Katie Stockton Started with Technicals in College

If you are at all interested in really some of the details of a practitioner in the field of technicals who are using it as part of their process to advise UH substantial hedge funds, pension funds, mutual funds, really large pools of institutional money, UH, then this is the sort of conversation that you're gonna enjoy. We very much go into the weeds and we talked a lot about very very specific technicals and processes and how she approaches

the market. She she's an award winning UH technician who is highly respected on the street. And really it's it's a um, quite a change in the world to look at technicals today as is accepted and part of the firmament of finance, compared to ten or twenty years ago when they were kind of looked looked at askance. And I think the between the rise of quantitative analysis and the computing power that really lets us see, Hey, are these technicals genuinely providing value or not that that's helped

them gain broad acceptance. So if you're at all interested in trading, charting, anything technical, you're gonna really enjoy this conversation with no further ado, my interview with Katie Stockton. My guest today is Katie Stockton. She is the chief Technical Strategist for bt I G in New York City. Previously, she was chief market technician at m CAM Partners. She has also been a trader for Ulysses Management fairly substantial New York hedge fund. She also was a publishing analyst

for the Technical Strategy Group at Morgan Stanley. She is a CMT and she received her designation in two thousand one. This year, she was named Best Institutional Brokerage for Equity Research at the Technical Analysts Award for the technical research she provides. Katie Stockton, Welcome to Bloomberg. Thank you Berry. It's good to be here. It's good to have you. Let's let's start with a little bit about your background. How did you find your way to Wall Street? What

attracted you to stocks, bonds and charts. Well, I think it was really meant to be early on, I had an interest in mathematics and and that took me into a finance major in college. And fortunately, you know, that finance major obviously bosed me to you know, all things Wall Street, of course, but also exposed me to technical analysis, which is of course what I do today in college.

In college, believe it or not, really so, so, what sort of classes were you taking where they talked about charge Because it seems that at the academic level, other than people like Professor Andrew lo O and m. I. T who writes about technicals and the heretics of finance, academics look askance at technicals. Well, you know, I think there's a good trend there quite frankly, but still early stages,

right right, I'm broken out yet. Um. But when I went to University of Richmond in Virginia, a smaller school, and it just happened to have coursework in technical analysis. Believe it or not, it was one of at the time, it was one of twelve universities that offered this, and now there's far more. But even still, I just got

lucky in a way that they offered that coursework. At the I believe it was a four hundred level of Finance class and at the time it was offered to graduate students, so I audited it and that gave me the exposure to some of the tools that I now use. So you had the bug pretty early in your career, did Yeah? And I had an internship while I was at college for a firm called Dorsey right An Associates. If you've heard of them, Not only have I heard of them, but Tom Dorsey was a previous guest on

the show Is That Right? And Tom is great? And I'm guessing you'll eventually ask me who my mentors are, and Tom Dorrissey will come up again in our conversation. He's obviously a great person and a great technician and really helped inspire me to do it for a living point and so we'll get into point and figure on

versus other types of charting later. Um. So, I've spoken to various technicians who began their career either as fundamental analysts or strategists and said, you know, I'm really more interested in the supply and demands of stock transactions than the broad I don't want to call it guesswork, but the broader, less tech the cool things you apparently never

had that sort of bug. You went straight into the straight into it, and like I said, it just seemed like it his fate for me to to do what I do now because it's it's such a great mesh of the mathematical side of things, and it really resonates with me in terms of analyzing a stock as a stock, not just as representative of a company, because as we all know, you'll see a market move effect various stocks in a way that makes no sense from a fundamental perspective.

So to be able to understand how that's happening, why it's happening, and really what's happening, and I think that's very valuable. So when I took the course, the Technical Analysis course with Ralph Alkimpora, one of the things that have stayed with me was a quote of his and Ralph said, fundamentals tell you what to buy, Technicals tell you when what do you think? Well, there's undeniably a great market timing element that you can derive from the charts.

And I would also argue though, that you can use them for idea generation and it becomes a matter of preference. So I think of technical analysis as really a complementary discipline, So it's not a stand alone in the same way that I don't think macro you know, economics or fundamentals should also be a stand alone. I think together you can get a great sort of rounded view of a

market or a security. And you know, if the fundamentals help you decide what to buy, and then you use technicals or charts to understand your best entries and exits, that's definitely one use. So there's a lot of risk management involved in using completely. Yeah, that they can be very valuable, especially for a cell discipline, which I think a lot of people are lacking for sure. So so

what is technical analysis actually measure? When you're looking at a chart of a stock, what are you really looking at? You know, it's it's prices, right, So the market really lends us one data point and it's price, and I would argue that volume is another one. But yet has really lost some of its value in terms of having in any predictive information. Why is that? Why is volume that? As a trader and it was always volume proceeds price, you heard that constantly. Is that no longer it used

to be? Yeah, you need to see volume expanding into sustainable up trends, and that that was the stuff of the textbooks way back when. Now, of course we've seen volume on on the decline since about two thousand and seven, so about ten years now. Is that of the financial crisis or the rise of indexing or I think many different A little it's many different things. I mean, there's obviously derivatives. We have so many different influences on volume these days, and I would argue some of them are

not um real volume. I mean, there's always a buyer and seller, right, but are these committed buyers? Are they you know, real sellers so or are they passive you know indexers, or or are they high frequency traders? So you just you can't really understand if the volume is real these days. And then it's also been on the decline, so you have these influences that make it just that

much less helpful in my opinion. So to me, I'm I'm very much just looking at prices, and prices can be incredibly informational and and of course those prices are measuring supply and demand, and it's just that simple. Let's talk a little bit about what the chief technical strategist does. What does your process look like, where do you begin. Well, I am a cell side research analyst, so I work for a broker dealer b T i G here in Manhattan.

