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HomeMacroeconomicsTranscript: Stephen Suttmeier - The Big Picture

Transcript: Stephen Suttmeier – The Big Picture



The transcript from this week’s, MiB: Stephen Suttmeier, BAML Chief Equity Technical Strategist, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, SpotifyYouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.





This is Masters in business with Barry Ritholtz on Bloomberg Radio.

00:00:08 [Barry Ritholtz] This week on the podcast, I have a special guest. Steve SME has been in the technical analysis game for a long time. He is Chief Equity technical strategist at B of A Securities, and he’s a double threat. He has both A-A-C-M-T and a CFA looks at the world from a very interesting perspective. I get B of A research in, in particular, I really enjoy Steve’s monthly chart blasts as well as his, you know, overview. Every now and then, he will do a deep dive into things like sentiment or sector rotation. I find his work to be very informative and very useful. And I think you will also, with no further ado, my conversation with B of A Securities, Steven Sutt Meyer.

00:00:57 [Stephen Suttmeier] Thank you very much, Barry.

00:00:58 [Speaker Changed] Glad to be here. So, yeah, I’m glad to have you. So, so let’s talk a little bit about your background. So you get an MBA from Fordham. What was the original career plan?

00:01:07 [Speaker Changed] Yeah, so I, I went to Fairview University undergrad, and it was right, I didn’t put it this way, it was right after the nine, right after 1987 crashed. I was there from 9 89 to 93. Right? Right. So instead of pursuing business, I pursued pre-med. And since my writing skills weren’t all off the snuff, I just dove in. Said, you know what? Lemme get a double major and do English writing. So I wanted to challenge myself, improve my communication skills, you know, through, through the writing process. Long story short, you know, get outta college, it was a tough time. You know, it was the early nineties and, you know, it was hard to find, you know, jobs. And I was, I was not a good standardized desk taker. Right. So my MCATs were, were bad, but I took ’em three times. I, but I managed to jumped my score, right.

00:01:50 So I still was able to get a few interviews in med school, but, you know, I kind of changed my mind on what I wanted to do. So, you know, after I, I, so what I did was I was looking around for finance jobs, and obviously you’re not gonna hire, you know, a pre-med bio major, an English writing major. Right. You know, right off the street. Right. So, so I just answered an ad from the paper and guess where I wound up? I wound out, out for the boiler room right across from Strat Oakmont. Oh, really? In 1994.

00:02:18 [Speaker Changed] What were you doing there?

00:02:19 [Speaker Changed] I was one of those cold callers.

00:02:21 [Speaker Changed] No kidding.

00:02:21 [Speaker Changed] And, and, you know, quite frankly, it was a very interesting learning experience. I was only there for a year and a half, because if in the movie Boiler Room Sure. I lived

00:02:30 [Speaker Changed] It. Wa was that, was that accurate? I mean,

00:02:33 [Speaker Changed] Their office was a lot nicer than ours, but generally speaking was fairly accurate. And I remember when he was studying for the series seven in the movie, he’s like, he’s realizing, wait a second, you know, they’re, they’re doing things that are not right. And I’m sitting there like, man, I’m glad I’m not licensed yet, because, you know, the last thing I wanna do is, you know, get booted outta the business before I even start. So,

00:02:52 [Speaker Changed] You know, you know that scene in Wolf of Wall Street where, where DiCaprio sits down in the room and makes that first call. I worked with guys who were that good, but came from that same sort of background and they all seemed to be too impatient to get rich slowly. But a lot of these things really resonate, really come across as that was a real thing in the eighties and nineties. I,

00:03:18 [Speaker Changed] It, it was, and I, I just learned that it, you know, I just, it just, the Aunt Antennas were off and I’m like, this is not where I wanna be know,

00:03:24 [Speaker Changed] To say the

00:03:24 [Speaker Changed] Very least. And then, and then the, the funny thing about it was when, when I see those movies, both Boiler or Man Wolf of Wall Street, the script that they’re reading from is exactly the script that they gave us.

00:03:34 [Speaker Changed] You know, whoever did their research, you know, they found a bunch of stuff and it was, it was pretty amazing. So, so you work, you leave that world and you go to a few boutique shops. That’s right. You work at Capital Growth Financial and in former global markets before you join investing Giant Merrill Lynch in 2007, what was that transition like from smaller shops to a really, really big one?

00:03:59 [Speaker Changed] Well, I mean, that’s, that’s a great question. Lemme just spend 30 seconds before answering that. I was lucky to have a dad in the business, you know, so he, it didn’t take me on, you know, initially, and I had to go through kind of like that, that McDonald’s thing, working the Fry’s, you know, at the boiler room kind of thing. Right. And then in 1996, I actually worked for him for a little while, and we went down to a firm in Florida. Then, you know, I made French with some people in the research department there. And that’s when I started to focus on research. So first it was a hybrid technical fundamental, and then, and then, you know, went to fundamental and then went back to technical full time. So the reason why I went on to Merrill Lynch was, look, I was, you know, entrepreneurial. I, I worked for small firms that, that we could have built into a big business. But the problem was we were charging 4 cents a share. And, and you know, we, that make a long story short, everybody else was charging one, or, you know, even less than that. And, you know, we weren’t able to compete

00:04:54 [Speaker Changed] And Yeah, no, that makes a lot of sense. It

00:04:55 [Speaker Changed] Was very hard. So I’m like, lemme get to somewhere more stable big mother Merrill in 2007. Right. Stable. Perfect. Perfect. Little, little did I know what was gonna happen, right. Two years later. Perfect.

00:05:05 [Speaker Changed] Well, well let’s talk about that. We’re gonna half later. Let, let’s jump ahead to a question I was gonna ask you later. You joined Merrill in March of 2007, right? On the, you know, verge of an epic, a cusp of an epic meltdown. What was that year at Merrill like? That had to be kind wild.

00:05:25 [Speaker Changed] I, yeah, of course. I mean, it, it’s just, I just remember ’cause I a little bit more seasoned, you know, I’ve been in the business 15, 16, 17, no, no, 14 years, 15 years when that hit. And I just remember the weekend of, you know, the shotgun wedding, you know, in 2008. Right. I just remember sitting down with some of my colleagues who were a lot younger, and they’re like, what do we do? Right? I’m like, well, you know what? You, you do your job until someone says you can’t

00:05:53 [Speaker Changed] Just keep your head down, keep working.

00:05:54 [Speaker Changed] I mean, mean, you know, I live, I, I’ve worked at other firms where they had layoffs like every few months and you know, we knew when they were coming and just like, you know, you just do your job until you’re told you can’t. And that’s that, you know, I mean,

00:06:06 [Speaker Changed] I have a vivid recollection of, what was his name? Thayne was the CEO of Merrill at the time.

00:06:11 [Speaker Changed] Yes, I believe so.

00:06:13 [Speaker Changed] And I remember that winning comes off and people were like really upset about it. And I was like, what are you talking about? He just saved the firm. How are you possibly, oh, I’m sorry. Your stock options are worth a lot less as opposed to zero, something is better than nothing. Right?

00:06:28 [Speaker Changed] Well, I mean, you know, look at the, the, the news on the weekend that weekend, seeing everybody taking boxes outta Lehman and Bear Stearns. Right. So it’s like, yeah. It, it’s, it’s a totally, it’s, it’s very different. And

00:06:38 [Speaker Changed] Door number one was much better than door number three in, in the circumstances.

00:06:42 [Speaker Changed] Yeah. I mean, of course, you know, obviously after that, you know, merging the two together, you know, there were redundancies and things like that. And, and you know, they took the opportunity to, you know, at least in, you know, on on on teams that were big, you know, cut ’em essentially in half. Right. You

00:06:57 [Speaker Changed] Know, a lot merge the two, take the right, the people who they think are the top performers and, but that’s pretty typical in, that’s the way it works. A finance m and a right’s the way that’s how it goes. This just happened to be done so rapidly. There was hardly any time for, for planning. It seemed like everything was on the fly.

00:07:12 [Speaker Changed] Yeah. So the biggest thing I was, we were worried about, so I was working with Marianne Bartells at the time Oh, sure. While she was running the, the department. And, you know, the biggest thing we were worried about, we weren’t worried in one regard because, you know, V of A did not have a dedicated technical analysis team. But the same time we were worried that V of A did not have a dedicated tech, you know what I mean? Because maybe

00:07:30 [Speaker Changed] They may not appreciate the exactly the value of it, but,

00:07:33 [Speaker Changed] But they did and they kept us, they kept, you know, a few of us

00:07:35 [Speaker Changed] On, so lemme roll back. I jumped ahead. What was it that, you know, you have a background as both A CFA and eventually A CMT, given your background and fundamentals, what was it that attracted you to the technical side?

00:07:49 [Speaker Changed] Well, I started off technical, which is unusual. Normally it’s the other way around. And it was, you know, my, my first research boss, his name was Stefan Haber, he worked at William r Huffin company and he encouraged me to take the CFA exam. And I remember that first level was tough. I had no finance background. Accounting was very difficult. So,

00:08:16 [Speaker Changed] Right. It’s about a 50% fail rate, something like that. Maybe even more.

00:08:19 [Speaker Changed] I mean, the level one was, I don’t remember at that time, but all I do remember was the first half of the test I felt like, you know, I failed it. So then during lunch, I guess I pulled the Harlem Globe Trotters and regrouped and was able to get through the second part pretty easily. Right. So, but no, it, it, it’s, that’s, that’s what turned me on to, and, and you know, we had a very fundamentally oriented research group and I was a technical analyst, so he kind of, you know, brought me on as a hybrid analyst. And it was good. I mean, I learned a lot from when I worked there. You know, I covered a, you know, the first stock I guess I was jointly covering with another analyst was J Bill ba, you know, which was based in St. Petersburg. So, you know, so that was kind of fun. Yeah. So I, I got to learn a lot there.

00:08:58 [Speaker Changed] So, so how do these compliment each other? How do the fundamentals compliment the technicals? And does one sort of dominate the other? Or are you, are you a technical analyst with a fundamental sort of in your back pocket, not what, what the key driver is?

00:09:20 [Speaker Changed] No, my, my, my primary work is, is technical in terms of fundamental. I rely on our analysts ratings at the firm. You know, I, I look and see, you know, what stocks they, they like, what they don’t like. And I look at the charts and if it melds with what they’re saying, I go with it. Or if it looks like it’s gonna turn in favor, what they’re saying, I go with it. And vice versa. Of course, there’s other times where I have a really compelling chart looks bullish, where they have under perform on it. I, I’ll publish on it, but I always say, Hey, here’s here, you know, fundamental view’s different. Here’s the research note. Have to look at that. You know, so I respect the work that they do and, you know, I try to, I try to enhance it as much as I possibly can. So for me though, technicals are always, you know, first and foremost ’cause that’s my role. But I mean, obviously you wanna own something that has some sort of intrinsic value. So I think that’s the way I would probably think about it, you know, more of a, you know, of a can slim type of approach. ’cause I was always a William O’Neill fan and Right. And he just passed away a few months ago. So that was kind of sad because that was, I have that book on my, on my shelf, you know, as,

00:10:25 [Speaker Changed] As we all do,

00:10:26 [Speaker Changed] As we all do. Right. So, yeah, I mean, it’s, it is a, yeah, I mean, I look, I mean, I know in, in another world, you know, if, if, you know, if I’ve ever moved on to somewhere else where I was, you know, doing, you know, something in a smaller shop, I’m sure I would put that fundamental hat on a little bit more often than I do now. But I don’t have to now. ’cause I got a whole team of fundamental analysts that, that we, we rely on

00:10:49 [Speaker Changed] You, you’re reminding me of the Ralph por quote fundamentals tell you what to buy, technicals tell you when accurate.

