The S&P is up 7% for the year so far. A welcome relief after 2022’s dismal performance.
So is the market in a new bull uptrend?
Or are we simply experiencing a bear market rally off the October lows, one will fail at some point and drag the markets back down later this year?
To help us assess, we’re fortunate to welcome market technician & portfolio manager Katie Stockton, Founder and Managing Partner of Fairlead Strategies to the program.
Follow Katie at https://www.fairleadstrategies.com/ Or on Twitter at @StocktonKatie
Katie Stockton 0:00
As the range to us still marks an interruption in the bear market cycle, it hasn’t yet proven to be a bullish reversal. And because of that we have a bearish long term bias sell until the market proves us otherwise in the US. From a short term perspective, things look somewhat vulnerable as well. So we’re in risk off mode in our thinking.
Adam Taggart 0:27
Welcome to Wealthion. I’m Wealthion founder Adam Taggart. The s&p is up 7% For the year so far, and that’s a welcome relief after 20 two’s dismal performance. So is the market in a new bull uptrend? Or are we simply experiencing a bear market rally off of the October lows, one that will fail at some point and drag the markets back down later this year? To help us assess we’re fortunate to welcome market technician and portfolio manager Katie Stockton to the program. She’s Founder and Managing Partner of fairlead strategies. Katie, thanks so much for joining us today.
Katie Stockton 1:05
Of course, Adam, good to be with you.
Adam Taggart 1:07
Oh, it’s a real pleasure to have you on the channel. Katie, a number of questions here for you. I also have fresh off the presses. your firm’s latest market update here love to talk about that with you. Just to kick things off here. I’d like to start the discussion with a question I asked everybody when they come on the program for the first time. What’s your current assessment of the global economy and financial markets?
Katie Stockton 1:30
Yeah, I mean, it’s a big question, right. And we only look at the market from a technical perspective. So we’re evaluating the global economy through identification of price trends, primarily. And boy, it sure is neutral out there. In terms of trends, we have the major indices in the US and range bound environments, and, you know, follows a bear market cycle from last year. So, you know, based on the action in the stock market, we can’t say that we feel especially rosy about the global economy. And there are levels and key metrics that rewatching by which we can evaluate if things are improving. But if copper is any tell, I think we’ve got some work to do. The range to us still marks an interruption in the bear market cycle, it hasn’t yet proven to be a bullish reversal. And because of that, we have a bearish long term bias sell until the market proves us otherwise in the US. From a short term perspective, things look somewhat vulnerable as well. So we’re in risk off mode in our thinking. You know, we’re not necessarily pessimists, we tend to just identify current momentum and other price gauges, and try to generally stay on the right side of the tape. Rather than being ultra predictive in our work. We don’t know where the s&p 500 will be at year end. We can certainly speculate based on the current trend and or indicators, but we generally want to manage risk based on the environment from a long term perspective. And then we’ll let the shorter term gauges set the tone in our more opportunistic positions.
Adam Taggart 3:12
Okay, great. Well, look, let me let me put up the chart here of the s&p from this morning’s report. You just mentioned you have a short term bearish bias and a long term bearish bias. You talk here in the report about sort of some key levels that you’re looking at both in the short term and in the longer term. Can you just speak to those really quickly? So if you’re if you’re short term bearish right now, where do you expect the market to go to where we’re what we’re at right now at like 4150 ish or so on the s&p, I’m doing this from memory. So I could be wrong. You know, the short term, where do you expect it to fall down to because it looks like you’re saying you’re we’re coming off intermediate overbought conditions, right. Is that what the tape is telling you?