Your clients are mostly large institutions, all institutional clients, and it runs a gamut in terms of hedge funds, mutual funds, really anyone who can benefit from this kind of analysis, which I would describe as top down in nature. But I also do a lot of bottom up work to support that, or my version of bottom up work is probably quite different than what we all know. So that's what I was gonna ask. When you say top down, you're really looking at markets, different types of asset classes,

different sectors, and bottoms up our specific companies. Is that's exact right? I do tend to be equity centric, and at BT I G we are global financial services firms, so I've branched out and looked at more than just US and to really global equity markets. And I do start with the major indussease, the equity indsease. I look at sector benchmarks, things like that, and then of course anything that really influences equities, whether it's commodities, f X,

things like that. So that's where I start and I think it's an important place to start in a UM an environment that is so sort of top down driven, right where where the macro influences are so important and really are the drivers of some of the trends. And to understand that's very important. I mean, if you're if you're you know, right on the market, generally, you're probably going to have a much better you know time at

being right on any individual company. And then I do also look at the market, um, you know, just based on the stocks that comprise the major indicry. So every week, every other week, in fact, I'll do either international or US and and take a list of five hundred stocks and look at those one by one. And it's a bit tedious, but that process to me helps me in my my market views, but also can help us understand where there is opportunity UM whether it's breakouts or breakdowns

or a theme based opportunity. So we're just looking for developments on the charts and themes. So when you're looking at charts, are you looking specifically for either extensions of trends or breaks of trends? Are you looking at specific patterns? What is it that catches your main focus? Well, I really do believe as you could imagine in trend following, and I think that you generally want to have your core long exposure in you know, securities that are in

long term up trend set. And there's a lot of academic support for for that. Certainly. Yeah, you know, a trend in motion tends to stay in motion. And yet where I can also add value to our clients as an understanding where there might be an inflection point or you know, deteriorating momentum that type of things. So we do spend a lot of time looking for signs of trend exhaustion it how would you how would you look for trend exhaustion and how would you define that? There?

There's I'd say there's three classes of indicators that I use. The first would be momentum or trend following, the second would be overbought oversold, and the third would be relative strength. So to arrive at that trend exhaustion signal, I'm typically looking at the overbought oversold measures. So for me, that would be a stochastic oscillator or Tom Demark's suite of

indicators tend to help with that as well. And what what don't you look at what are the sort of things that you just don't find of a lot of value at least to your process, right, and it's very

specific to the individual. Of course, what you have success with and what I always recommend to people is to to have a process and whatever that process, maybe to be consistent and somewhat systematic in the way you approach it, because what you learn is that these indicators, while they fail you, often you learn where they tend to fail you. And it's all in really how you combine the indicat heaters that you arrive at a market view, and so

it's fairly probabilistic. You're no one indicator is a sure thing, but a collection of indicators give you a better chance. That's exactly right, And it helps to take out some of the gray area of the market. So I really welcome those kinds of tools that are a bit more mathematically derived and less visual, but to really just enhance what you're seeing more visually, because you can't take that element away, of course. But what I don't use would

be UM. I don't use many UM you know, wave analysis, no wave for me, I don't use anyone. Still a lot of people do in fact, and my experiences is that they tend to be more bearish than not. Has that worked out the well, and so I think, you know, maybe that could be more successful when overlaid with some of the momentum tools and what else don't you use.

What do you think of fibinaci as a trading tool, Well, it's not really a trading tool, but it's a way to identify support and resist stance, right, so that can be very valuable. In fact, I think, if if any takeaway that you have from the charts, support and resistance should be where you start, because that's your gauge of risk and reward. So fibonacis can be very very helpful in that regard. They're a little difficult to explain to clients,

as you could imagine, because why do they work? Yeah? Why? Yeah? Why do they work? It's a ratio throughout nature. I don't want to man explain fibonaci because you're the I wish I wish you would. In fact, it is the golden ratio, which is found in all sorts of um in and in um, the nautilus shells, and in all sorts of other things like that. And as you said, we're not really sure why it works or it works,

but it certainly seems to be there. It does matter, and it can be really helpful when you don't have more traditional means of deriving support and resistance. And by that I would mean something like a movie average, a movie average, or a peak or a trough on the chart.

So my friend Todd Harrison, who used to be a chief trader at a hedge fund, used to say, is with things like Fibonacci when we would be debating how well they work or didn't work, is the support there because of the fibonacci or is the fibonacci there because of the support? Or? In other words, if everybody believes something is the case, does it just become a self fulfilling prophecy or something else going on? You know? I mean,

we we could talk about that. I don't think there's any real answer to that question, unfortunately, except to say that where things are self fulfilling, great because we we welcome that. And uh, you know, I'd say the fibonacis would be less obvious as something that would be self fulfilling in that it's a subjective approach to draw in those ratios on the charts, whereas something like the two day movie average would be more likely to have that

self fulfilling nature. I support resistance because there's so many eyes on it. Let's talk a little bit about technical analysis for the late person. Explain to us what technical analysis actually is. Well, you know people know it as charting, right, So you take a price. Any security has a price, and what we're using is that price as a gauge was supply and demand for that security, and trying to understand the trends behind that, and not only the trends

but also when they might end. So that that's the design of technical analysis. We're trying to understand where there might be a shift in that supplied demand relationship just using price based analysis. So early in your career you worked for Tom Dorsey at Dorsey Right, and they are famous for point and figure charting. How does that chart

differ from just a regular price chart. Um, it's incredibly different. Yeah, you know, when you look at it, it it looks almost like a tic tac toe sheet with x's nose And the most important distinction is that it doesn't really reflect time on the X axis in the same way that a typical bar chart which would have open high low closed data would UM. I tend to use the bar charts more now, in part because it was difficult on a in a cell side position to explain exactly why

we should care about these xs and os. But they're really such such a useful a way of looking at the market is to understand this supply demand that goes into the xs and os that you're plotting on these these grids UM great for trend following, great for understanding breakouts and breakdowns. Um, but you know they omit a volume component and no volume, no time, just buying and selling. Yeah, just buying and selling, Like you know, has price moved

enough to designate another plot? Basically, what are what are some of the big misconceptions about technical analysis? We've heard people say over the years that stuff is just voodoo.