00:10:58 [Speaker Changed] I mean, I love the quote, but I, I don’t necessarily believe it’s entirely accurate. And here’s why I think technicals can tell you what to buy as well. Oh, really? Because if you, you can see a price pattern, you know, you can see a trend. And if you’re, if a stock’s building a big base and say the analysts are 90% sell ratings, and a lot of volume is surged down, you know, when the stock first declined to save $5 from 20, right. And then volume surge, and then all of a sudden you’re trading sideways for a long period of time on less volume. You know, your fundamental work saying, Hey, wait a second, you know, this seems to be undervalued or, or maybe the earnings are gonna improve next quarter, or something like that. You know, that’s something I would look at to potentially buy, even though technically speaking, it’s not very strong, but it is building a big base.

00:11:48 And if the relative chart could I do absolute relative work, if the relative start chart starts showing outperformance versus, you know, when compared to the absolute meaning, the market’s corrected a lot, but this stock is starting to lead, that tells me, you know what, somebody may know something I don’t, and I, I should, you know, maybe build a position in that name. So I think technicals are helpful with what and when, in fact, I’m probably more of a what to buy than a when to buy type of guy, because look, I, I have to put out a research note and it’s like, you know, I can’t just say, Hey, buy this name here at this price, it may never hit it. So I just kind of say, Hey, here’s a, something that looks attractive technically, you know, our fundamental analyst has either a buy or sell on it, but technically it’s attractive, you know, I think it’s a stock to buy. And you know what, I would put the levels in there. If it hits these levels, then, then it becomes, you know, more time to buy. But either way, you know, I’m building a position there, you know, based on my research. So

00:12:43 [Speaker Changed] Your title is Chief Equity Technical Strategist. What, what is a day in the life of the chief equity technical strategist at a big shop like Merrill look like?

00:12:53 [Speaker Changed] Yeah, so B of a, when we, you know, it, it’s, it’s a combined hybrid role, right? So we service the, the global private clients. So the financial advisors are, you know, a big part of what we do. We talk to them a lot. I do a weekly webcast on Wednesdays for them, 12 noon. Yeah. You go on the road, you see offices, they ask you questions about markets, stocks, things like that. And you try to help ’em out as much as you possibly can. You know, there are some financial advisor teams that have me do webcasts for, you know, clients, you know, periodically, sometimes quarterly, sometimes monthly, and sometimes just internal, you know, just so they can, because the one thing financial advisors say about the research that we put out on the technicals is that I may not be a technical analyst, but when I read, you know, b of a technical research reports, it gives me something intelligent to tell my clients, especially when times are tough. Hmm. And even if they’re not using it, other than that purpose, I mean, that’s a victory right there.

00:13:55 [Speaker Changed] Right. No, that makes a lot of sense. So, so let’s talk a little bit about how technicals work. And I wanna start just by asking, how do you define technical analysis? I’ve heard lots and lots of different definitions. What’s yours?

00:14:11 [Speaker Changed] Yeah, that’s a great, great question. I mean, I’m sure it’s changing as days go by, but for me, I mean, we’re, we’re, you know, using mathematics quantitative methods to identify and spot trends and patterns in the financial markets. I guess that keeps it pretty simple. So for me, it’s really just trend following and pattern recognition. I will occasionally throw in second derivative type of indicators of price, like, you know, an RSI or,

00:14:37 [Speaker Changed] Or relative strength indicator.

00:14:39 [Speaker Changed] That’s right. Relative strength indicator generate overbought, oversold, but also involves things like breadth, sentiment. I do a lot of credit market work too, you know, just looking at credit spreads and things like that.

00:14:50 [Speaker Changed] So, so let’s define our terms along the a along the way. Sure. When we talk about breadth, we’re talking about the numbers of advancers versus decliners. Is it a broad market or is it a narrow market?

00:15:00 [Speaker Changed] Yeah. And that’s one of Bob Ferrell’s 10 rules to remember, you know, markets are, are stronger when they’re broad and weaker, when they’re narrow. So a again, ways to measure market breadth would be the advance of client lines you just mentioned. Also new 52 week highs, new 52 week lows. You can also use four week lows, 24 week low highs and lows, things like that. The other things would be diffusion indicators, like the percentage of stocks above moving averages. So if you have, I mean, you know, interestingly, if you have the s and p, you know, above a 200 day moving average, yet, you know, a few in the 50% of the stocks are above it, you know, that kind of tells you something about breadth of the market. You know, the market’s stronger, but more stocks are below the moving average. So, I mean, I think that’s something to look at.

00:15:38 So some of these indicators, like the percentage of stocks of 10 day moving averages can also be used as momentum, you know, so sometimes you can use breath as a moment. Momentum. So this, the other thing I mentioned was sentiment. So that basically is sentiment and positioning, lump in positioning as well. So if you’re watching sentiment, it’s the surveys, you know, the, the investor’s intelligence survey, bull Bear and correction. And then you got a a i i bull bear and neutral. You have. So those are tell, those are sentiment indicators. What are they telling us? What investors are doing? Now hopefully investors are saying, I mean, what investors are saying, right? Right. Not doing, hopefully what they’re doing is closely what they’re saying. That’s what sentiment implies. But then you overlay that and look at something like a book call, you know, that tells you more what they’re doing.

00:16:22 You know, the volume of puts are higher than the volume of calls that goes above one. That means investors are fearful. Another one I look at that I find very useful for tactical lows in the market, but sometimes more meaningful and tactical would be taking the three month vix, the volatility index, and dividing it by the one month fix. So when that is high, like 1.25 or above, investors are like, I’m not concerned about volatility in the immediate future. I’m more concerned about it, you know, later on. But when that goes below one, that means the VIX is higher than the three month fix. So investors are more concerned about volatility now, which means they’re more fearful. And when you have that set up, the market is often closer to a low.

00:17:03 [Speaker Changed] So that everything you’ve just described is, is a loaded series of follow-up questions. You, you’ve given me, I, I wanna talk about sentiment, but you mentioned Farrell. And for folks who may not know who Bob Farrell is, tell us a little bit about the legendary Bob Farrell.

00:17:24 [Speaker Changed] Well, I mean, he was the dean of technical analysis at, at at, at Merrill Lynch, you know, for the better part of, had to be 40, 50 years. Right. He has his 10 rules to remember. And a

00:17:37 [Speaker Changed] Lot of which by the way have become, you know, almost biblical for a lot of people in markets. A lot of tech technicians for sure.

00:17:46 [Speaker Changed] I mean, those are huge, huge sh shoes to fill. There’s no question about it. And if I mention any of these things, any of his rules that follow my research notes, it’s like my readership doubles. You know what I mean? That’s so, it’s like, forget about him. I mean, I mean, forget about me. It’s all about him. Right, right. You know, I just kind of have to invoke that presence, you know, in my job, I guess. ’cause some financial advisors actually, when, you know, you see some of the commentary they write, the greatest compliment I think they ever paid me, was he, he invokes Bob Farrow pretty well. And I know that’s not 100% true because nobody can do that. But just to have half of that, I think is, is, is a compliment.

00:18:24 [Speaker Changed] That’s great. What, what other technicians do you admire? Who, who else in the business do you think does a, a nice job?

00:18:32 [Speaker Changed] I mean, look, I mean, I, you know, I obviously I compete with a lot of guys that do good work. But going back to the day, some of the folks that have influenced my work influenced my work the most. I would say initially it was John Murphy with Oh, sure. His book. I mean, I have the, the torn up dog-eared book, you know, technical Analysis of the Futures Market, you know, that was pr you know, now it’s called Technical Analysis of Financials Market. So I got an old dog-eared copy that. My desk still, I would say Martin p pring, I learned a lot from, you know, through his work

00:19:04 [Speaker Changed] P pring. Oh, really?

00:19:06 [Speaker Changed] And, you know, some good cycle stuff there. Momentum, I got his book on momentum, which, which I found very useful. And I, I guess the third one, I think that, that impacted me quite a bit was Dr. Alexander Elder who wrote Trading for a Living. Right. And what I liked about that was a, there’s a lot of market psychology, investor psychology in there, but also how to run a, you know, trading systems based on indicators. And I think that helped me out a lot. And much of, in that book has influenced the way I’ve thought about markets and, and picking stocks. You know, as a, as the equity technician, that’s kind of what I need to do is identify stocks that I think can go up or down or at a minimum, you know, underperform or outperform. And, you know, I use some of the techniques that he put in there, and particular like a triple screen trading system where you have your, your, you know, your weekly timeframe. But you, you, you make your decisions off the daily. But I managed to do it all on a weekly chart. Because if you put three different moving averages on a weekly chart, you can look at, you know, a long-term moving average and a shorter term moving average. And do it that way, you know, where you decline below the shorter term one and hold the longer term one, I generally can I gen I generally view that as, as a positive for a stock and look to buy it.

00:20:22 [Speaker Changed] So, so you’re mentioning folks who’ve been around a while, like John Murphy and, and pring and Farrell and I took the class with Ralph Por, I know a lot of people back in the day who used to do their charts by hand every day. And, and now there’s just so much computing power around how has the computerization of everything changed? Technical analysis. What, what do we do with all this horsepower?

00:20:55 [Speaker Changed] Well, I mean, it, it, it, it definitely can allow for more rules based signals in some regard. It allows us to do things with a greater universe of stocks. And I, I, yeah, I think it, I think it is useful to have that. But when I first joined Merrill Lynch in 2007, we were still, we still had point of figure charts that we were updating by hand

00:21:16 [Speaker Changed] X’s and O’s,

00:21:17 [Speaker Changed] X’s and O’s. You know, of course

00:21:19 [Speaker Changed] Tom Dorsey, that crowd.

00:21:20 [Speaker Changed] Yeah. I mean, they, they, I mean they, yeah, Tom Dorsey, I believe investor intelligence also has a product on point and figure, I mean, very popular among the financial advisor crowd, but not so popular among the institutional crowd. You know, the institutional crowd probably looks at it. It’s like, I’m looking at a letter from my grandmother with the X’s and O’s on it, you know, and she gives me hugs and kiss. It’s

00:21:39 [Speaker Changed] A little imprecise. It’s not as, as

00:21:42 [Speaker Changed] It, I mean, it depends. It,

00:21:43 [Speaker Changed] It, you can make Yeah. It seems to be more general than, yeah. Than a a

00:21:47 [Speaker Changed] I mean, you can make it more precise if you want to, but that requires a lot more effort and work. And, you know, with the computing power a day, I think the one thing that’s changed is, you know, a lot of people can think they can pull up a Bloomberg and all of a sudden call themselves a technical analyst because it’s just very easy to create these things. You know, I’m,

00:22:02 [Speaker Changed] I’m glad you brought that up because I recall when I started on a desk in the nineties, if you wanted to put charts on a computer screen, you had a subscribe to a very specific package, even the terminal back then, you couldn’t do what you could do today. Right. It’s light years’s ahead today, kind of now you go to any website and have unbelievable access to all sorts of technical studies. I’m curious, what sort of impact does charting software for free everywhere have on the practice of technical analysis?

00:22:40 [Speaker Changed] Well, I mean, it’s, again, it’s still a market where people will, you know, trade and, and, you know, make decisions to buy and sell. I mean, I, I do look@stockcharts.com. I mean, when I’m on the road, that’s very easy to pull up and Right. And work with. I mean, does it make it more of a self-fulfilling prophecy? Who knows? I mean, but I think the general, it doesn’t, it wouldn’t negate, you know, the one major thing that dominates financial markets. It’s fear and greed, you know, and maybe it accelerates that process a little bit more. I mean, the other thing, it’s really not just technical analysis, but it’s the availability information and instant analysis. Right. You know, analysis can be done. I mean, just let’s face it, there’s, there’s businesses built on that premise where, you know, you have high frequency trading where they calculate things in, in, you know, milliseconds. I don’t even know, but you know what I mean, it’s like really fast

00:23:29 [Speaker Changed] Nanoseconds, right? Nanoseconds instantly.

