people are saying that, well, the retail investor is now hedging their exposure in different ways. Oh, my God.

Who just said that to you? Dude, it's a theory. Just say I said it. It's a bad theory. Why is it a bad theory? All Katie said was it's a theory. It's a theory. But she said it first, meaning that's the one that's most—

And I'm not measuring it. I'm not tracking it. But if you go back and you look at the VIX, it had gotten to that kind of 80-90 level, a 2008 COVID corrective low. Other bear market cycle lows were closer to 50. Yeah, 50. But if you look at the 50 reading, the first 50 in a bear market cycle tends to see another 50-ish reading within the next nine months or so. That's what I mean. It's 32.

What's going on? But do we have to see it? I think we do. Yeah, I think we do just because the character of the market. I mean, if you run a comparison versus 2008, which we have here, it's eerie, isn't it? Wait, wait. Set this up. Katie, set this up for us.

So in the top, it's just the past year. And the bottom is 2008. And you can see— The purple is 08. Mm-hmm. And see how the comp is pretty fair. Don't worry about the level. Just think more about the posture.

I hope this comp does not hold. I do too. And I'm not big on analogs. They can be kind of meaningless at times. But this is compelling. So I would just say, though, like look when that VIX really got going. Think about what was going on. Yeah.

And I'm not saying it can't happen again. That's when Lehman failed, right? Lehman is the biggest bankruptcy of all time. The biggest corporations we have now are the ones that have raised the most cash and have the best balance sheets. I don't know that there's even a good candidate for a quote-unquote next Lehman, let alone Merrill Lynch, Bear Stearns. Let's hope not, right? No, I know, of course. And then like Madoff is in here somewhere.

So I'm not saying we can't see a VIX 90, but maybe that shouldn't be. Yeah, I agree with you. I think it's more of like a 50 reading. So I think the takeaway shouldn't be that we get to 90, but rather that we could have a proper volatility spike still in store for us. I'm with you on that. I'm very surprised that we could have a proper volatility spike still in store for

us. I'm very surprised that we haven't had it yet, given that the market just is going straight down. Yeah, and the sentiment, sometimes it's just like a slow-moving ship. It doesn't turn at the right times. And I think that that's the hard part when people are getting ready to get back in. They're often late because that sort of slow ship of the sentiment doesn't turn at the same time the market does. How do you incorporate sentiment into your analysis? And

is it different on the way up than on the way down? Yeah. You know, we like the transactional gauges like the VIX more so than the investor polls, but we'll pay attention to all of it. And we care only when it's at extremes, right? Why do you prefer the VIX to the polls? Because it's like what people are doing, not what they're saying? Yeah, yeah. It's more like theoretically, it kind of makes more sense. Do you remember the fear and greed index? Kind of lost its value a little bit. I don't know why. They started putting Bitcoin and NFTs in there. That's why. Oh, no. Did they really? No, no, no. I just made that up. It sounds like something that would happen. Well, actually, you bring up a point though with Bitcoin, which we cover on a weekly basis.

We watch it very closely on a daily basis as an indication of how sentiment is for that day. So coming in this morning, down 4% or so. And I said, it's not going to be a great day, right? When you can kind of have this very far down the risk spectrum type of asset. Yeah, they look at Bitcoin as a 24-hour, 7-day-a-week NASDAQ. Yeah, there you go. No, it's interesting though. Bitcoin's barely down today. It's at $19,400. It could be worse, right?

Well, it is a store of value, so that makes sense. You talked about 10-year treasury yields having an outside down day yesterday. Was that yesterday? That was British Intervention Day. Right at 4%, mind you. yesterday. So was that yesterday? That was British Intervention Day. All right. Right at 4%, mind you.

You can't even start looking at stocks if your day doesn't begin with dollar and treasury yield, right? Yeah, and it wasn't always like that, I feel like, but right now, for sure. And I always feel like there's something du jour on the macro front. Thankfully, these are things that

are digestible for me as an equity-focused technician. Sometimes it's oil. Sometimes it's the dollar. Right. Sometimes it's like European banks. Yeah, like CBS. I don't know.

Right. So we know what it is today. Okay. What is an outside down day in 10-year treasury yields, and why should we pay attention to that? Very short-term indication. But when you get an outside down day, it's when the high-low range for that bar encompasses the previous day's high-low range and you get a weak close. So very simple. It just shows like a loss of intraday

momentum that's significant. So the range expands, but then it closes, the yield itself closes down, meaning the bond closed higher. Yeah, especially if it closes near the low of the day. Okay. That usually is a good indication of corrective action, right? So the takeaway, especially as 4% is in line. I mean, I was at a dinner not more than two weeks ago saying 4% seemed possible. And we said, well, maybe next year. Probably sounded crazy.

See how quickly that happens? The last time we got a weekly candle, like the one that we're seeing now in 10 year, we pulled in. I mean, obviously, we'll see. I mean, it's not a hard call to make, right? So 4% resistance. The support now is around 3.5%, of course, because that was former resistance from the June high. So we have a higher support level with the follow through that we've seen. And I think more importantly, the takeaway is that this uptrend has good force behind it, good momentum, if you want to call it good. And it follows what was a major, major reversal of a multi-decade downtrend. So

that downtrend had gradually been losing momentum. And then finally, just in the past year or so, we saw it reversed. It lost momentum at zero. That's where most things lose momentum. But literally, that's how – you think about how should the biggest, longest-running bond bull market end? Probably at zero percent yields. It's poetic. Seems right. And that's where it ended. So yesterday, the 30-year U.K UK government bond yield fell more than 100 basis points.