Oh and they're still saying it, some of them. But well, I've been doing this for about twenty years, and I'd say it's come a long way, a really long way, so in terms of the level of professionalism that you see in our our small industry, and for good reason, because people are realizing that that it's helpful, and I think the push towards using it more systematically has really

taken it to that next level. So the misconceptions would be that we're trying to you know, take historical prices and always you know, predict something that it's overly predictive, and then you assign these silly names to various price patterns, and I think that adds to some aura of it being not as serious in terms of the analysis, But in reality it's it's more surface level because it really

is only price based. And I see that as a positive because it allows you to look at anything and have an opinion on it in less than a minute, for for example, and it's objective. You're not you know, you're looking at the actual data, not someone's opinion about management or new product or new that's right, And I think in a way that's a good thing because you

you become less committed to a position. And if you identify a stock that you're interested in because it has a great uptrend or some renewed momentum behind it, or it's exhibiting relative strength, um, but you've only put in, you know, twenty minutes of research on it, um, I

think you're less likely to get married to that position. Um, But you know the best types of positions, in my opinion, would have that you know, that trend falling, you know, those gauges lined up positively, but also have the fundamental backdrop,

So that to me would be an ideal setup. And I think more and more people are recognizing the value and using it as that complementary discipline as opposed to something that's designed to say, okay, well, whereas you know this SMP five going to be in five years, because that's not really to me where the value is. I love the idea that it allows a degree of objectivity so that you don't marry a position. A phrase I heard many years ago was strong opinions weekly held and

I've always really enjoyed that. We love this and then it breaks the trend and that's it. We're done, right. So to be somewhat noncommittal, Um, it does tend to help you manage risk. It does. So let's talk a little bit about technology. How has the ubiquity of of not just computers, but really high powered software on everybody's desktop. How has that changed the work you do as a as a technician in a very favorable way? Um, you know, with my first job out of college was actually hand

charting these point figure charts that you describe. So, um, you know now that we have all these resources to use, the upside is it's really unlimited. It's it's exciting, um, in that we can do so much more in terms of our capacity to not only draw the charts and access the charts, but also to filter for different setups and look for different price patterns using some advanced software

that can identify these patterns almost for you. It's really amazing what you know people have come up with in that regard, and it can be very helpful in terms of idea generation. But also you know that the push towards AI and more quantitative approaches to the market, they tend to have a technical element to them because a lot of them are price based. You have that that input, and so I think there's a lot of upside there.

I think it's still somewhat early stages in terms of what can be done with it, but certainly, you know, anything that you can program, of which a lot of indicators are very programmable, I think there's a lot of upside there. In the introduction, I mentioned the award you won, which is quite an honorific to receive the essentially the Technologomist of the Year award. For lack of a better phrase, tell us a little about the award and how have

your institutional clients responded to that. So they the Technical Analyst which is a UK based organization. They do an annual awards event and ceremony and with more than one category, so by no means that my Technical Analysts of the Year. But but we do, you know, appreciate the honor of being labeled best institutional brokerage for equity research, which of

course is technical nature. So we um you know, have publicized that in different ways, you know, a press release, and it's been well received by clients of course, and and what their their vote of confidence is in the written product that we produce. It's funny that I gave your award of promotion. I'm trying to do appreciate it. I was I was interviewing somebody and I could not

keep their title straight in my head. It was one of these typically long sort of Wall Street and by the time the interview was done, I just had given up trying to get their title right. And it was just And today we have the CEO of JP Morgan and you know, they could see the compliance person in booths pulling their hair out of their head. It was it was pretty hilarious, but it was a big deal. Was the big award that I'm not exaggerating one shorthanded.

Do you believe we we beat out fifteen other firms and UM that's exciting to me. It really is a vote of confidence in what we're producing. And they were complementary of the research as being you know, timely and actionable. Do you got to like that? Right? So so let's talk about UM clients today. I tease the segment as what modern institutional clients want? What is it that clients are looking for from a technical UM research analysts like yourself.

There's no one answer to that. In fact, every meeting that I have tends to be quite different. UM and we can add value in a lot of ways. The most obvious way, perhaps is by being more of a strategist. We're helping people understand the top down market views where you know, is the S and P five hundred in terms of momentum and over about over sould measures and

what are levels of importance? Things like that. So some clients really want to know that because obviously that top down view trickles down into their positions and and there, and it's quite important. And you find that, you know, even if people disagree, they're often disagreeing for a different reason. It's not because they're coming from a technical you know position there. It's more macro fundamental that's leading them to disagree.

So it's not as much of a debate as it would be if I was a macro strategist perhaps going into an office. So so you put out a written research product that gets emailed out weekly, daily, whenever how often, and I'm assuming there are some special um topics and alerts and different things you cover. When that goes to a client, what are the responses? Is it an email response back? Here's what I like? Is when I don't like?