00:23:31 [Speaker Changed] Yeah. Probably the more accurate way of saying it. Nanosecond. So, I mean, it just makes things very quickly. And you know, how I adapted to it, I, I I focus more on, on a longer term timeframe, not, not like monthly, but weekly. I, you know, the daily gets a bit noisy,

00:23:46 [Speaker Changed] Very noisy. In fact,

00:23:47 [Speaker Changed] Back in, back in the day it was intraday charts that got really noisy. But now daily charts have gotten noisy. You know, I, I hope weekly charts don’t get noisy because that, that would complicate things even more.

00:23:57 [Speaker Changed] I’m curious if the zero day options that expire every single day have an impact on, on trading and have an impact on charts.

00:24:07 [Speaker Changed] Probably, you know, I’m not sure what the impact exactly is, but, but yeah, I mean, I think just instant, you know, you know, instant what, you know, what, whatever the term is, I can’t even know, but just instant information. I mean, it just, it just makes things more volatile. Generally speaking. You wouldn’t know by looking at the fix, but you’re looking like intraday price action, day by day price action. It’s like you got stocks that have multi-billion market caps that are moving like two to 3%, you know, within the span of 15 minutes. I mean, that’s, that’s, that’s a lot. You know,

00:24:40 [Speaker Changed] You mentioned fear and greed. Tell us a little bit about how you can use technical analysis to look at sentiment.

00:24:48 [Speaker Changed] Yep. So a lot of different ways, first and foremost, I mean, you got the surveys that we talked about earlier. You got the book call ratios, you got the vix,

00:24:56 [Speaker Changed] Let me interrupt you and ask you about the surveys. ’cause I always find that what people say they’re doing and what they’re actually doing on those surveys don’t always seem to line up, right? How, how, and they seem to spend most of their time in a sort of no man’s zone where there’s no signal. It’s at the extremes when they’re useful. How, how, how useful do you find sentiment surveys generally, where we’re asking people, how bullish are you? How much equities do you have? How much bonds do you have? Et cetera. Yep.

00:25:28 [Speaker Changed] I would say it’s more useful in calling lows. And it is, and highs, when you think about a low in the market and fear in the market, there’s more urgency. Complacency by definition is not urgent. So that’s why I, I think sentiment surveys worked better when, you know, bear surge above 55 60%, which is where they stood September of last year. You know,

00:25:52 [Speaker Changed] Complacency is not urgent.

00:25:54 [Speaker Changed] It’s not

00:25:55 [Speaker Changed] That. That’s, that’s a great sentence. Yeah. I always think of it as, it’s hard to identify when people kind of get bored and stop buying, but it’s easy to see when everybody’s panic selling.

00:26:05 [Speaker Changed] Exactly. Right. And that’s what sentiment shows you. You see it on the book calls. You can see it also in futures positioning.

00:26:14 [Speaker Changed] What, what are you looking at in futures positioning in order to identify a bottom?

00:26:19 [Speaker Changed] It, it’s, it’s usually it is aggressive shorts from leveraged funds on s and p futures. And, and

00:26:27 [Speaker Changed] Are these professionals or are these punters and amateurs? No,

00:26:30 [Speaker Changed] They’re professional. They’re professional. But even professionals can form a crowd in a herd. I mean, that’s, that’s the point of the indicator. You know, that’s the reason why, you know, there’s a hedge fund, you know, clients that, that, that you visit outside New York City. They want to, you know, avoid the herd. Right? But the other factor is asset manager positioning. Those are the smarter, I think I view ’em as smarter. So when they’re oversold, the market’s usually down as well. But when the market starts to bounce, they start to go with it. And, you know, they hit their lows, two of ’em last year, one in June and one in October then. Right. And it, it was great. It worked out really well using that sentiment indicator. So I, I think there is still use for them. I will admit though, sometimes I do wonder whether sentiment, you know, becomes more of a momentum indicator, which, which I think makes sense, because let’s face it, I mean, if the market rallies 15% and the asset managers just still here and not buying the rally, then something else is happening. Right. You know, so sentiment does need to turn into momentum. Meaning that sentiment needs to start to confirm price action.

00:27:44 [Speaker Changed] Can, can everything be charted? I mean, we’re talking about sentiment, we’re talking about trend. What about things like fundamentals? Can you, can you chart the rate of change on earnings? Where do you draw the line of, Hey, technicals aren’t gonna help you there?

00:28:00 [Speaker Changed] No, I’m sure you can. I mean, I, I haven’t done that much work. I mean, you know, a PE ratio, you can chart that, I mean, pretty easily and do analysis on that. I think, I think it’s probably more useful. And economic indicators, like the unemployment rate or the claims data, and you know, we actually did some scenario analysis around that recently, just talking about, Hey, what happens if the employment rate rises versus falls? What environment does the s and p work better in? And you know, the obvious, the answer is the obvious answer, right? So, but it’s not necessarily true because there’s some periods of time where the unemployment rate does rise, where the s and p actually does rally, and there’s other periods where the s and p does not. And I really, you know, it, it’s, it depends on what your market tide is.

00:28:49 [Speaker Changed] How do you think about intermarket analysis? Are you looking at the stock market is doing this relative to what the bond market is doing? How, how important are looking across different, here’s what the US is doing, here’s what’s developed X us here’s what emerging markets are doing. How, how do you consider different geographies, different sort of asset classes? Do they, do they interrelate at all?

00:29:11 [Speaker Changed] I mean, I think they do. I think we’ve seen that over the last year or so. So, so here’s, here’s the why I, I’m looking at it near term, not, not making any sort of forecast or anything like that, but last year where we stood market was very nervous, s and p around the 200 week moving average finally started bottoming out. But what was the ingredient to get that low in the market? It was the dollar topping

00:29:36 [Speaker Changed] Peak inflation.

00:29:38 [Speaker Changed] Yeah. That, that, yeah, that happened I believe in June of last year.

00:29:40 [Speaker Changed] Right, right.

00:29:41 [Speaker Changed] And that, that’s helpful. Also yields topping out as well in September, October last year. So there, there’s a negative correlation between the dollar and, and between stocks, the dollar and bonds. So meaning, you know, higher interest rate, lower stocks, higher dollar, lower stocks. That’s been the trend. So the s and p rallied from last October ran into trouble this summer, you know, and you know, which is where the dollar bottomed out and yields started to really rise again in earnest, and now here we are,

00:30:13 [Speaker Changed] Oh God, it was a massive surge in yields from August, September, October, and stocks went the exact opposite direction.

00:30:20 [Speaker Changed] Yeah. Have, have had a 10% correction. And, you know, we’ll see what happens going forward. But I would think, you know, not that this is a prediction or anything, but if that correlation holds and, and if the s and p gets a seasonal bounce, which normally is something that happens around this time of year, one would think that if this correlation continues to hold, that a seasonal balance for stocks likely requires yields to be stable to lower or, or the dollar stable to lower. And, you know, we’ll see how that plays out. But that seems to be the correlation, the intermarket correlation that that seems to be, in my mind, the most important one right now.

00:30:59 [Speaker Changed] So what do you think generally people misunderstand about Al?

00:31:02 [Speaker Changed] Yeah, I mean, I think, I mean, sometimes I get emails where they think I’m like a, you know, a magician trying to pull a rabbit out of a hat, you know, they’re asking for something technically can’t do. Right. You know what I mean? They’re like, they’re, you know, I mean, look, I mean, if you give ’em a few good calls, they think you can predict the future, but we can’t, you know, we’re just gauging risk and reward. And I think that’s what, that’s

00:31:20 [Speaker Changed] A really good way to, to express that. You’re looking at various patterns and setups to identify your best risk reward set

00:31:28 [Speaker Changed] Situation. And I think that’s a big misunderstanding because most people are of the mentality in the DraftKings world that, you know, technical analysis is a good way to enhance their gambling habit, you know? But what we’re really looking to do is manage risk reward. I mean, you know, I always tell like hedge fund clients when I’m talking to them, you know, they’re, I mean, a lot of ’em along short, but they’re like, yeah, I’m like, here’s how you identi. Here’s how I would identify a core along you, you first and foremost, you identify what your benchmark is, how are you measuring your performance? And you take your absolute price. And if the absolute price is trending up along with the relative price, that’s where you look for core alongs. And if it got good fundamentals there even better on this other side, you know, weak, relative weak, absolute.

00:32:10 That’s where you get your call core shorts. And I tell ’em like, you know, where it becomes really interesting is when you have a stock that’s been trending up for a while, but all of a sudden the relative ratio starts lagging. Meaning that if I’m a fund manager at the end of the quarter, oh my god, you know, apple’s up 15%, oh wait, but the market’s up 20, I’m lagging. You know, then they kick that outta the foil and guess what happens? You know, the stock starts to form a top because of selling pressure and the, and the same thing on the other side. So it’s like you, you,

00:32:37 [Speaker Changed] And to be, to clarify, you’re not saying this about Apple.

00:32:39 [Speaker Changed] No, no.

00:32:40 [Speaker Changed] You’re just using as a random example,

00:32:42 [Speaker Changed] Right? As, as an example. Not not talking about Apple or a prediction there at all. But, but what I, you know, what I’m saying is it’s like you can find a time using technical analysis to say, you know what? I’ve been bullish this stock, but it’s starting to lag the market. Maybe it’s time for me to revisit my fundamental thesis. And that’s, and that’s good, that’s useful information to somebody, because what I’ve noticed is when a stock in an uptrend starts underperforming the market, guess what the, I mean, I haven’t tested this yet, but the theory is, and if I test the hypothesis and, and, and the theory and this theory works, the theory is a weakening relative often precedes fundamental information that’s less bullish than people expect. And I’ve seen it happen a lot. Hmm. And on the other side too, if stock trending down, all of a sudden the relative ratios starting to improve.

00:33:33 In fact, I mean, this is the environment now with the market correcting where you look for names like that, you know, where the relative chart’s improving, meaning that, oh my gosh, you know, the s and p’s corrected 10%, this stops only down five. Alright, why is that? Is there something going on fundamentally I need to look into? And that’s, and that gets, you know, the fundamental analyst thinking. And if I was doing more fundamental work, it would tell me, all right, I really gotta look at these companies to see, hey, what’s going on? Are estimates coming up or are the revisions improving? Or, you know what I mean? So, and, and I think that’s how, not only, not only a good way a, to interact with some of the institutional client base, but also, and, and private client base as well, but also just as a process. Because technical analysis is, is nothing, you know, without fundamentals. I mean, technical analysis, somebody once coined it, lazy man’s fundamental work, you know, and, and

00:34:22 [Speaker Changed] Free riding on other people’s number cruncher. Because

00:34:25 [Speaker Changed] Think about it. I mean, you know, if stock’s rallying, it’s doing it for a fundamental reason most of the time. I

00:34:31 [Speaker Changed] Mean, and you may not know what it is, but you can identify the footprints in the charts.

00:34:36 [Speaker Changed] I mean, think about where we were a year ago. A hundred percent of economists calling for recession, and the market rallies 20,

00:34:41 [Speaker Changed] 30 past two years. Right? I mean, that’s been ongoing. The calls for recession,

00:34:44 [Speaker Changed] And guess what I mean, guess when the market started correcting, when people started taking those calls off the table and calling for a soft landing. So, you know, as you know, as the market was rallying, it was telling us something. And then as soon as the economists started confirming what it was telling us, that’s when it corrected. So now we need to see what event that we’re discounting now, and hopefully eventually, you know, we discount it completely and things can, you know, get a little bit better. Huh.