Isn't that wild? I saw that chart. I mean, this is— From what to what? From over five to under four. So this type of instability in global macro is very unsettling. And when you see this and you don't see the VIX spiking, it's just like weird. Yeah, what are people paying attention to, right?

You should have seen the British VIX. It went nuts. Can you use DeMarc indicators as effectively or in the same way on things like bond yields or currencies as you do in the stock market? Oh, yeah. Anything that has that kind of character where it has liquidity behind the price or the yield. Yeah. Totally fair game. The only time where any indicator would really fail us, and this doesn't just go for the DeMarc indicators, would be if you have a super gappy, thin, sort of illiquid type of market and chart.

Then it's noisy. Or you have something that's like binary, like a takeover candidate or, you candidate or some FDA approval is anticipated, that type of thing. Otherwise, totally fair game. And the rest of it, it's more in the interpretation that we're right or wrong. So I'm looking at the way you're describing the market. You talk about short-term bias, bearish, long-term bias, bearish. But I know you must have many clients who are like long-only asset managers. So you want to be constructive even though you know like what your view is on the market and it just doesn't lend itself to what should we buy today.

Right. But they want to – I think they want to be informed by you. But you have to find a way to be useful to them, even in a period of time where, you know, what their charter says they're supposed to do is just not what you would do. How do you, how honest are you with, how honest are you with your long only fully invested clients? I mean, listen, we have all types of clients, so we don't gear the research to one type. And it really is sort of general in its audience. Let's put it that way. We do have long onlys, of course. We do have, you know, day traders. It just runs all over

the map in terms of the composure of our client base. And they all want to manage risk, right? So that right there is a primary takeaway where we're giving them- Right. It's other people's money. So they all want to do what's right. Right. So they all want to know what the bias is on the S&P 500 over various timeframes at a very minimum. Many of them like to really track the relative strength because sector rotation can be really important to their strategy. It's really important to our strategy. We find that it's the best way to outperform. So folks will come to us for that, that kind of relative posturing. We even have market-neutral clients who just want to,

they'll ask the same question that you did about, well, off the low, what are we going to be buying first? Yeah, so that's helpful. Right, right. So we have ways to kind of look at the market from a very unbiased perspective, mind you. There's no sort of clouded judgment from the fundamental picture. And we can give them our honest view of support levels, what's risk, what's potential reward,

what's the prevailing trend. And there's just inherent value to that unbiased view. But we are challenged in that for idea generation purposes, right? What do we put out there as a high conviction, long idea? And I mean, we've put out a lot of long ideas because we have demand for that. And we started a Substack newsletter to that end as just like a supplement to our regular research product. What is it? Well, how do people find that? What is it called?

So it is called the Fairlead Strategies Idea Generator. Too long. Change it. Starboard. Stockton.substack. Yes. It's something like that okay it's easy to find okay kate josh and i on our we have a youtube show every every tuesday where we try and make the case for us for our stock obviously we're not making like you know recommendations but um last week i was looking i was like it's it's really hard to make the case

for anything on the long side individually because it's just dangerous. So I just said NASDAQ 100 with a one-year time frame. Yeah. Okay. And what we've been doing is more short-term work. So we're either grabbing a DeMarc signal and trying to leverage that with a really, really tight stop. You have 48 hours. It's all about the really tight stop losses to manage risk. Sure. So this is you. Tactics. Maintain underweight exposure to the equity market and risk assets broadly. Apparently, everything is now a risk asset. Oh, my God. It's such a bear market.

Oh, dude. Bear market and Altoids? That could be problematic. Stay with top-down hedges until a short-term momentum turns to the upside. For example, SPX registers a daily MACD buy signal. Ain't happening today. After which, plan to revisit increased hedges after a brief relief rally.

So you're saying like, even if there's like this relief rally that is so long overdue, that's just yet another opportunity to sell until proven otherwise. Yeah, and staying hedged is important. And today is exemplary of why. do, that's just yet another opportunity to sell until proven otherwise. Yeah. And staying hedged is important. And today is exemplary of why.

You know, when we have a fragile tape like this and momentum is to the downside, we need that protection. And so that's what we've been imparting to folks. And then within that context, we talk about wherever we can find long-term uptrends. Right now, energy, utilities, no longer materials. Materials look so bad. But we have find long-term uptrends. Right now, energy, utilities, no longer materials. Materials look so bad. But we have some little pockets. The energy stocks held the June, July low, though. They didn't break below.

Everything else broke below. And they don't have great momentum, obviously, loss of intermediate-term momentum within their long-term uptrend, but trying to find the best of the worst. The best of the worst, right. Yeah, so staples, you can't find them anymore. Healthcare, it's tough.

You said sell stocks that have decisive breakdowns, otherwise giving them a chance to bounce off support for better selling opportunities. Actually, Shopify is a great example of that. Look at Shopify. It was holding onto the support level of whatever, $30 or so.

You have to be mindful of the stop losses. And I know it seems like a little bit trite or something. I just feel like— No, you have to. You have to. And when stocks are in downtrends, you can't just hope you're catching the bottom. Stocks, again, 91% to 96%. Like, that actually happened.