Is it? This is really significant? We need to talk about this right away because you hate X, y Z and it's our biggest position. How do you get feedback from clients? And what are those subsequent conversations? So the written product, by no means is that and all of what we do, but it's certainly foundational to what we do. We published two weekly notes. One is our top down

view you know, stocks, bonds, commodities, things like that. And the other is the bottom up work where we look at the individual stocks and you know, help with the idea generation, look for breakouts and breakdowns and themes. And then we have a daily note to publish some signals and some market internal measures we call them, and to

really manage our call on an intra week basis. So we're fairly prolific in terms of what we publish and and generally speaking, you know, we'll we'll get questions from those reports, whether they're about various securities, you know that the individual equities. That would be one thing where people would ask about things like crude oil you know today of course it would be relevant, you know, for crude oil, just because it's been in the news. And so I'll

get questions on whatever's topical. And and how often do you find your views are changing on not just the whole market, but sp of accectors or specific regions. How frequently do you find yourself saying, gee, we like this

six months ago, but not so much anymore. I'm very fluid in my market views, and I find that when something is strongly trending, like the smp F one, you don't change your views that much except to manage those views from a shorter term perspective to say, well, there's some greater risk right now of a pullback, and that type of thing can be very added value to people that are trying to determine whether to wait or at

exposure immediately. So we try to manage the views on a short term basis, but the longer term views tend

to be pretty sticky. Where they're a little bit less stick you would be when you have a range bound type of situation, So a break out right like a non trending market, So the euro would be a great example of one that had been non trending really for a couple of years until recently we had a break out in the euro and that then becomes more of a trending situation and probably for that reason, will will

stay more sticky in our views. So let's talk a little bit about currency, since since you brought that up, we've seen a very strong dollar and and for those people listening to this far off in the future, here we are. It's the summer of um. As we're recording this, the down in the SMP are making fresh all time highs that was up about one twenty and it is not all that far away from two um. And we had a fairly substantial rally in the dollar pretty much up till the end of is the euros gained the

dollars loss. How do you look at currency is relative to each other and what does that mean for the local economies there and here? Yeah, And I mean I'm not wanting to comment on on the macro influences of the f X moves. The way I look at it is as the Dollar index, which is really massively euro centered.

You know, the dollar index had seen such a nice round up, as you mentioned, but really in the last months has just been in this persistent down trend and it's been Yeah, it's really pretty big drop and and almost um, you know, barely interrupted by relief rallies. So it's really been a persistent drop and sort of differentiates itself because of that. And I think when you have a trend like that, you just want to be respectful of it. When you look at the euro, it's not

an exact inverse, but it's certainly close to it. Um. You know, if you look at EU r USC, you see this breakout that I mentioned from the wide trading range, and that breakout just simply based on the width of the range would target about without any indication of the time frame over which that would happen. But you know, longer term meaning more euro strength, more dollar, more dollar weakness, and we've gotten some underperformance from European equities and and

out performance from US equities. But I think that shift is is maybe less currency related and more related to other macro influences and certainly whether or not those markets are oversold on a relative basis. So I want to say, for the past decade, the US is up something like two D seventy and Europe is up eleven, and e M is essentially flat. Maybe getting those numbers. Yeah, you know, it's been amazing the long term relative strength ratios, you know e M versus developed or e M versus US.

But finally, in the past i'd say years, so you've really seen stabilization um in terms of relative performance globally. And maybe that's because it is so much more of a global marketplace, or maybe it's just because finally these markets are are participating and you know, their economies are looking better. Whatever the driving forests, it certainly has manifested

itself in some turnarounds in the ratios. So we're talking about currencies, Let's talk a little bit about something that I think a lot of people find um challenging or perplexing. How do you track on a chart the various blockchain currencies like bitcoin. These things all look like they've just become completely unhinged. How do you buy into something like that that's had such a explosive move to the upside,

you know, I call it a parabolic up trend. When you see those, and they are very difficult to find entries that you can feel confident in adding exposure. I do think the charts are very viable ways to analyze these currencies because you know, otherwise information is somewhat limited, So so you can really identify trends, and they're certainly trend dean. And then in order to take advantage of them, I think you need to have confidence in buying breakouts.

So if you actually see a fresh catalyst on the charts where you're exceeding a resistance level, then you have to have confidence in in buying higher and it's it's often the right thing to do, quite frankly, when these trends are in motion. So with with the parabolic trends, I tend to watch some of the more sensitive or shorter term moving averages, and when they flatten, I tend

to recommend taking down partial exposure. For example, the twenty day moving average would be quite short term, but when you're in this parabolic up move that's quite steep and you see the twenty d flatten, which often happens before you get a really meaningful pullback, I think that can be a good mechanism I guess to take down exposure. We have been speaking with Katie Stockton, chief technical strategist at b t i G. Check out my daily column on Bloomberg View dot com. You can follow me on

Twitter at rid Halts. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I'm Barry Ridhults. You've been listening to Masters in Business on Bloomberg Radio. Welcome to the podcast. Thank you Katie so much for doing this. And I don't know if you remember where we first met, but I want to say, who's at camp Ko talk. It may have been I feel like we may go back further

than that, but that was a great place. We do go back for it because I know who introduced us. It was Kevin Lane, that's right, who is a technician who runs uh b D in a research shop. And Kevin was at I want to call it technamentals secnamentals. Yeah, it's got to be euands sounds about right, That's yeah,

that's the technicians. We run a these small circles all know each other, I feel like, so I can't tell you how many people I know who took the class with Ralph Atripora or other people at the I don't know what they're calling it now. They just did a big name change because it's now the the CMT Association Association used to be the that's right, So they've changed the name, which is a bit more aligned with the

cf A societies. CMT, which is Chartered Market Technician, has really grown as a designation, and for me it's been invaluable in my career because you know, it's a credentializes you right to publish this research, but also in preparing for that, you know, you you do learn a lot of tools and other disciplines that might be interesting, and so it helps expand your horizons A little bit, and you've you've become a regular on the on the media

circuit talking about various market sectors. I notice you're much more circumspect in the way you discuss markets then some technicians are. Some technicians want to get right into the As you can see from this chart, it's a head and shoulders. It's this. It's that you really talk more in a way that a lay person can appreciate what you're saying, as opposed to getting into the weeds with some of the more esoteric right. And I mean that

