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