These stocks fell another 55% when they were down 91%. I think it can't go lower. They are going lower. You said continue to avoid counter-trend positions. What's a counter-trend position? And we honestly said that all the way through the summertime rally too. We were uncomfortable with that in terms of using that 2000. You were uncomfortable of what? Of chasing that rally off the lows. The June to August. The June to August rally. And it was such a big one. It was such a big one. And we got pushback on that. And listen, like it was uncomfortable watching in 19, 20 percent. People

were like, Katie, when are you going to change your mind? Yeah. We got a lot of pushback on that call. But we had seen the playbook before, especially as it pertained to those Shopify types of charts where they come off their lows and then these hard retests can often cut a new low. And so we were really uncomfortable with the sustainability of that. Spotify bounced, to use another Opify, Spotify bounced from 89 at the lows all the way up to 126.

89 to 126, now it's back down to 86. Just brutal. For the people that capture that, fantastic. Great move, yeah. But it's a hard recommendation to make because it is so hard. Well, it's so hard to capture. You don't know oneself. You probably thought at that point, you probably thought, oh, I've caught the bottom.

Well, you feel like it's broken out. Yeah. Yeah. It is. It's breaking a downtrend. And then it's not. And then so many things. It was just wild how these 200-day moving averages acted as resistance, not just for the S&P 500, but for Microsoft and smaller cap names.

It was really just – Tell me if this is at all consistent with your experience as a technical analyst. So my first exposure to TA, I worked at a brokerage firm. The whole idea of a brokerage firm in the late 90s, early 2000s was like the sales force gets really excited about a stock idea from the analyst. And then they're just calling their clients like, we've got to buy this stock, this catalyst, FDA approval, like whatever the thing is. Right. Okay. 3Com, they're going to spin off Palm Pilot.

Got to buy it. Right. So all this stuff. And then like there's a technical analyst working at the firm also. And people are like, what is this nerd talking about? Shut up. We're pitching 3Com. Get out of the way.

So whatever the stocks are that everyone gets really excited about, and then those stocks start going down. And then all of a sudden, I would see a little bit of a line outside the technician, outside his office, like, hey, man, can I show you a couple ticker symbols? What do you think? Get some respect. So I found that in some ways the technician or the chart, people start wanting to know more in a downtrend. I've also seen the other version, which is that technician will come out with research

and they'll say, here's a really great intermediate term trade. This stock is working on a 10-month moving average, continues to find support at the rise in 10 months, like a well-thought-out technical premise. And the brokers would be like, yeah, but what's the story? Why do I want to own Texas Instruments? Because my client doesn't want to hear about the lines on the chart. They need to be captivated by the story or they're not going to send me a check for the trade.

So I've seen technicians always be used as like either backup in a downtrend or be dismissed in a bull market when it was story time. Have you like experienced both versions of that a lot? Yeah, and I think it's gotten better. So how angry are you? I'm not too salty. So it has gotten better. There's more respect for technical analysis all over.

Because more knowledge and more access to charts and more access to technicians, right? So 20 years ago, 25 years ago now, when I got into it, there was a lot of skepticism out there. It's voodoo. Mm-hmm. Right. And you'll see that here and there, but not from really widely respected type of—

Anyone who wears a bow tie is just not going to listen to you. You agree with that? Yeah. Yeah. I don't know. I should be wearing one sometimes. Oh, my God. I heard Jim Rogers say yesterday that this bear market—

That's a bow-tie gentleman. Well, speaking of bow ties, Jim Rogers said this would be the worst bear market in his lifetime. He's been around for a while. Come on. The good news is he says that every year, almost regardless of what's going on. But the technicians, they do get a good name in bear markets in a way. And I'd say it was really prevalent in 2008. A hundred percent because they end up being right.

They're more right. And They're not precisely right necessarily. But as a group, they're going to manage risk typically better in a downdraft like 2008. And that certainly was when I felt like technical analysis really kind of made its name. But the knock on the technicians in a bear market is that they're going to be at max bearishness, like at the bottom. Yeah. When a fundamentalist may, not always, but may just be like, I don't give a shit what the chart looks like. This stock was 17 times earnings and now it's 12 times earnings and I'm buying it and you can take your chart and, you know, hit the road. Like there's, I feel like there's some version of that, even though not all technicians will be bearish at the bottom, many of them will be because stocks will look their worst, you

know, as they get toward the lows. Yeah, right, momentum-wise, right? And that's why we value things like the DeMarc indicators and why we have this whole like recipe for a bottom, right? It's a process, the retest, the support levels, the overbought, oversold measures, the divergences can be really informational. So we do have ways of feeling comfortable about a low,

but we also don't need to be the hero. Well, you don't need to catch the low, right? I know everybody wants to be the hero. You don't need to do that. And also at the lows, Josh was making this point the other day, at the lows, things are going to look the blackest, right? Like just, if you're just looking at price, things are going to look like the world is ending. And there the VIX is at 50 or 80. But there's also at the low, it's interesting. It's not the max fear. The max fear

precedes the low. The low is apathy. The low is don't even tell me what the market's doing because it's irrelevant to me. I've already written my whole position off low is don't even tell me what the market's doing because it's irrelevant to me. I've already written my whole position off. I don't even care. Right. On the retail side, obviously professional, hopefully, would not get that despondent. But retail investors at a low are no longer afraid. Right.