Katie Stockton 4:03
That’s right, or indicators, we’ve seen a short term loss of momentum, and seemingly in response to those intermediate term overbought conditions. For us the resistance is about 41 and 55. That’s based on one of our models, and it’s probably about 3030 or so points above right now. We failed to see a breakout confirm about that level recently. That is one of our metrics that would make us more bullish if we were to see a decisive breakout. For us. That means a couple of good solid weekly closes above a level. So that’s one metric on the upside that they’re that we’re watching. Our indicators, though, still pointing lower. Right now we’re watching and part of the 50 day moving average for the s&p 500. Last I looked it was close to about 4050. It’s not a major support level, meaning it’s not an area that’s proven to be buying pressure necessarily in the past. But rather, you know, so many eyes are on that 50 day moving average. Whereas if it was taken out that could just by the nature of so many people watching it, increase some downside follow through meaning selling pressure and pickup as a function of that breach, the widely watched moving average. So we think the support below that is roughly 3800, there’s a pretty big spread to that 3800 level, we suspect that we won’t get there. And before we make another intermediate term low, but rather make a higher low versus that level. And we say that just simply based on the current status of our indicators.
Adam Taggart 5:38
Okay. Let’s talk about the long term in a second, I then want to sort of revisit a comment you made a few minutes ago saying that I heard you correctly. You see us as remaining in a bear market, so far in a longer term bear market versus having broken out into a new bear market, a new bull market? And, you know, if we were to go down to 1300, I think you said you’re not, it’s not what you’re predicting. But even if we did that would still be sort of in the range of where we started this year. Right. So I guess I’ll let you talk about any way you want to in terms of the longer your longer term outlook. But if you could speak to the fact that I guess from from your analysis, we’re still in the bear market that that reign through much of, of 2022. Love to hear what we need to happen for you to say, okay, that’s broken. We’re now on the now in a new bullish uptrend.
Katie Stockton 6:37
Yeah. And so I have to frame it much longer term. To start in that it’s the market still, technically in the US is in a secular bull trend. That secular bull trend does show indications of moving into a bit more of a range bound environment. And with that in mind, I think we’re in store for a pretty difficult market to navigate even for the coming years, we don’t have any way of knowing what things will look like in five years, of course, but the indicators that we track do suggest that we can’t, you know, expect the parabolic moves and steep up trends that we were accustomed to at different points in that secular bull trend, but rather, will have cyclical moves. And the bear market cycle that began last year hasn’t released it told, without that break at about the 4155 level, you know, we were going to trust that that bear market cycle still has a hold that the modest gains that we’ve seen year to date have been quite narrow, and the mega cap complex. So unless you were exposed to the likes of Apple or Nvidia, you really haven’t benefited from that upside, which is evident in the major indices, the breath has been quite weak, that means market participation has been quite weak. And that’s a challenge for the market in terms of extending higher with any duration. But But listen, as you mentioned, 30 100 probably would be seen as a nice entry point by a lot of folks, if we get somewhere close to that, just given the fact that they perhaps feel like they’ve missed out on any of the gains that were logged this year. So that would be a natural reason for it to find some support above that level. Now, the other thing that we’d like to see, besides a breakout by the s&p 500 index would be improvement in breadth, so meaning more stocks are participating on days that the markets higher. So more stocks are rallying on updates. And that can lift our breath gauges things like the cumulative advance decline line for NYSC stocks, above resistance levels of their own. So that’s something we highlighted in our market letter. We publish research daily and weekly, we have multiple reports covered in various asset classes and what have you. But we do show a chart of that market breadth. And you’ll see that there’s still some resistance based on something that we call the cloud model. The cloud is actually technically known as a CI moku. So it’s an unusual sort of way to describe the market environment using various midpoints of price to project forward the prevailing trends, so it’s a Japanese model. We call it the cloud because that’s what it looks like. And the cloud is currently an overhang for both breath and also the s&p 500.
Adam Taggart 9:32
Okay, and Can you just elaborate a little bit more on when the cloud is an overhanging what that really means?