is going on behind the scenes, by the way. So I am taking the fibid ACHIESE and the Demark indicators and applying them to the ratios, and that all goes into the analysis. But I don't do anybody any favors by getting too in the weeds with those indicators. But rather, you know, explain my discipline and and then you know, explain the takeaways in a way that people can understand them. So demark is really fascinating. Um set of technicals. I

don't know how they work. They're they're really quite woman explaining that what our demark indicators and how do they work? You know, there there's so many of them, and I honestly only scratch the surface with the Demark indicators that are available to us. I know, it's a it's an option on the Bloomer. You can add it. They have a right, they have a service on the Bloomberg terminal, which I do use and use it quite a lot actually, And to me, you know, I find value in the

indicators that they provide um in identifying inflection points. And it's the closest thing that I have to something that's a coincident indicator of inflections. And as you could imagine, most technical indicators tend to have a lag them because they're moving average base, so it's just inherent that they have that lag. But there's something about the demark indicators, and at least the ones that I use in their construction, that can get us a bit closer to the actual

inflection point. Now, Unfortunately, like any indicator, because there is no you know, at one all or you know, holy Grail, we have to cross reference the demark indicators with other tools, whether it's the stochastics which will also give you sort of an overbought over sold reading, or or momentum based tools. Those taken together can give you the best takeaway. And so we don't take every signal for face value, but rather say, okay, what are the probabilities here based on

what everything else is saying? So what are what are some of your go to indicator? What if you had to say, this is where I begin, this is my most important I'm going to guess it's going to be trend because you've emphasized that so many times. Yeah, it

is trend, especially in a trending tape. So I would say in a non trending tape, which of course there's an art and identifying what kind of environment you're in, um, I'll use more of the overbought over souled measures sometimes, you know, it depends on the timeframe as well, So theoretically every indicator should apply over every time frame, almost fractal in that way. And yet I found in my experience that that I get more use from the OSCI

leaders in you know, short term, you know environment. So looking at say the intra day charts, looking at a thirty minute bar chart, oft the SMP futures, I'm actually more inclined to use an overboard over sould measure than a trend following device. It's just a matter of preference, sort of like a trading tool. But I would say if I had to take my one indicator to the deserted island, would probably be the mac D indicator, which stands for moving average convergence divergence, and that has been

a really helpful trend fall engage. It's very price range. It's not an envelope as much as it is it's

a spread between two moving averages. And and what's nice about it, it has a signal line, so it has a smooth version of the data itself that gives you distinct buy and sell signals and there and you know, it takes out some of that gray area, right, So it's either on a buy or a cell signal, And of course there's nuances to it, but to me to to try to capture those let's call it two to three month moves, which I think really is where we are in the market right now, especially in equities that

you can't afford to miss o's anymore. You know, used to be you said it and forget it and ride the long term trend. But quite frankly, now you know there's such a guess pressure on people to perform on a quarterly or even monthly basis these days that they really need to capture these moves and the weekly MACDI indicators. So looking at it macdie and a weekly bar chart

can be really a great tool for that. So you mentioned when you're in a non trending market, when you're in a range bound market until this last leg began, and I want to say, sometime towards the end of the summer last year, what was it eighteen months or twenty four months of not a whole lot of progress. What were you looking at during that period when we were range bound and what told you, hey, we're breaking out of this range? What was what was the big

signal there? You know that in terms of what I was looking at it, you know that that period that, by the way, is that I want to say mostly yeah, I guess really at the end of two fifteen, it was still you know, it was it was morphine into that sort of range bound tape. But what was range bound here in the US was actually much more of a correction in international market. So if you looked at Japan, or if you looked at European benchmarks, you'll see that

they really saw a pronounced corrective phase. And what captured that was not the MACD indicators so much on the weeklies because that was a bit noisy. But if you looked on the monthlies, you actually saw a macde cell signal in the monthly bar chart at the SMP five D I believe it was oh gosh, I want to say February two fifteen, So it got ahead of that environment which created was, you know, a more challenging environment

for trend following. So with that macdi cell signal that we had um, we were able to give a bit more weight to the over Bodom SOULD measures knowing that we were in some kind of corrective period. Um. In addition to that, what we found in two thousand and sixteen especially it was the year of the climactic lows, right we saw at the February low of that year, the Brexit low, and then the election low. All of these were really climactic, and by that I mean the

emotions were really running high. You've got these massive declines that almost by traditional methods would have looked like breakdowns on the charts. But we have some tools called market internal measures, which would be volume breath leadership and sentiment that can help us identify these climaxes as they're underway. So volume, you know, to circle back in the converse

station to volume. I do look at it on an aggregate basis, and when it tends to spike is when it actually holds information, because that's more emotionally charged trading to change. Not necessarily the base rate that matters, that's right, So it's not even the level. I'm just looking for spikes and the market internal measures that I mentioned, those really are to me the most informational win they're at extremes. Otherwise, what are you looking at? Internal advancers and decliners would

certainly be a breath measure that I look at. I look at them on a cumulative basis and also an oscillating basis, and you know, things like the percentage of stocks above their fifty day moving averages and and sentiment. I tend to look at the VIX, but I'd say even more so, I look at something called the CNN Fear and Greed Index, which incorporates the VIX, but also put call ratios and junk bond demand, things that are

transactionally base gages of sentiments. So I tend to find a lot of value in that and right now we're actually seeing an extreme in that in that sentiment measure. Now in terms of that environment, um you know, we did see some major oversold extremes in these market internals at those lows that made them appear more treatable. Now with the breakout, it's really when we saw the SMP exceed resistance based on previous highs, that we could get confident that that I was ready to run again. So

when was that? I remember the breakout and we've talked about this in the past, was a big, fresh old time high's first time in thirteen years, but um or or above levels previously set in oh seven and two thousand. But what was the breakout in was about I'd say July of two thousand sixteen is when we broke out. You know, that was on back of the Brexit low.