Because anyone who was afraid has already sold. That's how you got to the low. And then the people that are still long, they've like mentally just written it off. They're just going to stick it out at that point. Like you see that in crypto. This is like universal. This is universal. Like, oh, well, what's the difference at this point?

We're seeing it in cannabis right now. They just have their- I mean, those are the worst stocks on the planet. Well, they have this theory, right? And they're going to just own these companies because they believe in the theory. But also what you're talking about to some degree is how support is established, right?

So if a fundamental analyst feels like, yeah, that, but also a fundamental analyst sees a valuation that is compelling and they publicize it and it makes sense from their DCF analysis, whatever it may be, then that's what creates the support that does ultimately become the stuff of bottoms. But it is a, then that's what creates the support that does ultimately become the stuff of bottoms.

But it is a process. So I have bad news on that end. I forget who tweeted this, but this is from Bloomberg. Today, stocks broke through their June 16 closing lows. And if the XPX holds below that line into the close, it would mark a new low for the bear market. The multiple is hovering around 17.9 times earnings. Simply looking at PE ratios and taking the bear market's

technical definition of a peak to trough to climb, blah, blah, blah, blah, blah. This would still be the highest of any bear market lows since 1957, according to Bloomberg data. We're talking about the PE. The other 13 instances identified in the past 65 years averaged about 12.6. The only other time that came close was in 2002

when multiples bottomed at 17. So again, the multiples for the S&P are 18. So if you're just looking at that very crude instrument, we're not there yet. Right. Well, it doesn't mean we have to get there. But we know that this bear market cycle has only been in force here to date. All right. So you are following, let's do internals. So you are publishing U.S. market internals as kind of like a list, but broken up in different categories. So you are publishing U.S. market internals as kind of like a list but broken up in different categories. So one category is breadth.

So you're looking at advancers, decliners on the NY – thanks, John. Advancers, decliners on the NYSE, and you're looking at what percentage of the market is oversold above the 50-day moving average. You've got an oscillator in there. Okay. Then you're taking sentiment and you're doing fear and greed, AAII, and the VIX.

AAII is spiking. It's over 60. Yeah, the bearishness. Okay. But that's because these people, these are boomers typically and they own bonds, right? So of course they should be bearish.

Right. So then you're looking at leadership. You're looking at how many new highs, how many new lows, and then highs minus lows. Not many new highs, right? Not many. Yeah, that's an easy one to count.

You can do it on one hand. And then volume. So I never understood how to read volume as either bullish or bearish. But I wanted to just go through these and ask you like – so how do you weight them? So how do you weight them? Because at a certain point, probably near a top or a bottom, these are going to conflict. Yeah, yeah. So you know what?

If you think about our process or methodology, market internals, like you see here, it's like third. So first is going to be support and resistance. Second will be all of our indicators. So momentum, overbought, oversold, relative strength. Third is the market internals. So we don't place a huge level of importance until we see extremes like this. Then we pay attention. Can you go through this one more time?

What are the three? So support and resistance, like levels. So I'm not a technician, obviously, but I was never into the diagonal support and resistance. I think the horizontal makes a lot of sense. Yeah, I don't use trend lines all that much, which is kind of strange as a technician. So you don't like shapes. You're not looking for – it's a Volkswagen. So you agree with me, or we agree that support and resistance are defined by actual buyers and sellers, not like – Oh, yeah.

Okay. Yeah, so right, not theoretical. But we do have one model, the cloud model or Ichimoku, that is a little bit theoretical, but it's a bit more like a MACD than it is even a normal support and resistance in its derivation. So, there are some nuance to that, but support normally would be like a former area of buying pressure. Where buyers come back in. Or maybe a Fibonacci retracement level if we don't have that. All right. So, what's number two?

So, number two is the indicators. And we categorize them three ways, trend following or momentum. So that's like the MACD. And then overbought, oversold, that would be like the stochastics or the DeMarc indicators. Relative strength, which would be price-to-price ratios usually. And then we go to the market internals and look for extremes. So we're not like busying ourselves weighting these.

We're just saying, okay, do we have a lot of green? Well, we do that intentionally. So in 2008, we got burned a little bit. We were just too late because of the put calls. Who didn't, sister? The put call ratios just kept getting more extreme. And that was like our primary sort of sentiment gauge. And we'd put a lot of weight on it, and it just kept getting more extreme.

And we said, you know what? We'd probably be better off if we kind of diversified the way we look at the market internals. So that's really what we're trying to do here. We're just taking a bunch and letting them guide us collectively as opposed to individually. We're big on diversifying just kind of everything. opposed to individually. We're big on diversifying just kind of everything. So if I asked you, like, what's your desert island indicator,

you'd probably throw a lot of these internals out. Yeah, it wouldn't be these. It wouldn't even be the VIX as much as we value the VIX, which is probably our best indicator on there. The put-call ratio kind of looks like the VIX in the sense that, yeah, it's elevated, but it's not spiking either. It's not spiking, yeah. So what would be your desert island if you had one? Not to put you on the spot.

I would think probably the MACD, something like that, because it's price. Oh, momentum. But yeah, yeah. So momentum. And we generally, like if you could just stay on the right side of the MACD as your prevailing indicator, I think. I would go hemline indicator. That's interesting.