Katie Stockton 9:39
Yeah, it just means that there’s potential overhead supply. So potential selling pressure looming at certain levels overhead, but also just like any kind of trend falling gauge like a moving average of price. It will tell you what the prevailing trend is at the moment. So if price is below the cloud, which is drive from Just a mathematical formula, that would mean something’s down trending over that timeframe. So we’re watching the weekly bar charts in this case. So on the weekly chart of the s&p 500, that’s where that cloud sits around 4155. And if we were to look at it on a daily chart, it would be sort of a shorter term indication of trend, we do use it over multiple timeframes, and we find it to give us an edge really, in terms of understanding, not only prevailing trend, but when there are times breakouts or breakdowns. Okay.
Adam Taggart 10:35
So, I, you talk there about how you think this, you see that this may be a more difficult market to navigate in the coming years for most of the average investor than what we were sort of used to in the decade plus leading up to 2021. Is it sort of safe to conclude from that, that then, you know, we’re going to be in a market that’s going to require, perhaps maybe a lot more active management than what the past decade required, and that this is going to be more of a kind of, you know, traders or technicians market where you’re going to be maybe a bit more range bound. And so knowing where we are versus the peaks and the troughs, that’s how we’re going to make our money as opposed to just going along a sector ETF and just holding on for the ride, which is kind of what it was sort of the easy way to make money basically from 2010 to 2021.
Katie Stockton 11:38
Right? Right. So it does suggest that the sort of buy and hold mentality might be challenged, right? Because, you know, it depends on when you need to exit those positions. Like if you had a life event, whether it’s retirement or some kind of change, you know, the timing of that could be unfortunate, right. So you have to almost, I don’t know if I’d call it, you know, be a trader, because I do think there’s going to be some duration to the trends within that kind of broader context. But the duration, rather than being a decade could be a year, maybe two years at best. So with that in mind, where you could have an up and down cycle of that duration, and even potentially equally strong, that does mean that a buy and hold strategy will be challenged it you know, so what I would say, is, rather than becoming a trader, we don’t need to be ultra short term, we can be more dynamic and how we’re approaching that buy and hold strategy. And I think the dynamic part can certainly come from technical analysis, it doesn’t have to be technical analysis. But that’s one way to understand the prevailing momentum behind a move and to make sure that your position on the right side of that, and to your point on the active management, well, you know, a dynamic strategy of that nature would be active, but active in a sort of conservative manner. It’s not like, you know, you’re out there, finding opportunistic setups, and individual stocks on the growth front, you know, this is more of a top down oriented type of approach, where you’re just trying to make sure that you’re managing risk during this downdraft by perhaps having less exposure to equities, and then being in the right areas or segments of the market when it’s actually working.
Adam Taggart 13:28
Okay, and, you know, look, most of the people watching this video are regular people, they certainly don’t want to feel like they have to turn into day traders to trade this kind of market. So, well, you talk there about, okay, you know, having a good sense of sort of what to be and where or where to be. And when you your firm go through, you know, a whole bunch of different sectors. And also look at a couple of really big indicators that are of strong interest to this audience like the dollar like treasury yields, etc. I’m wondering if we could just dial through some of those. Your report has a bunch of, of industry interest, sorry, indices that you track in a number of different sectors in the market, everything from industrials to real estate, technology, utilities, etc. We don’t necessarily have to go through every one. But are there any that stand out to you right now, where there’s sort of a clear direction of where you think that industry is headed in a way that you could take a dynamic, you know, tactic to say, Okay, I don’t want to potentially load up on this or lighten up on this.