And that breakout yielded a measured move price projection, which is a very common way of driving an upside target when you don't really have resistance to use, and that gave us a target of that at that time of about dred which we reached of course, or the SMP five reached in I think it was Q two and we met some resistance there, which is also a very

natural occurrence. Now that we've seen a subsequent breakout above that level, we were able to reassign another measured move price projection in this case of about Oh really, and right now we're still about thirty points away points away from twenty were approaching, and I think, you know, it won't be a straight path higher up to but I think it's a viable target based on the trajectory of the trend, and so that's a context within which we

view everything else. So you mentioned the VIX, We should really talk about it because it's pretty much at record lows. UM. The argument seems to go something like, the VIX is showing terrible complacency and this all ends badly versus Hey, the early nineties, the VIX was in the routines and stayed there for years, and you still have another seven years of well market to go. How do you look

at the VIX. What do you think it means? Well, what I don't look at it um probably in the same way as a derivatives trader might, for example, but rather as a gauge of sentiment and something that tends to have an inverse relationship to the SMP five hundred, so in that since it can hold some information, however, I care most about when it spikes, and it's it's difficult to identify when that might occur. We do have some tools that can assist in that, you know, overbought over,

SOULD measures, things like that. But the way I see the VIX is just as one gauge of sentiment, and what we've had to do with the the fact that it keeps making new loads, is to reset our extreme levels or thresholds for that overly complacent reading, which I would argue now it is there so spikes to twelve, which is like a big percentage move from where it is. But twelve or even fifteen is so low for the VIX.

What what might thought tell us? Well, you know, for me, if if we see it, you know, spike to twelve, my guess is that we're getting a pull back to at least the fifty day moving average and the SMP five It wouldn't take much to get the VIX to that level. The spikes tend to last maybe two weeks in duration at most, so you have to be very quick to act on it when you start to see it maybe inch above its twenty day or fifty day

moving average of its own. It is not really a trending index, so we have to be careful using tools like moving averages and and you know, identifying levels because maybe they're less important. What what are your thoughts about the argument that some have made that well, so many people have moved from stock picking and active management too. You have five trillion a black Rock and four trillion

at Vanguard. I think Vanguard is now four point four trillion, of which two thirds at Vanguard is passive, and um I think once it gets half at black Rock is passive, that's trillions of dollars that used to be actively in the market. What does it mean that so much money is now passively allocated? What what might that mean to

the VIX, if anything at all? You know, I'm not sure how it would affect the VEX, except to say that, you know, it should contribute to the trending nature of the tape and there and also would see the VIX sort of, you know, flounder at low levels as as the major indices forged higher, and whether it's passively or actively driven at the end of the day, and we want to just be on the right side of the moving averages and of the momentum behind the market, regardless

of what those momentum forces maybe, And so you know, our goal is to understand when the loss of momentum is great enough to lead to a shift in in that trend that we need to take action around. So it just depends on your time frame at that stage. You know, do you do you want to miss the a three percent pullback or are you okay with that? Are uka sitting through that? So that becomes a matter of preference, and you reference sentiment. I've always found sentiment

such a challenge to trade off of accepted extremes. So what do you you reference the three percent pullback? Can you use sentiment to anticipate something like that? What is what is sentiment? Really it's relevant to the conversation right now because we do have that extreme reading in the CNN Fear and Greed Index, for one, which is enhancing that low reading in the VIX. We're at an extreme rate.

So you mentioned an extreme I think so I think we've finally reached that for the first time since March based on this one measure, and what I've identified is It typically has a lead time of a few weeks before you see it, and it's a short term peak, not not anything you know, really worrisome orbarish, but a short term peak tends to unfold in the SMP five a couple few weeks after you get the extremes in measures of sentiments, So I think it can be helpful

in that regard. However, I do give more weight to the momentum gauges or the trendfall engages, whether it's a MACD indicator or you know, some kind of oscilator. Those to me take precedence because they're a little bit closer to the price data that the market is giving us. And the CNN Fear and Greed Index, what else goes into that besides the VIX? Because I know a number of different um firms have put out their own Fear and Greed Index and they very quickly seemed to top

or bottom rapidly. It was sort of surprising that the news flow changed and suddenly they all plummeted um. So what else is in that that index? So it's the VIX, the put call ratios, junk bond demand, safe haven demand, there's a momentum reading there's a breath reading based on advancers and decliners, and I think I'm forgetting one, but taken together, I think you're actually getting a nice system

of checks and balances. And what I found is, as an oscillating measure, it's much better than the average sentiment engage that we all grew up with in a way. Yeah, the poles and the surveys at identifying market tops, not just market bottoms. Most every sentiment gage is quite good at helping us identify market bottoms when the when the fear levels spike and everybody's capitulating, it just shows up everywhere. Yeah, it does show up, and it's a bit you know,

easier if you will. And maybe that's because it's been more often a bull market than not, so maybe that's why. But this, the CNN Fair Agreed Index, tends to be a bit better at market tops. So there are a number of indicators that in the modern era have seemed to have sort of fallen by the wayside. And I kind of have the put coal ratio on the edge of that. So do you remember the odd lots um indicator, And then there was the end of week money flow indicators.