You want price. I want magazine covers. Yeah, there you go. Okay. All right. But you're not seeing, so you're seeing extremes in the internals like everyone else is. But it doesn't seem to matter because this has been extreme really the whole time. Yeah, yeah.

So there's something going on there. It's just a bear market, right? It's just a bear market. It's a downside momentum. I mean the momentum on the monthly charts, the monthly MACDs, if you will, I mean, it's across the board. And it's still growing. So it's not like we got any real respite from that with the summertime rally. And that's why I wasn't a believer in it.

It's so interesting the psychology of a bull and a bear are so different because to Josh's point and to yours, I think that people don't trust balances in a bear market, right? Because we're just sort of disinterested. The market's going lower. I don't trust it of disinterested. The market's going lower. I don't trust it. It's fake. The market's going lower. But in a bull market, people don't respect the trend as much in a bull market with every—not every down day. But it seems like over the last 10 years, with every big down day, people were ready to call the top in a way that they're not ready to call the bottom.

I understand that. That's a good point. I haven't thought about that. Right. So they panic a little bit more, right? But now we're not ready to call the bottom. I understand that. That's a good point. I haven't thought about that. It's like a little bit of market psychology. Right. So they panic a little bit more. Yeah. Right? But now we're seeing –

People trust their markets. They don't trust bull markets. Yeah, but that's also like who are you listening to and who are you talking to? If you're on social media, these people are the most sensitive to market moves of anyone on earth. The regular person is not even aware of things that people on Twitter act like are the end of the world. So I think there's like a high level of sensitivity. And so if your gauge of sentiment is looking at tweets, you're probably barking up the wrong tree.

Yeah, no, it's a good point. I mean, Twitter definitely has its purpose, but it's not for that. It ain't that. It's to overthrow the government. Hey, John, can we put up this dollar index chart from Katie? Is this yours? Yes. I mean, and talk about a trend, right?

So show us. So when you look at it, obviously everyone understands at this point stocks are not going to make any upside progress so long as the dollar is basically disrupting the entire global economy, right? We all understand we're locked into this dance now. What do you see when you look at this? An uptrend, I'd say first and foremost, and that's one we want to respect. All right. I think everyone would agree we see an uptrend. What else?

With the cloud, you know, the cloud or the shaded area in the chart, that's a cloud model. So that's what we're respecting. And then we adhere to the indicators, right? So notice that it held above the rising 50-day moving average. That is a support level. And then notice also we've circled one of the demark signals, and that's a countertrend signal, very short-term. Implications are for only two weeks.

And we last had it in April. So we're paying attention to that as an indication that we'll get a little consolidation. It could blow off short term. Yeah, and it doesn't have to be dramatic, right? It could just be more grinding sideways back to the rising 50-day or cloud. Could this inverse correlation between stocks and the dollar break at some point? It probably will. Yeah.

I mean, listen, I don't rely on any historical macro correlations. That's interesting. Why? Because you can't rely on any historical macro correlations. That's interesting. Why? Because you can't rely on it, right? So they will matter at times, right? But I have no way of knowing when they're going to stop mattering, right? So you don't do this copper-gold ratio stuff? Sometimes I'll play around with it, but not on a systematic basis.

And I'm really systematic in how I approach things. But you know what's interesting about your approach, and it makes a lot of sense to me is that you're able to be pretty unemotional about what happened with the market, right? Like you're very calm because you have your process. Yeah. And I mean, I prefer being bullish, right? It's a bit more fun and it's a happier conversation with the clients. But yeah, I mean, we just wouldn't argue with the indicators. I mean, we feel like the market's telling us something. And, you know, we can certainly be wrong, but we blame ourselves because that's in how

we're combining the indicators. It's not the indicators themselves. So we feel like we're just kind of acting as, you know, aggregators of all this information, collecting it and creating an opinion based on that. And it's very factual, at least from our perspective, and very mathematical in its basis. We're going into October.

Oh, we haven't talked seasonality. Well, that's where we're going now. See how good I am at this? Yep, you're good. All right. So there's a little bit of a reputation for October to be one one of two things depending on who's writing the article for MarketWatch. It's either a bear market killer because the bear ends in October or it's the most volatile month and it's 1929, 1987, 2008. Capturing those major dand drafts, yeah. So I know like so much of this is just like religion or like which fairy tale would you like to believe in today?

All right, fine. But how do you – because given how method-driven you are, what do you do when somebody says, well, seasonally we're getting into like a better time for the market than September? Yeah, yeah. I mean I care. I definitely yeah. I mean, I care. I definitely care. I want to know that. And it might influence my thinking to some degree, but not by a strong degree. I do think these seasonal phenomenon are real.

You can go back and look at Bitcoin in September. It's like year six, and it's down huge, right? So I do think they're a real phenomenon. And I think there's probably a basis in either politics or macro cycles. It's actually agriculture. Or that. So I believe in that. But I'm not going to invest on that, right?

So I'm not going to make or base any kind of investment or recommendation on a seasonal trend. But rather just kind of let it inform my biases otherwise. Let me hit you with this old children's tale from the sea. Once upon a time, before even there was a Federal Reserve, money moved around in the form of gold bars. And every September, the farmers would call their money back from New York, where bankers were using it as a plaything, and basically buying and selling stocks and bonds and having a blast.