00:35:09 [Speaker Changed] Really interesting. You know, let’s talk a little bit about what’s going on in the current market environment. We are recording this Halloween 2023. Where are we today? Are we in a, a secular bull market or bear market? Are we in a cyclical bull buller bear? What’s the state of equity markets and bond markets today?

00:35:29 [Speaker Changed] Well, I mean, I, I keep it simple with those sort of trends. So, you know, whenever we go on television, we always pull up the same chart s and p 500 with a 40 week moving average and a 200 week moving average. The 40 week moving average for those who look more at daily charts can associate that with a 200 day moving average. So we gauge the cyclical trend on the market using the 40 week moving average, and we gauge the secular trend as the 200 week moving average. So when you have a rising 40 week moving average, which we do now, and a rising 200 week moving average, which we do now, the pattern is a cyclical uptrend or bull market and a secular uptrend bull market, where are we now in the context of that, given the 10% pullback that we’ve gotten since the July highs, it is a correction of that pattern. The, we are below the 40 week moving average around 42 50. So

00:36:28 [Speaker Changed] That’s on the s and

00:36:29 [Speaker Changed] P, that’s on the s and p 500. Yes.

00:36:31 [Speaker Changed] What about, how, how does the NASDAQ look

00:36:34 [Speaker Changed] A little stronger? Stronger, stronger? Yeah, I mean, so when we look at the, the NASDAQ 100, for instance, it is still, I mean, it just tested the 40 week moving average last week. So, and well above the 200 week moving average. So still stronger if you’ll get relative strength charts, you know, the, the NASDAQ 100 still has a stronger pattern than the s and p at this stage. Hmm. Technology, you know, the sector itself, the technology still has a stronger relative chart pattern. It’s been sideways, but in a stronger trend. And, you know, you look at the RRG on Bloomberg, for instance, R

00:37:11 [Speaker Changed] Which is for

00:37:12 [Speaker Changed] Rrg, go. Yep.

00:37:13 [Speaker Changed] You get for listeners, what, what does that, what does that chart show you?

00:37:16 [Speaker Changed] Oh, it’s a great, it’s a great, it’s a great tool actually. I think I, I use it a lot in my work.

00:37:20 [Speaker Changed] RRG stands for

00:37:22 [Speaker Changed] Relative rotation graph. And what it’s telling us now is that some of the, the cyclical sectors like financials, materials, industrials, they had a chance to rotate into a bigger leadership position and failed. Right. And technology and discretionary and comm services had a chance to rotate into a more bearish leadership position and did not do that. So looking at that, it’s like, you just gotta think about what is the risk here, you know, to investors that are, you know, looking to get more part, not, not participation, but more alpha in the market from a greater number of stocks. The risk is that doesn’t happen if this pattern holds the risk is that tech can continue to lead, comm services continue to lead, and these cyclical sectors can continue to lag since they weren’t able to take on the mantle of relative leadership in, in the, in the relative rotation graph. So they, they were not able to move into an uptrend. And the so

00:38:21 [Speaker Changed] Industrials have looked like they’ve been on the verge for a while. They have hasn’t happened, hasn’t happened on the other. And same with financials,

00:38:28 [Speaker Changed] Financial, same thing. Looks

00:38:29 [Speaker Changed] Like, oh, I now there’s some spread financials can make more money, hasn’t really happened. On the other hand, energy seems to really be cleaning itself up. What, what’s going on in the oil sector?

00:38:41 [Speaker Changed] Yeah. So that’s, that’s the one cyclical sector that has started to work. In fact, it does look an awful lot like the pattern that we had for that on a relative basis, meaning outperformance off the, the, the, the, the low relative low from 98 to 2000, and that relative uptrend continued

00:39:00 [Speaker Changed] 98 to two, like we’re looking back 25 years, 20 plus years.

00:39:05 [Speaker Changed] And it was a similar pattern that we have now, and it’s, it’s maybe a third of the way through it. Wow. You know, because that, if that continues, you know, energy should be able to outperform if, if history rhymes, right? I mean, the oil chart, you know, looks like it could be building a base, you know, it broke out and moved back and retested some, some levels of support. But, you know, we’ll see how that pattern develops. I mean, you know, I mean, but it does, it does have more of a, a, a look of building a base within an uptrend for that. So if that does work and oil stays stable to higher energy should work to some extent. I mean, obviously this week or last couple weeks, there’s been some m and a activity where some, some of the bigger names started to get hit a little harder, but it didn’t derail the sector at

00:39:54 [Speaker Changed] All. Huh. Interesting. I couldn’t help but notice that very quietly, a lot of cryptocurrency, most specifically Bitcoin hit new 52 week highs. Nobody’s talking about that. Really? What does that mean when not only a particular stock or asset hits a 52 week high, but it seems to be off the ra below the radar. What, what do you, how, what do you make of that? Well,

00:40:21 [Speaker Changed] I can’t talk about Bitcoin. I don’t think I’m allowed to do that at, at b of a security. Of course, I, but yeah, I mean, look, I mean, if, and that, and we’re seeing that in, in, you know, in other areas of the market as well. No, it just means nobody’s there. You nobody caress and

00:40:38 [Speaker Changed] Which is now is that bullish or bearish? Nobody caress that something’s making a 52 week high. That might mean a lot more people could come into that space, right? Forget Bitcoin anytime it’s talking

00:40:49 [Speaker Changed] About any, any type of asset,

00:40:51 [Speaker Changed] 52 week high.

00:40:52 [Speaker Changed] I mean, it hap I think it probably happened with the energy names not long ago, you know, coming off the lows of 2020, you know, they, they moved up a lot. Oh, it’s already up 30%. Well, it went up another 50% after that. You know what I mean? That’s, that’s people, people actually have that argument. Oh, I missed it, so I’m gonna wait for it to dip. And it doesn’t dip. I mean, that’s what happens in that sort of environment, you know, when, when you start to see that happen. So I, I’m sure over the next few weeks there’s gonna be patterns developing in other pockets of the market where things that have been left, I mean, I don’t wanna use the term left for dead, but I guess that’s the only term is Halloween, so I might as well, right? I I mean that, you know, though, they can rally quickly 20, 30% and people will be like, oh, I missed it, and then three months later it’s up another 20 or 30%. I mean, that, that’s the pat, that’s the way those patterns tend to work.

00:41:41 [Speaker Changed] You, you mentioned Halloween. What, what’s the scariest chart you’ve seen recently?

00:41:46 [Speaker Changed] Well, I, what I don’t li there’s one breath indicator and I don’t like right now, and it’s just, I mean, hopefully,

00:41:55 [Speaker Changed] What’s the breath indicator?

00:41:56 [Speaker Changed] It’s the percentage of stocks about 200 day moving averages. They had some bullish divergences in the summer and they broke to new, you know, year to date lows now.

00:42:06 [Speaker Changed] And you don’t like that? I,

00:42:07 [Speaker Changed] I, it just, I mean, I don’t know. I mean, we have to, let’s see if they get back to, you know, oversold levels, but, you know, yeah, that’s, that’s something that’s a bit challenging, you know, but they, again, I think it all has to do with the fact that, you know, the equal weighted index has been lagging the cap weighted index pretty much all year.

00:42:27 [Speaker Changed] You’re anticipating my next question, what does it mean when you have this divergence between the s and p 500? The way we think of it as market cap weighted versus the, what is it? SPW, the Yep, that’s right. The equal cap weighted that that divergence is about as big as it’s ever, ever gets.

00:42:46 [Speaker Changed] I mean, and that is a scary chart when you look at it relative to the s and p scary because if the technicals work on this, there’s still more underperformance coming for that. The pattern, meaning that if you look at the pattern going back a decade or more, there is a potential that the equal weighted index is forming what would be called a head and shoulders top versus the s and p, the, the cap weighted index. I hope it doesn’t work because in our firm, you know, we have strategists that, you know, want, wanna see the equal weighted work, and I think it would probably be healthier for the market if it did work.

00:43:20 [Speaker Changed] It, it suggests that the market is relatively narrow at, at present. Right?

00:43:25 [Speaker Changed] Right. I

00:43:25 [Speaker Changed] Mean, if the cap weighted is radically outperforming the equal weighted, it means the biggest 20 stocks are the drivers.

00:43:32 [Speaker Changed] Yeah. That’s where you’re getting your alpha. I mean, in terms of market breadth itself, I mean, the asked the client on the s and p went to an all time high over the summer should

00:43:41 [Speaker Changed] Be bullish. Right.

00:43:42 [Speaker Changed] It it should be bullish and it, it, it gets wary some, when in my world, when this lack of performance for equal weight versus cap weight leads to weakening breadth indicators, which is why that percentage of stocks above 200 day moon average seems scary to me. Now, I will say, when you look at the equal weighted versus cap weighted ratio, lagging equ, lagging cap weighted, guess what period of time that happened in the past where the equity market was really strong? 1994 to 2000. Yeah.

00:44:17 [Speaker Changed] Right. That, that, that, that was all driven by the biggest tech companies at the time.

00:44:22 [Speaker Changed] And, and also I, I, I, I think pharma was involved in that too, and, and other large cap stocks. Here’s the other interesting thing. You look at the s and p 100 index right now, it does appear to be breaking out from a multi-year bottom versus the s and p, meaning mega caps leading large caps. The last time I saw a breakout like that was 1998. I find it curious that it’s hap that’s happening and the equal weight lagging, the, the cap weighted because in the late nineties or the mid late nineties, the Fed did hike rates quite a bit, right? And then they took some off and then hiked into, you know, 99 2000 with this environment for these particular names. So it just seems to me with these particular, you know, size fragments working better than others, so mega cap market potentially at this point, just looking at this, if it changes, I’ll change, you know, I’ll change my view pretty quickly if it starts to change. But right now, you know, I I, I know a lot of people really want to see more alpha generated by more stocks, but there’s a risk it doesn’t happen. But I do think instead of being the magnificent seven, maybe it’s a nifty 50 because the OEX is breaking out. Well,

00:45:38 [Speaker Changed] Well, we also know how the nifty 50 ended. So, but it takes

00:45:41 [Speaker Changed] Time, you know. Right. It takes time does takes a lot longer than people think. I mean, I’m sure people were calling for a bubble in 1998. Right? And you had a huge runup in

00:45:49 [Speaker Changed] The QI rational exuberance. 96. 96. You had a long time, long way to go. You, you mentioned the fed raising rates. Let’s talk about the bond market. What do you see in, in treasuries and the fixed income half of the portfolio?

00:46:01 [Speaker Changed] Well, I mean obviously that’s not my call as the equity strategist at BFA, but when you look at the, the 10 year yield, the view is a, a secularize in interest rates. And, and if I’m putting on my equity hat, and I have to say, all right, what was the last time you had interest rates rising from, you know, levels around 1%? I mean, here we went a lot lower during covid obviously, but mid 1940, so 1946 into 66, a 20 year rise from about one and a half to about 5, 7 5 over 20 years. It’s

00:46:35 [Speaker Changed] About, about this maybe a little smaller than the current range, right?