Katie Stockton 14:41
Yeah, so it depends on the time horizon over which we’re talking, I would say intermediate term, which for me is from maybe two to four months or so that we’ll still see the defensive sectors sort of kick in that they’ve been stabilizing, but they were They haven’t manifested themselves as a nice space of outperformance. But for the most part that consumer staples sector, the healthcare sector, and the utility sector all have among the best promise, in my opinion from a relative perspective near term. That doesn’t necessarily mean that if if we’re still in this bear market cycle, relative performance doesn’t necessarily mean you’ll see gains in absolute terms. So when we think about our relative strength work on the sector front, which is what you’re seeing in our report, we have to realize that that as weaker tape is going to be a challenge for all sectors, not just you know, the sectors that are exhibiting downside leadership, typically, and a strong tape, we will see upside leadership from technology, discretionary, and communication services. And that of course, includes some of the mega caps as well that have been doing well. Of late and a weaker tape, we tend to see those defensive sectors do better so so the sector rotation is still leaning more negative. Now we have an ETF. It’s called the fairly tactical sector ETF or tak ta ck, that ETF is more long term focus, and the only sector that we hold in that ETF right now is energy, we’re expecting to remove it, and we expect to remove it because it the energy sector, while it looks fine short term, it does have a loss of long term upside momentum that’s meaningful. So the market has not lent itself over the past few months to having a full sector exposure because of the bear market cycle. So we would lean more risk off in our positioning. So in our TAC ETF, in addition to energy, which is a smaller position, we have short term Treasury exposure, long term Treasury exposure and gold. That exposure is achieved via ETFs. So we have that as sort of a place to hide and minimize our downside in a tape that still seems prone to it.
Adam Taggart 17:08
Okay, great. And just I really want to underscore for a second that that ETF ticker that you mentioned, hack, ta ck, and we’ll put that on the screen here, when you you mentioned will be added this, that it basically is a way for investors to participate in your model, as you guys are basically, you know, managing this environment as best you can, given what your analysis is telling you.
Katie Stockton 17:35
That’s right, it’s effectively a way to achieve that dynamic buy and hold strategy without having to do it yourself. And also without having to whether some of the tax implications of that type of strategy without the ETF wrapper, they call it. So there is an appeal to that kind of actively managed but systematic approach to investing in US equities using the sector rotation, I believe, and it seems like Adam, you you might also agree that that sector analysis can be one of the best ways to outperform the major indices, if your goal is to beat the s&p 500. Identifying sector trends in Sector relative strength is one of the best ways to do that. any given year, like last year, I mean, you saw NRG, app, 55 or so percent, and everything else was pretty much in the red. So to be able to identify those trends and take advantage of them, there’s almost always a you know, 10% plus spreads from the high end to the low end over whatever period you’re looking at, on the sector front. So we try to take advantage of that. So we want to participate in the best sectors when the markets working, we want to protect on the downside when the sectors are not firing on all cylinders. And that’s why we go to those alternative asset classes. So think of it as like, almost like a 6040 type of model over you know, 20 plus years. It has that kind of characteristic, but it’s dynamic in that it’s shifting between times a very full sector exposure to something that’s much more risk off like it is now.
Adam Taggart 19:18
Right, right, which is, which is great, right? Because there’s so many, you know, funds out there solutions out there that are always long in whatever they’re say that they’re, you know, offering exposure to, you’re basically saying, hey, you know, we’re going to be longer things that make sense to us right now. We’re going to be light on the things that don’t I just want to make it really clear for folks to correct me if this statement is not true, but your approach is purely technical, meaning as you are determining which of these sectors to lighten up on or increase exposure to you’re making those decisions based upon what the price action is telling you. You’re not taking much Have any sort of macro, you know, fundamentals into play in your allocation decisions? Is that an accurate statement? Yeah,
Katie Stockton 20:07
that’s completely true. So so our discipline is technical analysis. If you’re if you’re investing in individual stocks, we believe that it’s highly important to have the fundamentals on your side. So we think that technical analysis and that situation is very complementary discipline, but less of a standalone. I mean, you can certainly identify breakouts or breakdowns, as various technical catalysts but but if you’re investing in individual stocks, you should know that company and the prospects of that company, it’s not our area of expertise, we do work on individual stocks to help our clients navigate those trends. But from a top down perspective, you can certainly express views using technical analysis. Ideally, those views align with what we call sort of the macro picture, the macro picture, we’re usually interpreting from a technical perspective, you know, looking at things like treasury yields as a major input, of course, right now in this environment, looking also at Gold prices, and crude oil prices, and that dollar, all of those things influence equities. So to have that macro technical, or macro perspective, is highly valuable when you’re investing more from a top down perspective. So that’s something that is incorporated in our research and in our models. But the what we’re trusting and investing in Sector ETFs, ourselves is that the market has rewarded the best fundamental stocks or companies by market cap. So these are cap weighted sector ETFs, that we’re using raising the sector, spider ETFs, in particular, and those have cap weighted positions in the s&p 500 names. So as an example, it’s going to reward a name like Apple, which has a very large market cap when we have that technology position. So we’re putting some trust in the system to that end,
Adam Taggart 22:07
okay, and maybe just to beat this horse a little bit, to death. So on the day, you and I are talking here, we just got the new CPI numbers for April, presumably, you’re not going to make any changes to your portfolio allocations based upon your interpretation of that number, you’re just going to continue to watch the price action and how the market responds. And that’ll determine what you do.