But the farms in September would say, we need the money back, because we have to hire people to work the land and harvest everything. So you could set your watch by it, the panic of 1901, the panic of 1902. Because every year year New York had to give up the money, sell all their stocks, send it out to Kansas, Nebraska, whatever. They would pay the farmers, bring in the harvest. So they took it out of the market. Right. And so once that's done, that's the seasonality.

So all of a sudden, okay, the harvest is brought in by the end of October, send the money back to New York and London, let them screw around with it again. And then you would have like that seasonal trend. Yeah, it's like harvest time. So now that's no longer relevant. But that's from a time when like I think three quarters of all men in America worked on a farm, like literally. And then the other 25% speculated with their money. I think about the Fibonacci's, right?

So the sequence is math. It's like mathematical equation essentially. Um, but the tides are spaced at this, right? So there, there are influences that are really hard to kind of grasp on the markets, right?

Yeah, but you probably stopped short of like where a lot of Fibonacci people would keep going. Yeah, maybe, but, but think about, you're not talking about seashells yet,

but we're talking, oh, well, yeah, that there is that too. Okay. Um, but think about like. You're not talking about seashells yet. But we're talking – well, yeah, there is that too. Okay. But think about like moon cycles, right? I think about nothing else.

That influences the agricultural production. So there's all these things that are really interrelated but not all that measurable. So we spend time on things that are measurable. Yeah, I'm with you 100%. Just price. We're going to go with price. No, it's moderately interesting. I know we're only talking one day here, but gold's flat on the day.

Thank goodness, yeah. Why do you say that? Because, well, it has outperformed, but we have one less asset class in an uptrend. And it's our supposed safe haven asset. So I say that in part because our TAC ETF owns it. But it is outperforming, but it's not going anywhere. Can you tell us about the TAC ETF? We didn't even get there, and I don't know if you're like,

all right, just like disclaimer, we're not selling ETFs on this show, okay? So everyone relax. For informational purposes, tell us about the TAC ETF. Well, I mean, it's really obviously aligned with our methodology, right? I would hope. It is like the manifestation of it. And you guys are long term and your focus in it also is that,

you know, it's designed to find the best sector trends with momentum. And when the market doesn't have that, well, then we'll go to these risk-off categories and diversify it so that we don't get caught in that long-term treasury issue from Q1, where it was like you just had one or the other, and then you just got killed. Imagine that's your risk-off. It's a 20-year treasury in January, February, March. And we have a piece in that, but now we also have gold. We also have a piece in short-term treasuries.

So we still have energy and utilities. How frequently will TAC ETFs positioning change? Monthly. So we're using month-end closing data. Is it pure quant or do you get in there? It's pure technical and then it has some quant also in terms of the relative strength rankings. But it's not discretionary or it's not subjective. It's systematic.

Right. 100% unless something really bad happens. Are you allowed to say what the AUM is in that? It's about $150 million. Wow. Yeah. You know how you can make that like $15 billion? How we can 100X that?

I'm listening. Just be like Kathy Wood. Just get on Twitter and start mixing it up. What do you think? Stir the pot a little bit. Stir the pot a little bit. Congratulations on that. When did you launch this?

Is that the largest? In March. Is that the biggest tactical ETF? That's incredible. Oh, no, no. You know pot a little bit. Congratulations on that. When did you launch this? Is that the biggest tactical ETF? That's incredible. Oh, no, no. You know, there's some big ones out there. Dorsey, right? Dorsey has some huge ones. Oh, yeah, yeah, yeah. And that's, you know, my alma mater, if you will.

So, you know, with the ETF, it's a great way to, you know, you express the sector views, right? And then it can actually move fully risk-off, which it's not right now. But with that risk off piece you can limit the drawdowns but you're still going to be there in the sectors when the market comes out of it right and you're going to be there probably market maker on that uh we have a virtue okay and are they is it futures or are they buying like the physical physical are they buying the actual securities it's a fund of funds so it's all spider etfs right so we have 14 etfs that we're choosing from the 11 sector spiders in like a full-blown

risk on type of environment we'll have eight and we'll equal weight them and that's intentional because if it's like energy outperforming which it has been then we'll have a much bigger position in energy than the s&P 500 would. Where that could be a disadvantage is if it's all about technology. I'm still not comfortable with the 11 sectors. I was a 10 guy. They made real estate its own group. It used to be inside of financials, but some of those companies got really big. They're shrinking now, so don't worry.

I know. They look equally bad to each other. Well, I've always thought that there was an arbitrariness to what stock got assigned to what category. So the example that I use is Walmart and Target are not in the same sector. Yeah, one is Staples, one is Discretionary. I don't really quite understand how they figured that out. And what about some of the credit cards were financial, some were discretionary? There was some tech. I think MasterCard and Visa might be tech.

Dude, Amazon is a consumer discretionary. Meanwhile, their biggest category is a staple. It's groceries. Yeah, so there's- And cloud computing is the most high tech. We're picking nuts. Well, I mean, these are big stocks though. These aren't like minor-

Here's how I think about it though. With those sort of sector ETFs, you are in a way making a fundamental or like establishing a fundamental view in the companies with the best market caps, right? Because those are going to be the most influential. So you're, as a technician, I don't do fundamental research. So I'm letting the market kind of direct me into those larger cap names with the assumption that the market's rewarding the better companies. So we're going to have an oversized position by default in Apple. You're outsourcing the what to buy, and you're deciding on when to buy it.