Those things all seem to have just withered away because who cares about odd lots and money flow? Is is it's so instantaneous these days that it doesn't seem to have the same impact. Where do you put the ratio? The ratio for MEUM burned me a little bit in in two thousand and eight, and it's when you know, the extremes became more extreme. So you know, I have a little bad taste in my math from that UM that period, and what it's actually done in a way is led me to give them not no weight, but

certainly less weight. And that's why I like that they're one out of maybe seven components of that sentiment indicator, because you know there in's that that checks and balance the system that helps you understand when an extreme is really extreme. These days, UM, any other sentiment matter worth Uh? I don't think so. I think again, it's really more about trend following, support and resistance overbought over sold measures that those relate are more important, and that the market

internal measures. While they can be very helpful, their informational at extremes, and I think people like to talk about them because they tell more of a story and we all like a good story and want to understand why something's happening. But in reality, the charts are designed to help us understand what's happening, They're not really designed to

give you that story. So I almost think that sentiment and breath and leadership get a little too much press before before I go to my favorite questions, you touched on a subject that's one of my favorite subjects. So why is it that we all like a good story? And how potentially dangerous are those stories? How can they lead us astray? Well? And that's what I love about the charts is that they they sort of isolate exactly what is happening from a supply demand perspective without getting

tainted by the stories. And it's not to say you shouldn't have a reason to invest in something. There should always be a reason. And however that reason has derived, um you know, that's important because those are the drivers of the trend. So there might be some fundamental story that's very important to the future of a stock. I would not never disagree with that, But when it comes to just headlines and hearsay and anecdotal evidence of something, I think it can be very dangerous. And that's why

the charts can help us sort of stay honest. So um, I described that as monkeys love a good narrative and and you explain the dangers of that perfectly. Let's let's jump to my favorite questions. These are the questions I ask all of my guests, um, some of which I've written, some of which have come from readers and listeners, including the first one. So what's the most important thing people don't know about your background? Oh? The most important thing

people don't know. That's the most It could be the most interesting. Doesn't have to be important, Yeah, I mean, I think it's just the way you think about the world and my background. I was not not a talented artist, but I've always had an interest in art and things

that are sort of more visual in nature. So I think that's you know, it's not something a lot of people would know about me, but I enjoyed a painting and creating things and a technician who's looking at at visual data that's exactly right, and you know, it's something that you can get lost in. And I think the charts are in a way the same. And I spend probably too much time making my charts look really pretty.

Tell us about some of your early mentors, you know, really the people that I've worked for, I've been so blessed in having exposure to them and also um to be able to embrace their disciplines at a young age where I was still somewhat impressionable and hadn't gotten set

in my ways yet. So it would have started with Tom Dorisey at Dorsey Wright and Richmond who inspired me and helped me understand how technical analysis fit with them you know, everything else really in sort of the bigger world of finance and in Wall Street, and and Dorsey Right is still going strong. I think they sold the company a couple of years in NASA NASTAC and they're still they now. Tom Dorsey is putting out a number

of e t f s right, they ETFs. I'm not sure how many, but they've had ETFs for a long time and have ten billion or fifteen billion in a m and then if if memory serves, Yeah, so they've been very successful and certainly have a great following on

Wall Street. And you know from there, I worked for someone named Mike Curly, and that was when I had a stint in San Francisco working for a firm called the offering, which was at the time you know, this is late nineties, mind you, the investment bank of you Trade, and we were bought by wit sound View, and so I worked with Mike Curly and that was really my first name is Yeah, he's been around and he was sort of in the Navy and had just this really

interesting approach. You'll actually find a lot of technicians have a military background owned or background in some kind of engineering field. It just lends itself, you know, to that kind of analysis. And so he taught me some structured, disciplined, organized that's right, and that's where a lot of the indicators that I used came from. It's from my Curli's discipline, um,

you know. And then beyond that, I worked for Rick Benson your when I was at Morgan Stanley, and he gave me exposure to some of the indicators that excuse me, really differentiate my work, I'd say, from you know, the counterparts at other firms, whether it be the cloud model, which is also called Echi moku um and yeah, well that actually it goes back to Japanese is that it is I think equally as old as candlesticks, and in the same way that they're designed to give you that

sort of one look of the chart, where you're getting as much information as you can into that one view. Um So, he exposed me to those which have been invaluable in my work, and also the demark indicators he taught me. So I've been very lucky to have people like Rick and Mike and Tom as mentors, you know, over my career. And also, you know, I've been highly

involved in the now named CMT Association. I was vice president of that organization for some time and was able to get to know, you know, people like Ralpheck Emporra, who, by the way, you know, came to guest lecture that class that I took in college, and he stood up in front of the class and took the Wall Street Journal and tour it in half and said, you don't need this anymore and uh and boy he got our attention. You know, all of our finance majors in the room.

It was pretty pretty neat. So a lot of people to inspire me. Um So, you mentioned several mentors. What about investors? What investors have influenced the way you look at either markets or or individual stocks. Honestly, I haven't found my inspiration in any of the investors, which, to be honest, tend to be a bit more fundamentally or macro oriented the ones that that we all know. Um. So I've found it more in the tools that i've

you know, derived from my ment tours. So I don't really have an inspiration in terms of my investing style, um, except to say that that it really is you know, technical, you know, technically oriented, and it came from you know, studying for the CMT program and being inspired by some of the methods that I read about in that program. Let's talk about books. This is everybody's favorite question. Tell

us about some books you've read recently. They can be fiction, non fiction, market related, not and and some of your all time favorite books. Oh goodness, Well, that's a hard question for a mom of three young children, where reading, you know, time to read books is sort of you know, it's hard to find that other than the hungry caterpillar? What else? What else have you been looking at? You know, I like to read. I like a good beach read,

to be honest, But that aside, you know, the demark indicators. Um, you know, I've I've read Jason Pearl's book probably most recently on those and and that's very accessible, and I think, um, you know, there's not enough literature out there on those,

so I've appreciated that. And then it goes back to a lot of the textbooks on technical analysis, which you know, at the end of the day, it is somewhat of a mathematical discipline, so they're they're not gonna, you know, keep you up at night, but at least I'll give you the tools that you need, you know to So Edwards and McGee, right, the Martin Pring's book, you know, Technical Analysis Explained, which I'm sure has been updated a

million times since I first read it. Um so more so those types of books as opposed to you know, Reminiscences of a stock Operator that type of thing, which is fascinating but really isn't much of a how to. Yeah, in a way, it's the right learn from others mistakes, right, Um So it's it's you know, the textbooks that for me have really helped me, you know, move my discipline forward.