Katie Stockton 22:30
Right, the price action determines, yeah, the posture of the indicators that are the stuff of our models, we certainly have an opinion on, you know, the macro picture, but it is coming from a technical perspective. We’d notice, for example, the CPI print, there was actually an oversold indication on the CPI data itself. And I don’t think we’ll do anything in response to that, but I was will put it in the kind of good to know camp. So we have a different way of interpreting it. And, you know, it’s all about respecting price action, if you think about it, every bit of information out there is consumed, and then it goes into a decision, right, either buy, sell or do nothing. And those decisions manifest themselves in price. So if by narrow focusing on price, you are still collecting all the known information in the marketplace. And obviously, these trends are driven by macro forces, they’re driven by fundamental forces. So the charts aren’t going to answer why, but they’ll at least tell you what’s happening.
Adam Taggart 23:38
Okay. We, we have a number of of experts that come on this program, you know, who do a good job of reminding us look, we can have a great fundamental discussion or debate about where we think things should go based upon where all the fundamental data is heading, doesn’t need me necessarily the market is going to go in those directions, or in the timeline that we think so you know, the reminder is obvious is always look, you got to remember, at the end of the day, you have to trade the market, you have not the markets that you think you should have. And it sounds like you’re very much in that camp of, yeah, we’re just trading the markets as they are and we’re letting price action be our guide.
Katie Stockton 24:17
That’s right. It’s about being adaptive and dynamic and how you’re approaching it. Because the market will, you know, express itself in different ways. And if we have a breakout, we want to respect that breakout breakouts do tend to see upside follow through. And you know, we consider ourselves in our research and most reporters, super reporting the status of various indicators and the subjective I guess part of it comes in to how we’re combining those indicators to come up with a sort of a take on the current environment.