Yeah, so it's market timing, sector rotation, and relative strength, and then with the asset allocation piece. So people can learn more about the TAC ETF. What is it actually called? TAC is the ticker, T-A-C-K. So Fairlead Tactical Sector ETF. And there's a website. Congratulations. Yeah, thanks.

That's a big launch. Yeah. So that's great. And it's fairleadfunds.com. Duncan, did you learn anything today? I learned a lot. You've been really quiet. Have you been taking notes?

Yeah. Or have you been trading? Are you trading the clothes? What was the DMARC thing? I still am not quite clear on that. It's this gentleman named Tom DeMarc. Didn't Steve Cohen make him famous? He was Steve Cohen's technician.

I mean, he's still dialed in with these really top money managers. And he doesn't do any press. He's like in the background. He is, like I said, brilliant. And his tools have a ton of value, and yet they don't always work all the time, and that upsets people, and they're treating it in a way that's social. It doesn't work all the time?

It doesn't work all the time. You're fired. So there is no holy grail in terms of technical indicators, so I think it's in how you're combining them that you can really be successful. So when we're using DeMarc indicators and everything else, we're always cross-referencing. What does that sound like? What the hell is that?

Something's going on out there. Something in Bryant Park. Yeah, it must be something. All right, we're going to go check out whatever concert it is. But this is the part of the show where we do favorites and then we let you get out of here.

We wrap up. So have you brought us any books, movies, TV shows, music, podcasts, whatever you're into? What should our audience be clued in on? Okay, so I'd say work-wise, I have a new friend in Austin Hankwitz. Have you heard his name before? No. He's producing really good quality, digestible, like fundamental-ish research over Substack.

Okay. But I found him through Pinkwits. How do you spell his last name? Pinkwits, H-A-N-K-W-I-T-Z. Got it. His newsletter is called Rate of Return, and I think he's just crushing it because for me as a technician, I just want

kind of like bullets and headlines and just give me the takeaway. How did he get on your radar? So I read an insider article that highlighted him as a TikTok sensation. Okay. And I said, well, gosh, he's got 500,000 plus TikTok followers. I was curious. I had to log into my daughter's account to figure it out. And I thought it was really... Were you horrified at what you saw? Yes, of course. And yet he was just doing this delivery that was so digestible. And it's also macro and he's very open-minded. But I think there's a real art into delivering it in a way that people that don't follow that can understand it. So I value his stuff a lot.

He sends out a couple things a week, and it's a great sort of 10,000-foot view. Well, check that out. It's the Rate of Return sub-stack by Austin Henkwitz. You got it. And then personally, I love Tehran. I don't know if you guys have watched that. No, tell me. It's a great show. Netflix?

Yeah, and I feel like nobody talks about it. It's Apple TV, I think. Oh, Apple TV. Heyron? Tehran. I don't know if you guys have watched that. No, tell me. It's a great show. Netflix? Yeah, yeah. And I feel like nobody talks about it. It's Apple TV, I think. Oh, Apple TV. Heyron? Tehran. Like in Iran. Oh, oh, oh. I know what it is.

No, I know what it is. I didn't watch it. Yeah, we love it. What is it? Is it like Homeland? It's definitely like a spy series. I love that stuff. I love that stuff too.

And I just think it's really well done and nobody seems to be talking about it. And it's a very cool, I'd say, view into a different world, right? And who knows how accurate it is, but it definitely is closer to accurate, right? So it's kind of a fun. Did you watch The Old Man? Mm-mm. Did you like The Old Man? I didn't finish it because the plot got so ridiculous that I couldn't stay with it.

I didn't love The End. I liked it until the end. What about, what was the Netflix show, The Israeli Homeland? What was that called? Gowda? Oh, Fowda. Fowda. Did you watch that? I didn't. Is that good? People love that one. People love it. Put it on my list. I love that

stuff. What are you watching? Well, I just took Sprinkles to Don't Worry Darling, and this was the craziest movie that I've seen. This is my favorite. Do you know what it is? No. Do you know anything about it?

No. Okay. I know a lot about it. You have to watch this movie. You liked it? I loved it. Like, I want to go back. What is it called again?

Don't Worry Darling. It is so effed up. Like, it is so messed up. That's so interesting. The big picture killed it, but I'm probably with you. You know what? I'm probably with you. Here's what went on with this movie.

There was so much controversy leading to the release because there was on-set shit that went on that was, like, really unsettling. This is the thing where they thought Chris Pine spit on Harry Styles or vice versa. Did you see any of this? Mm-mm. So, all right. Olivia Wilde directed this, right? Yes. All right.

So Olivia Wilde, who is a really good actress, she was married to Jason Sudeikis. There's a controversy with her. Wait, they're not married anymore. Right. During the pandemic, they split up. Nobody knew why. And then he served her divorce papers

while she was giving a speech somewhere. It was like really ugly shit. There's kids involved. Okay, fine. So so all of a sudden she's directing this movie and shia labeouf is going crazy on the set he's like the lead male role and who could have imagined this things aren't going well he's got a very combative on-set persona apparently. So they have to like fire him from the movie or he quits or something. And she replaces him with Harry Styles. And people are like, wait, what? She's dating Harry Styles.