So so what's your guilty pleasure? Beach read? Oh, the beach reads Gosh right now I'm reading Hillbilly Elegy, which is a lot of people that yeah, yeah, I do, like I try to alternate, you know, fiction and nonfiction, just to mix things up. And UM, you know I just and then I had my US Weekly, so you know that is that is a good pleasure US Weekly. UM. So let's talk a little bit about how the industry has changed since you joined. Let's call it twenty years ago.

Is that a fair number. So what's the biggest change that's taken place for you as a technician over that time period. It's really the acceptance of the discipline and it's it's not like it happened overnight, but certainly the acceptance of what we do every day. And by the way,

most people don't do this as their primary career. They do it as Some are just hobbyists, you know, they do it for personal reasons to help their investing, and others are in a different seat, like they're a trader for a hedge fund or their portfolio manager out a mutual fund, trying to understand these things so they can use it in a in a way that um, you know,

facilitates what they already do. And so, um, you know that the adoption has really gotten to the point where I'm not going to client meetings and having to pitch them on the value of technical analysis, but rather to focus on what we can really add value in, which is idea generation risk management, identifying important levels, and looking

for opportunities. So so, given those changes over the past let's call it ten or twenty years, what do you see as the next set of changes within the industry. I think it must be. You know, we do a lot of project work for clients that's a bit more quantitative in its nature. I don't think you can make charts quantitative solely, but certainly with the tools that we have, you know, from the technologies that are now offered to us.

I think there's a lot of upside in a planet more systematically and quantitatively and also in appliant more from a risk management perspective, which we all know is quite important. So I think that's going to be the next push and where there's a lot of upside, and I think

it's an exciting field. I'll be attending a conference in October for the if TO organization, which is an international federation of technical analysts, and that conference is centering around AI and technical analysis, and I don't know enough about it yet, but I think there's some interesting things going on there that AI and technical analysis that sounds fascinating.

That's really that's really interesting. Um there's a quote from Jeff Bezos that I love, and it says something along the lines of, uh, if we're not failing a lot, we're doing something wrong, meaning we have to constantly try things and and by definition some of those things won't work out. So with that as the preface, tell us about a time that you attempted something and failed and

what you learned from that. Well, yeah, and I mean we could go back to the conversation about the pot call ratio, you know, in terms of two thousand and eight, where you know, I just stayed with it too long because I was giving too much weight to the market internals when I should have given more weight the momentum and trendfall engages, which I always advocated as more important. Um So when it actually came to the moment, I

just I stayed in too long, is what happened. So so it was it was actually deviating from my discipline because I got married to my view. So so there is you know a lot of risk in that, especially from that top down perspective. And and we had to again keep ourselves honest by really adhering to the indicators, the trend falling indicators, especially to help you know, us determine our biases and and so, you know, as not to get too married to your views. So outside of

the office, what do you do for relaxation and enjoyment? Oh, well, you know, I actually don't have a lot of time outside of the office, but just I spend time with my kids and and you know, enjoyed traveling. And am I remembering you were a runner for a long time. I'm a runner. I had sort of an avid runner, not very far and not very fast, but I still enjoy it. Um. I remember it was you and Jim Bianco and who else up in camp Co talk and I'm thinking, yeah, I'm just gonna sleep it. You guys

were up and out running early. It puts me in a happy place and it clears my head. And I think that I found that and not that I get to paint often, but painting does that for me too. And I think it's healthy for everybody to be able to remove themselves from the market something different from what what the regular course of events. That's right? And um

my last two and very favorite questions. So if a millennial or recent college grad came up to you and said they were looking for advice about a career in technical analysis, what would you tell them? This actually does happen often, so I would always say, you know, listen you, I don't know that there's a lot of job opportunity in technical analysis. As a purist UM sort of in my seat where I'm a sales side publishing technical strategists,

there's not that many of us UM. And yet I think as a discipline something that that you should learn UM as one part of a bigger picture that by all means everybody should pursue the CMT should actually really take it upon themselves to learn it as a discipline not only for their career but also for their personal investing. I think it's invaluable and UM, you know, just to have I guess a bigger scope to what you're doing, whether it means also pursuing the cf A or something

like this. UM. But as you know, a new UM, I guess, a new graduate going into a firm, I think a mistake that I made that UM. Now with some hindsight, I can say I would have benefited from really knowing what was going on around me in the firm, because I think, you know, we get so narrow focused and what our day to day job is, especially at a younger age, UM, but we lose sight of of how we fit in to the big picture. And I think just to know what's going on around you it's

really obviously valuable. And our final question, what is it that you know about investing charting strategy today that you wish you knew twenty years ago? Oh gosh. I would say probably that demark indicators would be the first thing that come to mind as being a tool. UM so that that came in probably about halfway through my career, and it would have been great to have you know,

known more about them in the earlier stages. I think that would have certainly helped um, you know, around two thousand for example, and you know when they would have been you know, added value in terms of the inflection points that we saw because that came without very much warning, as you could imagine, not a lot of divergences ahead of that peak. Well, thank you so much, Katie for being so generous with your time, and I will see you up at uh Well, I see you at Camp Montall.

That sounds like we have been speaking with Katie Stockton. She is the chief Technicals Srategists at bt i G. If you enjoy this conversation, be sure and look up an inch or down an inch at any of the other hundred and fifty or so such conversations that we've had previously. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not thank the crack team who helps put these podcasts together. Medina Parwana

is my audio engineer. Taylor Riggs is my booking producer. Michael Batnick is head of research. I'm Barry rid Holts. You've been listening to Masters in Business on Bloomberg Radio.