Adam Taggart 24:51
Okay, great. Well, look, I want to I want to continue to wring all the juice out of your your technical worldview here. But if we have a look ittle bit of time near the end, I’d love to just turn over the macro side and get your macro views even though you were making very clear here you know your your investment and allocation decisions are driven by the TA. So again, in today’s report, you have your, you know, general outlooks on a couple of key assets here, I just want to walk through, maybe we can start with the dollar and then go to Treasury yields. If you can share it share us with the tape is currently telling you for the dollar. Well, the
Katie Stockton 25:33
dollar has seen a very distinct loss of momentum, it’s really entered in a downtrend effectively, and a major retracement of the uptrend that preceded it, that after we saw some good downside, we saw a loss of downside momentum on an intermediate term basis. So while long term momentum is now pointing lower for the dollar, intermediate term momentum has stabilized a bit. So we’re looking for more stabilization, near term even have an upward bias in our views for the next couple of weeks. So looking for a short term, effectively oversold bounce for the dollar, but something that’s likely to meet resistance fairly quickly. And give way to another downward move. So that I think the sort of explosive nature of the downtrend up to this point is probably not going to be the case going forward, that it’s a bit more of an orderly downtrend that that were in store for. But our objective for the dollar index is about 99. And that’s with an intermediate to long term objectives sort of time horizon. So we’re looking for that downtrend to ultimately resume albeit maybe not at such a sort of a, an explosive pace on the downside, be hanged at the same time. And this is talking about really the next few months or so. Treasury yields. And this is it’s really important with Treasury yields to reconcile time horizons. And this is something that we spend a lot of time on when we’re looking at charts, we’re looking at the dailies, we’re looking at the weeklies, we’re looking at the monthlies and reconciling those timeframes to it can be confusing, because sometimes they all are sending totally different message. So timeframe is very important. But with 10 year treasury yields as a case in point, if you look over multiple decades, you can see that a very long term and pronounced downtrend channel has been reversed effectively, as of, you know, sort of the 2020 low area. And because of that, you know, we are expecting sort of a new normal, something that most market participants have not lived through, where we see treasury yields move higher, higher highs, higher lows over time, within that context. And yet, for the next few months, they do look more sideways to lower so we’re in this kind of corrective mode, if you will fall in a steep reversal higher in Treasury yield. So this corrective mode, we think will keep hold, short term, just really looking for more backing and filling. We don’t have strong upside or downside objectives. But there is support around three and a quarter for the 10 year, and we’re expecting more of the same up until we get something different out of our indicators that suggests are ready to make a higher low again. Okay.
Adam Taggart 28:32
That’s probably more of a macro question for you. But when you think we may be in this new normal, where yields grind higher, I sort of took from that you’re talking about maybe the next couple of years for that actually
Katie Stockton 28:44
really even be longer than that. So I don’t usually in my work, talk decades, but this is really sort of a secular shift, I think that we’ve seen, so it may not be relevant for the next year. But I would say probably for the next two, three years, we’ll see another move with some, you know, real upside to it and Treasury yields. And the good news from that is that it does give us an alternative to equities, you know, where we actually have other asset classes that we can source. You know, there was that period during which you felt like if you weren’t involved in equities, well, you were massively missing out. I don’t think we have that kind of period right now. I think we have a period in which we can source safety and you know, return from other asset classes, even international equities as an aside and you know, commodities have some potential depending on which one you’re talking about international equities relative to us or have sort of picked up their heads. So there’s so we can get a little bit more creative in this environment to try to take advantage of this new normal.
Adam Taggart 29:55
Alright. I’m trying to resist from just jumping into the macro because there’s a lot of implications, obviously to that, right, and we’ve just come off basically 40 years of steadily declining yields. So it really is a new normal that you’re referring to. I’ll make a new remark here to revisit this when we get to the macro part just to see you know, what sort of repercussions you think that’ll have. But just rounding out some of these key assets you have here. Oil obviously been a lot of discussion of late as to where oil was headed because it’s it’s been weakening over the course of the past many months. Well, I’ll put up your chart here. You tell me where do you think it’s headed from here?
Katie Stockton 30:42
You know, over the past year or so, it has been crude oil has been in a downtrend. And that downtrend follows a pretty pronounced uptrend. Recently, however, we saw something that we call a shakeout. So shakeout is like a technical term for it’s a one price bar, it can be daily, weekly, monthly, where you see a really wide spread between the high and the low. So a lot of volatility intraday and true week and for month, whatever it may be. And then you see within that for wide high low range, you see a very strong close and this usually follows a downtrend. So it’s almost like climactic selling that gets you to that place. And we call it a shakeout. So we did see a shakeout in crude oil that suggests that we can see a bit more of a relief rally. So the downtrend has lost downside momentum. We have the ShakeOut, so we’re looking for crude oil to be higher here in the near term. And that that could certainly help the energy complex, which has, you know, last that long term upside momentum, at least in the short term, and to recover from any of its recent losses. So we’re looking for a short term bounce, maybe even, you know, past the 200 day moving average for crude oil, and so maybe in the mid 80s, low 90s. And then we would trust that the downtrend will regain its hold, and that’s based in front of our cloud model. So again, very important to reconcile those timeframes.