Harry Styles is acting opposite Florence Pugh who is like this red-hot up-and-coming actress. Midsommar. She's great. You know who she is? Yeah, I know who she is. Okay. So she's like on fire. Her career is like on fire. So she's great. You know who she is? Yeah, I know who she is. Okay. So she's like on fire. Her career is like on fire.

So she's on set. She's not getting along with Olivia Wilde, the director. Olivia Wilde's also acting in the movie, playing her best friend. While dating Harry Styles. And then Chris Pine, who played Captain Kirk in the new Star Wars movie. You know the actor. He's involved. Kirk in the new Star Wars movie. You know the actor. He's involved. And there's like all kinds of onset stuff to the point where they're now showing the film at film festivals and the cast

won't show up. Like they won't come to the premieres. Wow. Right. So that gets goes viral on social media, which actually turns out to be like a good thing for curiosity. But then the critics I think got caught up in that and so they didn't give the film good reviews but people are going anyway so it's so mad the movie is so messed up that i can't so you can feel like the tension or what is it about 100 and everyone's performance is really good and really believable and it's like it looks like a romantic comedy or from the outside but it's hardcore science fiction but it's i can it looks like a romantic comedy or from the outside, but it's hardcore science fiction, but it's, I can't even describe it. I don't want to like give any of it away, but if you want to go see a movie theater

movie, this is so cool. Well, I'm seeing a movie theater movie tonight. What are you saying? I'm actually trying to buy tickets right now. It's not working. Avatar. I can't wait. There's another one.

Maybe skip that. Why? Giant Smurfs. You're an idiot. Okay. You don't know what you're talking about. All right.. Why? Giant Smurfs. You're an idiot. Okay. You don't know what you're talking about. All right. Two podcasts I want to give you.

Jeff Curry, who's the head of commodities for Goldman Sachs, was with our friend Meb Faber. This is a must-listen episode. And he's had Jeff on before, and Jeff does a ton of media. You could see him other places. But something about Meb really knows how to get the best out of his guests. He's a very good podcaster. So Jeff was great just talking about the oil

rally and the commodity super cycle. The other one is Scott Galloway has a new book and he was on Dimitri Korfinis' show, which I think is called Hidden Forces. Do you know this show? I don't know who that is. Great pod. I know Dimitri.

And he also had Nick Tamareus on. Oh, wow. Who is like the Fed whisperer. Yeah. So check out Dimitri Corfinus' podcast. Check out Meb Faber and go see Don't Worry Darling. Do you have any, besides Avatar, do you have any favorites? What's wrong with you?

What? You love that movie? You don't like James Cameron? No. I thought it was good. Overrated. It was weird. You don't, overrated? Avatar? You don't like James Cameron? No. I thought it was good. Overrated. It was weird. You don't,

overrated? Avatar? How is James Cameron overrated? No, Avatar. It's just okay. It wasn't like meaningful to me. I guess maybe the time in your life

that you saw it, it was like a more meaningful movie. Okay. How old were you when the first Avatar came out? Was it 10 years ago? No. More?

15? Yeah. I don't know. When did Avatar come out? 2009. More? 15? Yeah. I don't know. When did Avatar come out? 2009. Duncan definitely has a hot... 2009. You definitely have a scorching Jim Cameron take.

I mean, actually not. Okay, great. I was going to ask, did you ever see the video of David O. Russell and Lily Tomlin fighting on the set of I Heart Huckabees? No. It made me think of it with, oh, you should look it up. It's crazy. Like on set drama? Just like cussing each other out,

shouting, someone had a camera rolling. It was rough. Yeah. You didn't see this movie yet? No. The cinematography in this movie will blow your mind.

Okay. It's like, it's a community they built in a California desert. So it's like palm trees, desert, and then 1950s style houses because that's when it's supposed to take place.

It's pretty wild. It's cool. Sounds good. Visually, you'd be inspired. All right. We're going to wrap up from here. Our thanks to Katie Stock. Did you have fun today?

Yeah, I did. Thank you so much for coming by. I knew you would be awesome. I wasn't worried. I appreciate it. But yeah, we're so happy to have you. Where can people find your, like how do people look into your research product or find your stuff?

Where do they go? My website, fairleadstrategies.com. Okay. We didn't get into the nautical bit. No, we will though. We will, next time. And at Stockton Katie. Okay, at Stockton Katie on-

On Twitter. On Twitter, where you are very combative. I will never DM you. Okay. You won't sell anyone crypto on a DM? All right, Katie, you're awesome. Thank you so much for coming. We really appreciate it.

Everybody check out Katie Stockton's stuff. Follow her on Twitter. Subscribe to her product, et cetera. You will learn a lot. That's it for us this week. Duncan, anything we have to say? Oh, no. What are your thoughts next week?

See you on Kapoor. Oh, no. What are your thoughts next week? See you on Kapoor. Oh, no. What are your thoughts? Uh, Michael will be in, you'll be in temple or you'll just be somewhere. You'll be at home. Not, not on electronics. Right. Okay.

All right. No. What are your thoughts next week? But animal spirits, uh, new animal spirits next Wednesday. We will see you then. Thanks for listening guys. So that was the warmup. How do you feel? Like, do you feel like you're. Thanks for listening, guys. Thank you.