00:46:40 [Speaker Changed] You know, the, the, the interesting thing is, I mean, if covid didn’t happen, where would your yield low be? It’s either 2012 or 16. You know what I mean? So, so I mean, it may be this secular rise in yield is a little longer than people think it is, but I mean, again, the market did drop on on the 10 year note yield to like what 0.3 on the 10 during covid. So, and this is, and you look at the yield chart, it’s like the fastest rise we’ve ever gotten. So if we are gonna follow, you know, that period in the fifties, I mean, right now, I think we’re probably, I mean if I’m looking at stocks and overlaying it with interest rates and just trying to think about how it most, you know, where we are in that particular analog, it’s probably late fifties, early sixties in, in some regard we’ve been secular bulls. But what is not a characteristic of, of a secular bull, it’s interest rates above 5, 7, 5 and it’s inflation, you know, surging again, you know, we can’t have that happen. It’s very interesting when I get people asking me stuff like, when are the market gonna get back to normal? I’m like, well, define normal. Well, interest rates need to be lower, you know, 1%. I’m like, well,

00:47:50 [Speaker Changed] That’s

00:47:50 [Speaker Changed] Not normal. That’s not normal. Right. And, you know, I find out these guys have been in business,

00:47:53 [Speaker Changed] So where is normal, right? Five 6% is pretty normal.

00:47:56 [Speaker Changed] I mean, the average 10 note yield going back to 1920, if, you know, looking at the data is around 4.7

00:48:03 [Speaker Changed] Or so. So, so we’re a little elevated.

00:48:04 [Speaker Changed] We’re right there.

00:48:05 [Speaker Changed] We’re right there, but not, not terrible, right? We’re, we’re, we’re kissing five as we record this, what’s a quarter point between friends, right? It’s not, it’s not that that’s a couple of days of, of, you know, wild trading action, right?

00:48:18 [Speaker Changed] So I mean that, I mean, look, I mean, you get a return on your cash, which is great. A lot of people have taken advantage of that. So, you know, the other factor is, I mean, when is that record level of cash gonna be put to work in stocks? You know? I mean, with people making five to 6% of money market funds, it’s, it’s gonna take a little bit more, which is by design, you know, the Fed wanted people to take on risk with rates at zero. Now, you know, they don’t want people to take on as much risk in, in some regard. So it’s gonna take a little more confidence, you know, and equities to, because you get your, your hurdle rates higher, you know? So that

00:48:50 [Speaker Changed] Makes sense.

00:48:51 [Speaker Changed] So, I mean, that’s the reason why I think we are moving into a more normal environment. We’re actually getting a really normal type of correction rather than something that lasts only, you know, three to 5%. We’re getting a normal 10% plus type of pullback.

00:49:04 [Speaker Changed] You, you mentioned how covid changed when, what the lows were in, in the bond market. There’s a fascinating piece in the Economist this week about, in the post covid world, sentiment data has, you know, just gone off the rails. In fact, if you look at the bottom of the sentiment data in 2022, and, and I’ve been struggling with this for a while, worse than the 87 crash, worse than the.com implosion, worse than September 11th, worse than the great financial crisis and worse than the Covid lockdowns. What do you make of this wildly noisy sentiment data?

00:49:46 [Speaker Changed] So, wait, which, which data points worse?

00:49:48 [Speaker Changed] The Covid ones worse. I believe it was the, the, the University of Michigan sentiment data.

00:49:54 [Speaker Changed] And now it was worse during Covid than any other period.

00:49:57 [Speaker Changed] No, 2022. Oh, it hit a record low, worse than covid, worse than gfc, worse than dot coms. Just unprecedented levels that we’ve never seen. The Economist is implying Covid just disrupted our sense of the world. It

00:50:12 [Speaker Changed] Probably did. It probably did to some extent. And then I think, you know, in 2022, you started, I mean, I mean, you’re already in a bear market from peaks in 2021. You already had indicators topping out in 2021 in the middle of the year and then late in the year. So we were well entrenched with economists looking for, you know, a a, you know, a massive hard landing at that point. So it would make sense that sentiment would be off the rails to some extent. You know, given, given that outlook

00:50:40 [Speaker Changed] Make, makes some sense. You, you frequently use a phrase that cracks me up in, in your research, let’s discuss your indicators, the good, the bad, and the ugly. One of my favorite movies of all time, looking at the world that’s out there today, what’s good, what’s bad, what’s ugly,

00:50:59 [Speaker Changed] Right? So yeah, we, we just, you know, wanted to be a little tongue in cheek with some of our stuff here. So, so we, we noticed that the percentage of stocks of a 50 day moving averages on the s and p actually did not go to a lower low as the s and p went to a lower low just last Friday. So that has the potential to be good, you know, maybe triggers a seasonal rally. Another indicator we threw in there was the, I think they, they call it the N-A-A-I-M exposure index that around 24% versus oversold in the low twenties. That’s getting closer. So, so exposure among asset managers and market participants in equities is a lot lower than it was. So a lot of the, I mean, I always use the term, a lot of the froth has been blown off the cappuccino, you know, over the last three months. So those are, those are some, you know, better looking indicators. I would argue that when you look at the Chicago Fed Financial Conditions Index, it’s held in like a champ. So that’s another, what

00:52:03 [Speaker Changed] Does that mean?

00:52:04 [Speaker Changed] Well, it just means financial conditions aren’t deteriorating, you know, to any great extent based on that indicator, you know, which is indicator I like to use credit markets haven’t blown out either, you know, so that’s, that’s, you know, spreads haven’t blown out either, at least on the

00:52:18 [Speaker Changed] Option. And there, people were warning that that was about to happen in the spring when Silicon Valley Bank, right. And First Republic blew up, this is it. You’re gonna see credit markets turn, go upside down, and that’ll be it For equities, not so much, right?

00:52:31 [Speaker Changed] Not so much. I mean, the corporate b AA to 10 year spread is one I look at a lot,

00:52:35 [Speaker Changed] Meaning investment grade to just below investment grade.

00:52:40 [Speaker Changed] I, it, it, it’s the 10 year spread versus that, right. So I’m looking at the lowest tier of investment grade versus the 10 year yield

00:52:46 [Speaker Changed] Versus the treasury. Gotcha.

00:52:47 [Speaker Changed] Yeah. And what I’m trying to say is, all right, when does stuff start to creep into investment grade, you know, the lower tier, and it hasn’t happened. I mean, that is well below 2%. And when you get above 2.5, that’s when things really start to, to

00:53:01 [Speaker Changed] Struggle. Let’s, let’s talk about your sector work. How do you utilize different sectors and, and how does that work into your overall approach to macro?

00:53:11 [Speaker Changed] Well, I mean, the sectors, I mean, this is, this is, I I’ve been shying away from having bold sector calls this year. And the reason why is you can find bullish and bear stock charts everywhere, no matter what sector you’re looking at, even utilities, you know,

00:53:27 [Speaker Changed] What does it mean when a sector is strong and an individual company is weak? Is it just reflecting that company? How, how do you draw a conclusion from

00:53:35 [Speaker Changed] That? No, I mean, what you wanna see, I mean, sure. That’s a good question. So what, you know, if you have a bullish sector, I mean, I would argue tech is still, tech and comm services is still in quite bullish position. So if, if you have a stock and a bullish sector’s not acting well, chances are it’s an idiosyncratic problem with that stock or chart, you know, probably a fundamental reason for it too, more so than a technical reason. ’cause, you know, the technical are reflecting the fundamental situation to some extent. So I, I mean, I think right now, just looking at sectors and looking at, you know, the way things look on the relative price charts along with the absolute price charts, it seems like, you know, tech is holding in fine comm services, holding in fine semiconductors, trying to hold their trend, industrials, you know, trying, but, you know, not, not really convincing energy holding in just fine materials.

00:54:30 It depends on the stock. You can find some winners, find some losers and financials. It’s, it’s really challenging because, you know, you know, two things. One, the absolute chart looks okay as long as it can hold those prior highs from 2007, which it has done, but the relative chart not okay. But within that group, you can find winners and things like exchanges and stuff like that that look really strong relative to the lagger of the group, which just happened to be, you know, the sector near and dear to my heart, the banks, you know, it’s like, you know, just not

00:55:05 [Speaker Changed] Because you work for a bank, just, just the sector. You happen to happen to really, like, right?

00:55:09 [Speaker Changed] I mean, I mean, why not? I mean, it’s like, you know, it’s, you know, you, you wanna see your companies, you know, do well. Yeah, of course. You know, it’s like,

00:55:16 [Speaker Changed] So, so let’s talk about the macro. What goes into what you look at most when you’re doing an overall view of the equity markets?

00:55:27 [Speaker Changed] Yeah, so I mean, another one of my favorite indicators, and I would lump it in with the good would be the 73 country index of market breadth. So the advanced decline line for 73 country indices us is one of those.

00:55:40 [Speaker Changed] So it’s not just looking at the domestic right equity markets. You wanna see the whole world doing well at once.

00:55:46 [Speaker Changed] Yes. And that advanced decline line broke out during the summer, and even though the market correction has taken a lot of indices below the summer breakout points, this particular advance decline line remains above its breakout point. Meaning that there are pockets of the world that are working better than others, you know, out there. So yeah, I think, I think that’s important to point out. And, and, and so global breadth hasn’t rolled over. So it tells us that we’re in a corrective phase within what could very well be a market that may yet have another uplay to it, not just in the US but also, you know, globally.

00:56:24 [Speaker Changed] So since we’re talking about global, the world always is kind of a scary place lately. You flip on the news, geopolitics is everywhere. It’s Russia and the Ukraine. It’s the things that are going on in Israel, it’s the economy in Europe, and especially China seems to be falling into its own problems. How do you think about all these big geopolitical events? Or do you not, it’s really either in the charts or not?

00:56:55 [Speaker Changed] No, I would say it’s a latter in the charts or not. So, I mean, put it this way, market is a discounting mechanism and sometimes it di it discounts things in advance, of course, but when things are a surprise, it discounts things quickly. And I think that’s really the way to think about it. And what’s interesting, I I’ve noted, I mean, maybe there’s a little bit of gold taking on its old fashioned

00:57:22 [Speaker Changed] Safe harbor. Safe harbor harbor here, a little apo apocalyptic currency. Yeah,

00:57:28 [Speaker Changed] I mean, if you look at the research that, you know, my colleague puts out, you know, Paul Sayana, I mean, there’s like a huge base on gold, you know, that, that if it ever breaks out, it can go up a lot, right? And the, the, the events of the world have enhanced that pattern a little bit.

00:57:43 [Speaker Changed] So the question I have for your colleague is, Hey, the past decade saw a lot of really crazy things happen, and gold, you know, caught a little bit of a bid, but never really could get out of its own way. In fact, I don’t think it got over the 2008 nine highs. What, what do we make of gold sort of forming this long? Is this a base or is this a top?

00:58:09 [Speaker Changed] No, I, it looks like the mother of all cupping handles, you know, coined

00:58:15 [Speaker Changed] Bill o’ and define what a cup and handle pattern looks like. Yeah,

00:58:18 [Speaker Changed] I’m gonna define it because it’s like, it’s, it’s Bill O’Neill coined it, right? Right. So the cup, the handle, the cup is this big rounding type of base stock rally. Sometimes it goes to a new high, which it did. So it did go above where it was

00:58:32 [Speaker Changed] Briefly, right?

00:58:33 [Speaker Changed] Yeah, a few times though. Now you have three probes up and the, and a probe down. So you got the cup and now you’re forming the handle. And the handle’s a lot shallower in terms of price decline, meaning

00:58:44 [Speaker Changed] Buyers are coming in at higher prices,

00:58:46 [Speaker Changed] Buyers higher prices, meaning that there’s demand for gold at higher prices. And if this technical formation works, I mean, and, and gold can clear those hives that occurred over the last 3, 4, 5 years, then you got the pattern and you can, you know, go much higher than where gold is today if we do complete that pattern. And goal was interesting too, because if I put my equity hat on and look at goal, the way I look at a stock it tagged, its 200 week moving average, perfectly rising, 200 week moving average, which means secular uptrend, you know, even though gold is consolidated, it just lends more confidence that the pattern we’re in now is more, more likely to break higher than break down. And, and, you know, just looking at just evidence-based type of technical analysis. And,

00:59:35 [Speaker Changed] And you mentioned towards the end of 21, there were lots of warning signs. What, what did the technicals say about 2022? And let’s, let’s revisit the June and October, 2022 bottoms. What were the technicals saying then? Sure.