Adam Taggart 32:15
Okay. So based upon your cloud model, if the downtrend resumes, do you think it would then progress to hit new lows versus the low 70s? Where we are today?
Katie Stockton 32:27
Yeah, I think it depends in part with how long it takes because our indicators, they’re somewhat conflicting. Right now we have indications that for two months, we’ll see stabilization. And then beyond that, it depends on how it unfolds. But something called the demark indicators. These are essentially overbought, oversold gait gauges, and they have a lot of nuances to them, but are very long term demark indicators would suggest that beyond this stabilization, we could see like a proper nine month downdraft on the back of that, so we want to be somewhat cautious. And what we will do without knowing what’s going to happen is simply like make sure that we have some kind of stop loss discipline for existing long positions. And we’d be very uncomfortable seeing any meaningful loss of momentum once crude oil seems to have come into resistance wherever that may be. So it’s a matter of, you know, we have no crystal ball, but we can at least know what kind of environment we’re in from a technical perspective and to what degree we need to be managing risk, right. So in a in a proper long term uptrend, we’re more inclined to live through a corrective phase. But if that corrective phase comes within a downtrend, and near resistance, and you have these indications longer term, that it could get worse, well, then we’ll be a little bit tighter, I’d say in our discipline, in terms of managing risk on the downside. So I don’t know what will happen there is very good support around $62 per barrel. It’s not relevant right now. But that is a level for it.
Adam Taggart 34:07
Okay, and things. Obviously, as we go along, the timeline conditions changed. So if I had you on this program in a month, you might have something very different to say if the if the price action all of a sudden was deviating from what we’re seeing right now. But if things hold out the way that your current analysis looks, if we do have this recovery in the price of oil up into the 80s, maybe low 90s. You’re inclined to think that that’s going to be short lived kind of like a head fake, meaning don’t as an investor don’t take that as a green light to pile into the the sector.
Katie Stockton 34:42
You would see it as a essentially like a bear market relief rally. Something that you can leverage short term and certainly if you’re looking to exit some of the energy exposure, that bounce would be welcome. But But yeah, not not necessarily something that would have longevity Like you said, if things change, we’re going to change with it. But we have ways of understanding what the challenges are. And we’re trying to put probabilities in our sort of support of our views. So we want to make sure that we have good probabilities of success when we’re putting on a position.
Adam Taggart 35:19
Oh, okay, great. All right. And then the last gold. It’s just to let you know, just head on the channel, another technical analyst, who was looking at the gold action and saying, Hey, gold, gold looks pretty attractive here. And it’s at a point where it looks like it could break out but a failure of that breakout actually could signify that there’s going to be better odds of a reversal happening. i What are your what’s your TA telling you about gold?
Katie Stockton 35:51
I like what, what whoever that technician was, I like what they said, in terms of,
Adam Taggart 35:56
by the way, but Oh, great.
Katie Stockton 36:00
If it’s a false breakout, that that can be bearish. But But we actually think that gold will ultimately break out we think the breakout and we’re watching a final resistance level of 2063. So this is like the last hurdle for gold. We think it will be ultimately surmounted. But we’re looking for maybe even a couple of months of consolidation first, so we’re still comfortable with our long exposure in the ETF. But we think that that consolidation is needed as a way to kind of refresh the uptrend to get that proper breakout, the uptrend is still supported by positive momentum gauges. So we are constructive on gold. And we also like it. You know, in relative terms, it’s been a source of outperformance on kind of the global macro front, we don’t have any major sell signals there to suggest that resistance will remain intact indefinitely. And if you if you were to see the breakout, the breakout for us, you need a couple good solid weekly closes above that resistance level that would then yield an objective longer term of effect 2500. So and the objective would be something in the nature of sort of mid to late 2020 force, it’s not a near term objective, but it’s based on a what we call a measured move, which assumes the trajectory the current trend will maintain itself. So that would be you know, a real bullish long, long term development for gold. And, and that’s why we’re comfortable with the position.