00:59:52 [Speaker Changed] So, so we, we put out our year ahead for 2022, buckle up. It’s gonna be a rocky, a rocky year.

00:59:59 [Speaker Changed] That’s a pretty good, pretty good call.

01:00:01 [Speaker Changed] Yeah. I mean, you know, it, I, it was, yeah, I, I, I felt good about it. I mean, look, when you, when you’re looking at credit spreads peaking in the summer, you’re looking at financial conditions, you know, hitting their best levels in the summer 2021, and then deteriorating through the end of the year when you’re looking at the percentage of stocks, about 200 day moving averages diverging for six months, you know, a few other indicators I could point out, but it’s a laundry list and the s and p going to a new high in January, whereas the NASDAQ 100 NASDAQ comp topped out November. It’s telling you something’s going on. And it just suggested to us that the rally that we’ve gotten from the covid lows was at risk and we were entering into a corrective phase. And, you know, we were targeting levels like 3,800. And we also throughout the 200 week moving average, which, you know, when it eventually tested, it was like 34 90, you know, around 3,500 on the 200 week moving average. So, so that was the pattern. And then we looked at, you know, 2020 throughout the year, 2022, and you did hit a nice low in June, and you were able to rally and then guess what happened? You stalled a declining 40 week, 200 day moving average in August, and then you went down and undercut the June low. I would just

01:01:20 [Speaker Changed] By a little bit,

01:01:21 [Speaker Changed] And I would say that was a nice retest of that low. There were some indicators, I believe the 14 week RSI had a higher, low meaning price momentum improved even though the s and p went to a lower low. So it was, so that was a positive. I believe there were also fewer new 52 week lows. And the other ingredient was that we just talked about earlier versus, you know, versus June and November, you actually started to see the dollar peak and yields peak in October. So that helped the market stabilize and bottom out. So was there capitulation, because that’s what a lot of people, you know, hung up on. We didn’t get the capitulation in, in, in October, 2022. And I would argue we did, the one indicator I would point to, to support two indicators. First, a a I I bears went to the highest level, the most bearers since early 2009.

01:02:13 [Speaker Changed] That’s pretty, pretty big level.

01:02:14 [Speaker Changed] That’s a huge level. So that’s one. And the other one is that three month VIX versus VIX went below one, late September, early October of 2022 to suggest to us that the tactical medium term, you know, momentum of medium term sentiment did capitulated. So bears capitulated from institution, from retail investors, and the three month VIX versus VIX move below one to suggest, you know, capitulation on that indicator. And the other thing that was very interesting about October of last year was that entering the month, we had two extraordinarily bullish breath days, 90% up days on the NYFC in a row. And, and that helped solidify a bottom two, even though the first few sessions after that, it gave up all the rally from those two days. Right. But the market did find support, you know, with those days. So it was a very complicated market. Yeah. Normally when you get those two types of things, you just rip to the upside, but, huh, it, it’s just so volatile now, you know?

01:03:19 [Speaker Changed] So, so let’s sum up the, the secular view of, of the markets. We had a 34% downturn in 2020 during the pandemic, the rest of the year from those lows, I think we were plus 68% the following year plus 29%. And then we come into 2022. Where are we broadly? Are are, have we been in a cyclical correction within a longer secular bull market? Is, is that how you’re describing this? And, and if we are, how long could that secular bull market run for?

01:03:54 [Speaker Changed] Yeah, so this is a great question. So first, the, the view of the 2022 correction was secular, cyclical, cyclical correction, secular bull market. We made comparisons with the Eurozone crisis in 2012, very similar to that. Also 2016 Brexit and the election that year, right? And trade war in 2019. And one can even argue Covid 2020 similar setup where you went down, tested the 200 week ma cross above the 40 week and then corrected to undercut the 40 week. You did it twice, twice in 2012, once, once prior to the summer rally and once prior to the yearend rally, 20 12, 20 16, you hit it right when the exit vote happened. And then boom ripped into summer rally, fall correction, yearend rally after Trump got elected president in 2016. And then China trade war two similar type of, of dips, one in the right ahead of the summer rally and one ahead of the year end rally.

01:04:50 So here we go. We had one in March, which is a little early, but it happened. You rallied above the 40 week, then moved below it, and then rally back above it by the time you’re in April and you got a nice summer rally. And then right on q seasonality always says, going back to 1928, well, you know, seasonality says, going back to 1928, the worst three month period of the year is August through October. And that’s exactly what’s going on right here. We’re getting that traditional correct correction, which usually proceeds the best three month periods of the year of November through January. So, so I think that’s where we’re now. So we could very well be ending this cyclical correction soon if we follow seasonal patterns. So how long can the secular bull market last? Well, there’s a financial advisor who helped me coin this term, I guess he was a Marilyn Monroe fan, the seven year itch. So seven years after the breakout of 2013 was covid and the market hit of spike low

01:05:48 [Speaker Changed] And 34% is normally considered a pretty substantial bear market.

01:05:53 [Speaker Changed] I mean, the only other one in the secular bull trend that matched it was the 87 crash and guess what, 87, 7 years after the 80 breakout. So seven year itch there. I call it halftime. You know, not everybody knows Marilyn Monroe, you know, I mean, I did a JAWS reference in one of my morning call appearances, you know, talking about how the market needed to build a bigger base. You know, you’re gonna need a bigger base. And sure enough, I bet you if that trading floor probably Google what’s Jaws because no, you know, think about, think of the average age down there, but bottom line is this, and I just digress. So let me get back to what I was talking about. So the seven year low 87 bull market lasted until 22,000, then 57 50 breakout in the s and p above the 37 high. And, and then you rallied into, you know, prior to 1957, had a correction in 1957, which was recession and a pandemic.

01:06:48 So go figure. And then that lasted another nine years. So, I mean, if I’m just saying, hey, midpoint 2020 from 2013, maybe it lasts until 2027, but some of these other bull markets lasted longer, maybe I have to get a little bit of haircut given where inflation interest rates are. I mean, that’s quite a possibility. Sure. In fact, I mean, for order, order for the secular call to really work, I mean, let’s face it, inflation does need to come down and, and, and, and cannot spike, you know, 10, 12%. I mean, if it does, that’s not what happens during secular bull markets. You know what, you know, the 1950s secular bull market started with, you know, inflation high and then it went down and stayed fairly contained, you know, higher interest rates, not what you want to see, you know, 1980, sure it started with interest rates double digits, but our friend Volcker, you know, did what he needed to do and, and solved that problem. Rates went down. So, you know, 10 year no yield is trending through five and a half, 5.75, and inflation’s going back up. You know, I think it’s gonna be very difficult for this secular bull trend to be sustained because it hasn’t happened before. It doesn’t mean it can’t happen, but I can’t find, you know, go, you know, any history to support that case.

01:08:03 [Speaker Changed] Huh. Really interesting. So, so let’s talk a little bit about what follows the worst three months of the year. You mentioned August, September, October tends to be seasonally the worst part of the year. I, I’ve seen all sorts of explanations for why that is harvest people distracted with summer vacation, going back to school, whatever it is. The last three months tend to be pretty good. What are the odds that we’re gonna see Santa Claus come to Wall Street?

01:08:36 [Speaker Changed] I hope they’re pretty good. First and foremost when, you know, we use traditional seasonality work. So traditional seasonality, what does it tell you? You know, everybody talks about sell in May and go away, but do you ever see anybody go on the media and say, Hey, buy an October and stay? They don’t, because that doesn’t sell right.

01:08:54 [Speaker Changed] And it doesn’t rhyme. That’s, you know, it’s true when it rhymes, that’s the key. Yeah,

01:08:59 [Speaker Changed] That’s true. Buy

01:08:59 [Speaker Changed] An October and stay the trend is your friend. If, if there’s no rhyme there, it’s no good except for the bend at the end. Of course. Yeah.

01:09:06 [Speaker Changed] But it’s really, what’s really funny about it is, I mean, November starts the best three and six month periods of the year for the s and p, which I think going back to 1928 is really encouraging for those looking for the market to stabilize. But when you think about where we are in the presidential cycle, we’re in year three. So year, year two to year three has the best part of the cycle from, you know, fourth quarter, year two, which was last year, around this time through the middle of year three. So, and we follow, we did that perfectly. And now we’re, you know, we’re doing the,

01:09:40 [Speaker Changed] Getting ready for year four,

01:09:41 [Speaker Changed] We’re getting ready for year four, but right here, right now it’s tough in year three, August, September, October, November. So seasonality might be pushed into December. We could struggle into November because that can happen in the third year of the presidential cycle. So in the third year of the presidential cycle, positive Q4 performance is typically a Santa Claus rally event. Hmm. So, and then the next part of the cycle calls for a choppy pattern into May of next year. But then you follow traditional seasonal patterns, summer rally, fall dip, and correction and, and rally after the election. And it doesn’t matter who wins or loses. I mean, in 2016 everybody thought Trump was a disaster. Everybody thought Biden was a disaster, and the contested election was a disaster market. Loved it.

01:10:40 [Speaker Changed] Both cases market did well. Right. Market

01:10:42 [Speaker Changed] Did well. So, so I think, you know, granted, I mean that, that we’re in, we’re in an interesting period of time here where it may take a bit longer for the market to stabilize, but I do think if we follow, you know, the, the, the, the pattern work, December should be good.

01:10:59 [Speaker Changed] So let’s talk about another sort of historical pattern. Not quite seasonal. I’ve seen a lot of studies that suggest when the Fed finishes its rate hiking cycle shortly thereafter, we’re off to the races. In the equity side, it almost feels like the market isn’t sure if the Fed is done. And once, once the market is comfortable, hey, we’re we’re done raising rates, the the next leg up can begin. Does that sound reasonable or what are your thoughts on that?

01:11:31 [Speaker Changed] I, I mean, it, it does sound reasonable. I mean, clarity around when that final ha rate cut’s happening probably would be helpful. I mean, I think that’s one reason why the market is struggling a little bit because there’s that last hike just sitting out there creating uncertainty PL

01:11:46 [Speaker Changed] Plus you have a lot of Fed governors jaw boning back and forth. It doesn’t seem like there’s a consensus there yet.

01:11:52 [Speaker Changed] Yes. I mean the, the, you know, my, my dad was a bond guy all his life, and he coin, he told me FOMC stands for Federal Open Mouth Committee, meaning they talk a lot and sometimes confused markets. That’s very, and back when in the day when he was trading bonds, they didn’t tell you what they were doing either at the Fed meetings, you had to figure it out from price action.

01:12:10 [Speaker Changed] They, they, they didn’t even announce that. People don’t realize when you talk about some people who have only been in the business for 10 or 20 years, the Fed didn’t even tell you we’re hiking rates. You would just have to see what would take place in the, in the bond markets. Suddenly it’s like, Hey, who’s, who’s buying all these equities or who’s selling all these bonds? You had to figure out what was going on.

01:12:32 [Speaker Changed] I mean, we are spoon fed, that’s for sure. I mean, and, you know, I don’t know what, whether that’s a good or bad thing. I mean, you know, again, I mean, information just comes at us so quickly, quickly digest it. You got machines that help you digest the information and, and do and make trading decisions. But yeah, the environment has definitely gotten, you know, more complicated. I mean, my dad taking the train back in the day, he wasn’t getting emails on the, you know, he could, he could actually play bridge with a few other guys on the train, you know? So, so

01:12:58 [Speaker Changed] Let me, let me ask you a related question to that about the, the Fed spoonfeeding us say what you will about Jerome Powell and, and the Federal Reserve. He said, we’re gonna raise rates. And he started raising rates. In fact, he said, we’re gonna raise rates aggressively to com combat inflation. Now, we could say they were a little late to the party, they should have started a year earlier. But hold that aside, it seems like the equity market didn’t believe the Fed chairman when he said, hold my beer, watch what I’m about to do with rates. Nobody seemed to believe him.

01:13:35 [Speaker Changed] Well, I mean, I think it’s good that the equity market was able to, you know, I mean obviously at first it corrected, but it able to rally again. Because again, I mean, you know, people say, Hey, rates are, they’re increasing rates drastically. And I’m like, no, I would, I would not, I would call it normalization of rates. You know, I, you know, I I think that’s, that’s

01:13:54 [Speaker Changed] A fair, fair phrase,

01:13:55 [Speaker Changed] Really what’s going on. It’s not, it’s not, I mean, it is aggressively hiking. They did, but they got it to a more normalized level. So I I and I, you know, again, I mean, is it normal to get a return on cash investments? The answer to that question, I would argue is yes. So this is the most normal environment we’ve been in in a long time, which,

01:14:15 [Speaker Changed] Which is kind of crazy to think about the previous two decades were abnormal. And think about everybody who’s, you know, first started investing in these 20 years, yet a 10 year bear market, right? From 2000 to, I don’t know, call it twenty twelve, twenty thirteen, is is this normal or is this normalizing what we, we may not quite be at normal yet, are we?

01:14:41 [Speaker Changed] Well, we’ll see. I mean, it takes time to really figure that one out. But, you know, I, I think, I think we’re a lot more normal than we were 10 years ago.

01:14:49 [Speaker Changed] You mentioned different market cycles in the fifties and the sixties. You use a lot of historical references. How informative is going back decades or centuries. The world was so different, right. You know, in an era of telegraphs and railroads, can we really carry forward lessons from that era, from chart action to, to the modern world?

01:15:15 [Speaker Changed] I mean, I think you can, the primary reason you can is because the dynamics of human nature and fear and greed haven’t changed. Now people will say, well, there’s more mechanical trading this, you know, these days with high frequency trading and things like that. I’m like, well, who created the programs? You know?

01:15:29 [Speaker Changed] Right. Who’s writing those algos?

01:15:30 [Speaker Changed] It, it’s human beings who created it. So, I mean, there is a human element touching all of that. So maybe if we’re coming back in 10 years, 20 years and, and the machines are creating things, and maybe we have a different argument to talk about, but one would think if the machines were working the market, it wouldn’t be as emotional as it is.

01:15:47 [Speaker Changed] And yet, and it

01:15:48 [Speaker Changed] Is very emotional.

01:15:49 [Speaker Changed] It, it very much is. You know, it’s funny, I read a book a while ago, I think it was published in the 1920s by Richard Wykoff, how I Trade Stocks. And what was so shocking was, okay, it was about railroads and telephone companies, but you could swap in internet, right? And technology. And nothing is different. It reads as if it was written last month. It’s, it’s really quite fascinating. That is human nature, isn’t it?

01:16:20 [Speaker Changed] Exactly. If progress, I guess is the term, I mean, maybe, maybe we fear greed and progress, and I hope progress continues. You know, I mean, look, I mean maybe this is, maybe the secular driver of this is, is the AI theme or, you know, things like that. I mean, ’cause every secular bold trend has some sort of theme behind it. You would think, huh?

01:16:40 [Speaker Changed] Give give us some examples. I I like the concept of that. Well,

01:16:45 [Speaker Changed] Well, I mean, you know, obviously I think the fifties was more of a build back after World War ii

01:16:50 [Speaker Changed] Post type postwar. Right? And, and for, for people who may not know their history, you had the build out of the interstate highway system.

01:16:59 [Speaker Changed] Yep. Eisenhower, you

01:17:00 [Speaker Changed] Had the rise of suburbia, the rise of automobile com com companies and the commercialization of passenger air travel and the electronic engine. There were a lot of things that took place in the fifties and sixties that drove everything forward. Every time we have a secular bull market, do you see something similar to that? This

01:17:20 [Speaker Changed] This should be, yeah, I mean, I think so. I mean, ’cause the eighties, you know, if you know,

01:17:23 [Speaker Changed] I guess technology, the telecom,

01:17:25 [Speaker Changed] The computer and things like that,

01:17:27 [Speaker Changed] Internet. Sure.

01:17:28 [Speaker Changed] And then Yeah, exactly. Mobile.

01:17:29 [Speaker Changed] Yeah, you just, that that 20 year period saw a lot of new industries pop into existence.

01:17:35 [Speaker Changed] And then when it gets too exciting, such as the tech bubble, that’s when things change. And it doesn’t seem like we’re there now. ’cause we talked about these indicators peaking out in advance of the market in 2021. I don’t really have that here, you know, as we’re on this corrective phase, except for the percentage of stocks, about 200 day movement averages that does have the divergence. But credit spreads confirm the rally financial conditions, confirm the rally, you know, a lot of other indicators confirm the rally. So, you know, there’s, you know, a little different than say two years ago at this point.

01:18:06 [Speaker Changed] So, so I’m glad you brought that up. I, I, I want to talk about what you called the magnificent seven and, and compare it to prior eras. When you take the seven biggest companies on the SP 500, their revenues collectively are something like $1.8 trillion. Their profits are a quarter of a trillion dollars. Put on your CFA hat for a moment, and let me ask you, Hey, they’re a disproportionate part of the s and p 500 with good reason, right? Is that a fair statement? We, we’ve never seen any group of seven companies make so much in revenue and so much in profits. How wrong is it that these are, you know, the, the darling stocks?

01:18:56 [Speaker Changed] It might not be wrong. And quite frankly, I would argue that could very well be a factor of a secular bowl market. And here’s why. During secular bowl markets, what outperforms large caps or small caps,

01:19:10 [Speaker Changed] Large caps,

01:19:11 [Speaker Changed] You know,

01:19:12 [Speaker Changed] They’re international, they have a broader reach, they have great access to capital.

01:19:17 [Speaker Changed] Small caps graduate.

01:19:19 [Speaker Changed] That’s right. You graduate to mid caps. Mid caps graduate to caps. So large caps become big caps.

01:19:25 [Speaker Changed] So, you know, the interesting thing is, like in the equal weight, you know, had its best period during the 2000 to 2013 bear market for equity. So one would argue that having a greater concentration, you know, not, not to the extent, I mean, I, you know, mag, maybe it’s magnificent 50, maybe it’s magnificent 100 going forward. I mean that, I would take that as a bullish sign if, if, if we went from the seven to the 20, maybe even more. But, but you’re rewarding the winners and, and you know, I guess that’s capitalism for you in some regards, you know, so

01:20:00 [Speaker Changed] Make, makes a lot of sense. Before we get to our favorite questions, let me throw you one curve ball. You, you, you do both broad analysis and I, I don’t know if I would call them just outright market calls, but you certainly share opinions about where we are and where we could go. What were some of your most memorable calls that have stayed with you? What do you, what do you remember most fondly and what are you not so keen on prior calls?

01:20:33 [Speaker Changed] Well, I mean, I, I think the secular bull market call has been a great one since

01:20:38 [Speaker Changed] 20. What are the dates of those?

01:20:39 [Speaker Changed] 2013 when we broke out 2012, we broke out in the s and p in the NASDAQ

01:20:45 [Speaker Changed] In 2013 on the s and p above the 2000 and oh

01:20:49 [Speaker Changed] Eights seventies. Yep,

01:20:50 [Speaker Changed] Exactly. Or seven highs. Yep.

01:20:52 [Speaker Changed] And, you know, that was, that was, that was really the big

01:20:55 [Speaker Changed] Call and a ton of pushback, right? I remember 2013 people were like, no, no, no, this is just a bear market rally and it’s gonna end soon. Well,

01:21:03 [Speaker Changed] We did a radio show on that. I remember back in the day, you and me talking about it, and I was explaining, well, I mean, you know, a big trading range, a break out of it, you know, this is like 19 50, 19 80. It should continue for a while.

01:21:14 [Speaker Changed] And it did for seven years until Covid.

01:21:17 [Speaker Changed] I mean, the call I want to forget though, is being so bold up on value overgrowth entering this year, because quite frankly, it looked like a classic double top that supported the case for value to be growth. And obviously that didn’t work. So that

01:21:28 [Speaker Changed] Value did have a good cup 21, 22 pretty good years compared to the prior decade. In fact, that might be the longest run we’ve seen of value underperforming growth until 21. Is that, is that fair?

01:21:42 [Speaker Changed] Yes, I think so. It was, I think it bottomed out in 2006. So, and you know, one would’ve thought that you would’ve seen a peak in that, you know, not, not, not that you have to sell all your tech names and, and buy all the value names because, you know, that is obviously not what you wanna do. But, but yeah, it was surprising that that technical formation did not work. Hmm. Of, you know, a nice classic double top formation on growth, relative value, a little bit surprising. And, and the Nasdaq stall, not the Nasdaq the, the technology sector stalled at its 2000 high relative to the s and p entering this year. And then of course, when growth versus value didn’t work, I mean, when value beating growth did not work, and growth took the mantle leadership, again, guess what happened? Tech broke out to all time highs of relative, the s and p going all the way back to 2000. I mean, maybe that’s the message we need to take here. As long as that breakout’s entail in, in place, you know, how is, how is value gonna be growth? Huh.

01:22:48 [Speaker Changed] Really, really interesting. Alright, let’s jump to our favorite questions that we ask all of our guests. Starting with what have you been streaming these days? Give us your favorite podcast or Netflix, Amazon type of shows.

01:23:03 [Speaker Changed] Sure. So in terms of TV shows and things like that. Sure. I, I, well, I’ve been watching Loki, Disney plus big Star Wars fan, so obviously I watched the Mandalorian Asoka.

01:23:17 [Speaker Changed] I’m way behind on a Soka, so no,

01:23:20 [Speaker Changed] I will not say anything. Yeah. But

01:23:22 [Speaker Changed] It looked really, the first couple episodes looked really interesting.

01:23:24 [Speaker Changed] Yeah. Solid show. I mean, I’m into all those superhero shows. Like, I mean, even some of the gory and chy ones, like the Boys On

01:23:32 [Speaker Changed] The Boys was great. And the second season, you know, there’s a third season coming also.

01:23:36 [Speaker Changed] I hope so. And now I’m watching this v University show or something like that with same, same concept, same same people, but young kids that are in school.

01:23:47 [Speaker Changed] Oh, okay. I saw a preview for that. But it, that looks interesting. It’s,

01:23:50 [Speaker Changed] It’s gory, you know, I, I

01:23:52 [Speaker Changed] So was The boys was totally gory.

01:23:54 [Speaker Changed] Yeah. And in my, you know, of course I’m sitting there, oh, this looks interesting. It’s about kids and, you know, Splatt. And I’m like, turned it on. And all of a sudden, oops, let’s turn that off. You know, my, my son was in the room. He wasn’t watching it, but he was doing something else. Right. And I’m like, all right, this come right off.

01:24:10 [Speaker Changed] So if, if you liked the boys, the there’re two shows that were on Amazon Prime that you might like, I think everybody knows The Expanse was pretty popular.

01:24:21 [Speaker Changed] Yeah, I didn’t see that one yet.

01:24:23 [Speaker Changed] It’s a great sci-fi

01:24:24 [Speaker Changed] Series, and that’s right up my alley too.

01:24:26 [Speaker Changed] But, but something that’s a little more eclectic and not well known was Altered Carbon. It was only two seasons. Amazing.

01:24:34 [Speaker Changed] Yeah. Last year I was into a Stranger. I got, I went through, I binged Stranger Things.

01:24:39 [Speaker Changed] How do you like, how’d you like that? Oh,

01:24:40 [Speaker Changed] I love that show because I was a 1980s Dungeons and Dragons kid. So, and now I’m playing it now with my son, some of his friends. So Covid actually brought a few things out. You know, you got that into some old hobbies, you know, it was kind of fun

01:24:53 [Speaker Changed] During Covid, we, we broke out all of the kitchen appliances and wedding gifts that just had not been touched. Like, oh, that’s fun. Literally like the Yo Nana, things like that, where you’re putting frozen fruit into this device and turning it into That’s so cool. I like that. To ice cream and, and the air fryers. And it, it’s really funny. Everybody went to the basement or garage or were a storage room and pulled out the stuff that had been gathering dust for years. It was, but that was the best part of Covid

01:25:25 [Speaker Changed] Was Yeah. I found, I found, yeah. My dungeon masters guy, my players’ handbook with the duct tape holding it together, you know, by the time, yeah. I mean, you know, my, my son, I taught my son how my daughter played for a little while, but it wasn’t her thing, but Right. And now, now we’re continuing a, I started a little club in town, so we got a few people playing every other Saturday. So it’s fun. It was a good thing to do

01:25:45 [Speaker Changed] That. That sounds like fun. Tell us about your mentors who helped shape your career.

01:25:50 [Speaker Changed] Yeah, sure. I mean, you know, obviously all the people I mentioned earlier in the podcast, of course, you know, my dad, Marianne Bartels, you know, my boss at Remar Huff Stefan Haer, very, very, you know, helped me, you know, steer again into the fundamental side of the business. You know, as far as like technical Strat analysts and things like that. Books I’ve read. I mean more mostly influential by John Murphy, Martin Bring, and Dr. Alexander, er, I mean, that’s, those are my Go-tos as far as, yeah, the, and Norman Beck too. I have that book. Stock Market Logic, I love that book. I opened that up.

01:26:25 [Speaker Changed] I, I have that book. I’ve had that for a long time. It’s very, really an interesting book. Since, since you mentioned books, what else, what are you reading currently? What do you read for fun?

01:26:34 [Speaker Changed] Well, I mean, right now it’s a, I don’t wanna sound too dorky, but it, it’s related to Dungeons and Dragons. It’s,

01:26:43 [Speaker Changed] What’s the name of the book?

01:26:46 [Speaker Changed] The Water Deep Dragon Heist

01:26:48 [Speaker Changed] Water Deep Dragon Heist. So that doesn’t sound dorky at all.

01:26:53 [Speaker Changed] No. It’s a part of the, the adventure and stuff like that that, you know, put running the, running the campaign through. But by the

01:27:00 [Speaker Changed] Way, I, I know guys in our industry that you would never in a million years guess still do a weekly Dun Dungeons and Dragons and have for like 20, 30 years.

01:27:12 [Speaker Changed] Gee, sign me up. I’d do that in a second. Yeah, it’s fun. No, but other than that, I mean, obviously I, when I was in college, you know, part of the English writing major is you had to take, you know, literature classes. And my favorite literature classes was the Epic Hero. So it was The Hobbit Lord, the Rings, you know, of course I read The Hobbit prior to that class, but I read it again, I read some of The Lord of Rings prior to that class. It was a lot of intense reading. I mean, it’s Lord of the Rings sim, I can’t even say it. The Ilian, I can’t even say it, but Right. And then also the Odyssey and the Iliad. Sure. And in, in high school, I, I read the, the Iliad in, in Latin.

01:27:52 [Speaker Changed] You’re, you’re not fluent in Latin,

01:27:54 [Speaker Changed] Are you? No, no, no, no. That’s, I I, it was high school, but it did help me out with the English language, so, which was good. You know, a lot of the words get derived from Latin and, you know, and obviously German too. So I did take some German in, in college, unfortunately. Forgot most of that as well. But

01:28:14 [Speaker Changed] That, that’s really, that’s really interesting. So let, let’s jump to our final two questions. What sort of advice would you give to a recent college grad interested in a career in either finance or technical analysis?

01:28:28 [Speaker Changed] Well, I mean, finance, I think, believe it or not, special, where are now creativity is very important. Also, curiosity is very important. When I was looking for a job in finance, coming from a different background, it was tougher, you know? And, and I just didn’t, I, I really, I didn’t really start making headway until I was up on the news, you know, the Wall Street Journal. I consistently reading that for like a month. Then I was ready to go in and talk to people about careers to some extent. You know, obviously not an expert on anything, but just expressing the interest. But I would say

01:29:09 [Speaker Changed] Not meaning, not, not professionally relying on the media for information, but to be able to have an intelligent conversation, interview and intelligent conversation.

01:29:17 [Speaker Changed] Right. Because that comes up. I mean, because when we interview people, you know, there’s always, you know, there’s always, Hey, did you read that story? And the world? And most of the time people say, no, I don’t do that. I listen to podcasts. But they still get the same information, you know, similar information.

01:29:33 [Speaker Changed] Not quite as in depth, not quite as, you know Yeah. Focused. But, but that’s a good advice. Go and prepared and be able to talk about that. You’re up to speed and re ready to start knowing what’s happening. And

01:29:47 [Speaker Changed] I, whenever I interview people, I always wanna know what they’re doing outside of, outside of business and finance. ’cause I find that more interesting in some regards. You know, it’s like, you know, if you have, like, I think, let me think the last, yeah. Like if they were professional lacrosse player, not professional, a college division, one lacrosse player, that’s kind of interesting. You know what I mean? It’s like they, they know how to be part of a team, you know, you know, some of those intangible. So I would say, you know, some of the intangibles and things outside, you know, you know, are interesting. I mean, somebody looking to get into technical analysis. I mean, I would say probably avoid that like the plague. Why not? I mean, are there a lot of technical analysts on the street these days? You know, probably not. You know, you can count ’em on maybe two hands really.

01:30:30 But I would say if you wanna get a role in finance or as an analyst or as you know, a financial advisor, learning technicals will save you. It will help you a ton, but you’re not gonna be getting a role as a technical analyst. It’s just there, there’s just not that many of ’em. Hmm. And often they’re just placed at the back of the bus. And as Ralph Apor said, that’s where they have the beer is. So I’m perfectly happily being in the back of the bus. But still, I mean, I, I would say, you know, again, here’s another quote. I don’t remember who I heard this one from, but it says the CFA will designation will get you your job, but the CMT designation will allow you to keep your job. So I, I look, I mean, if you wanna become a technical analyst and work at a bolus bracket research firm as a technical analyst, it, it, it’s unlikely. You know, I’m very lucky to be sitting where I’m sitting, you know, it’s like, and who knows how long it’s gonna last. You know what I mean? It’s like, you know, I mean, the business is tough. I mean, I’m,

01:31:33 [Speaker Changed] Yeah, no, it definitely, and it’s gotten tougher on the institutional sell side because of the advent of, of either free or practically free trading. But

01:31:42 [Speaker Changed] It’s very interesting though, because you run into a lot of folks on the institutional side that aren’t technical analysts, but use technical analysis. And some of them, you know, even pursue the CMT designation, which is charter market technician, the credential, that’s the equivalent of the, the CFA charter financial analyst. And, you know, they, they, they, they do it. I would say if you’re interested in a, in a career where you’re gonna be doing some technicals, I mean, obviously a trading desk type of role might be suited for that. An equity analyst would be suited for. You know, I know a few equity analysts that, that do not, not that they’re making fundamental views based on technicals, but if they wanna upgrade a stock and they look at a chart saying, well, I love the fundamentals on this company, but the chart looks like it can break below 50 and head to 45, maybe I should wait for that to happen.

01:32:30 [Speaker Changed] Let, let me ask you a question that, that I love asking people who, who use both fundamentals and charts. If you’re gonna buy a stock, and in our hypothetical, you can only either read a fundamental research report or look at the chart, which do you do?

01:32:49 [Speaker Changed] Yeah, that’s obvious because it, it’s, look at the chart. No question. Why? ’cause the chart reflects fundamental information, bottom line. I mean, look, what does the price reflect? It reflects, you know, you know, a little bit of the funny money from the high frequency trading. Sure. Which we have no idea what, what that’s all about. But it also reflects people’s opinion on price action to some, to some extent. But it actually reflects what fundamentals are to some extent too. You know, so it, it, it’s psychology and you know what actual factual information is. I mean, it, it’s discounting what the fundamental are or will be in the future. So, you know, I would say, you know, you could have a, an analyst note saying, sell this stock. Like it’s, you know, it’s un holdable or, you know, hard sell on this name, but you look at a chart and it looks like it’s forming a double bottom. I may look at the chart more so on the fundamentals. ’cause you know, if the chart works, guess what that analyst has to do?

01:33:46 [Speaker Changed] You’ll eventually have to change that, sell to a hold and that hold to a buy.

01:33:51 [Speaker Changed] And if there’s 40 of these analysts doing that over a period of time, guess where that stock’s gonna go? Do,

01:33:56 [Speaker Changed] Do you look at, you know, the analyst collective ratings, how many buys, how many sell, how many holds

01:34:01 [Speaker Changed] I do? Yeah. There’s, there’s a feature A and R. Yeah, exactly. A and r. And also there’s like, I have this recommendation ratio line on my Bloomberg chart. I pull up every once in a while. Sometimes I find it really informative. Other times I don’t. But, but there are times when, when I can, when I can see a chart like bottoming out and everybody hates it, and then it breaks out and it’s like, it’s amazing how the analyst start to

01:34:26 [Speaker Changed] B

01:34:27 [Speaker Changed] Right? And, you know, you got a lot of time when that happens. So I, I would, I would always gravitate towards a chart. And I would say it’s really funny. Like, even, even folks that consider themselves fundamental investors do the same thing. Huh.

01:34:39 [Speaker Changed] Really, really interesting. And our final question, what do you know about the world of investing today? You wish you knew 25 years or so ago when you were first getting started?

01:34:49 [Speaker Changed] Yep. I think the biggest thing I wish I knew when I was first getting started is, and you can say it in technical mumbo jumbo and fundamental mumbo jumbo’s, the same thing. A stock, an oversold stock can always become more oversold. Right. And an undervalued stock can always become more undervalued. And when I learned that, I, I think things improved a lot, you know? Right. I wish I knew that early on.

01:35:14 [Speaker Changed] I learned that as cheap stocks can always get cheaper and expensive stocks can always get more expensive. Right?

01:35:19 [Speaker Changed] Yeah, that’s right. That’s probably a better way of saying it.

01:35:22 [Speaker Changed] Really interesting. Steve, thank you for being so generous with your time. We have been speaking with Steve Sutt Meyer. He is the Chief Equity technical strategist for B of A Securities. If you enjoy this conversation, well check out any of the previous 500 interviews we’ve done over the past nine years. You can find those at Apple Podcasts, Spotify, YouTube, wherever you find your favorite podcasts. Sign up for my daily reading list@riol.com. Follow me on Twitter at ritholtz. Follow all of the Bloomberg family of podcasts on Twitter at podcast. And be sure and check out my new podcast at the money coming January 1st on Apple podcasts. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Rich Sub Nadi is my audio engineer Atika. Val Brown is our project manager. Anna Luke is my producer. Sean Russo is my researcher. I’m Barry Riol. You’ve been listening to Masters in Business on Bloomberg Radio.







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