Adam Taggart 37:31
Okay, great. So if it does, definitively kind of break through that resistance level, and if I’m reading your report, right, that’s around 2063 or so per ounce. Right? You’re seeing that it could then make a pretty big run over the next year plus, sounds like a 20% ish type increase up to about 2500. All right, well, that’s number of people that follow.
Katie Stockton 37:55
Certainly compelling anything, I think that’s a, you know, has that double digit percentage upside to the next resistance level, or any kind of major positive technical catalysts is certainly worth exploring in this environment, which may not lend itself to much of that meaning, you know, targets are a bit more, you know, sort of conservative than that. And there are fewer catalysts if we stay in this range. So we are just out there looking for opportunities that have higher probabilities behind them.
Adam Taggart 38:27
Got it. And it sounds like gold is on your list of things that have the higher opportunity right now.
Katie Stockton 38:32
That’s right. And otherwise, we’re comfortable, you know, sort of hiding and asset classes that that have the tendency to outperform equities in more bearish environments. But we would sort of morph in that view, if we see that the qualifiers met that we discussed earlier as it pertains to the s&p 500. And breath and long term momentum.
Adam Taggart 38:56
Okay. And I guess on that part, kind of closing question here on the TA side is where do you see the biggest opportunities right now? And maybe a simple way to ask that question to sort of like, what’s the current weighting of the TAC ETF right now?
Katie Stockton 39:13
Yeah, so we’re pretty heavy in the treasury exposure. And that’s in part for yield. And it’s in part because they tend to outperform equities and weaker tapes. We have sort of diversified exposure to treasuries, both on the short and long end. And we have that intentionally because it helps us avoid the cycles, like we saw last year, where we saw pretty notable underperformance by long from treasuries versus equities, despite the bear market cycle. So we saw that sort of a double bear market in both asset classes. So we have that diversified intentionally. And you know, with that tech is yielding. It’s only about 1% right now. But but we are comfortable having And that exposure and then a gold exposure is there as well, really, they’re more for the relative positioning, but also because we have some positive momentum there to benefit it. And then, you know, by year end, we hope to see the sector’s kick back in. And so we want to take advantage of the next bull market cycle, we would expect that to happen gradually, as long term momentum shifts back in their favor, looking from a bottom up perspective at the sector, spider ETFs, that we’re trading of which there’s 11 of them, you know, to the extent that they start to improve on their long term gauges, and by that we mean monthly data. There’s there’s multiple metrics that we’re including in our models. But you know, as as they improve gradually, we’d like to see them resurface as positions. The max sector exposure that we can allow ourselves to hold is eight sectors, and we want the best sectors in terms of momentum and relative strength. And, you know, we are excited to see the tech ETF get back to that exposure, but we don’t want to see it happen prematurely.
Adam Taggart 41:11
Yep. All right. Okay. Well, if we can, let’s just Trundle over into the world of macro here for a moment. And again, to remind everybody that the way in which you actually allocate capital is based upon what the technical price action is telling you. That said, you live in the world of the markets and, you know, the the markets generally react to macro, might take some time, but they generally do things like Fed policy, inflation, you know, geopolitical developments, etc. Lot of macro data right now, that is suggestive that, you know, the odds of a recession are non dismissible. Let’s put it that way. I’ll try to be you know, relatively uncharged about it. What sort of, I guess, based upon your readings? How likely do you think a recession is this year? Is it something that you spend time thinking about? Is it something you just don’t worry about? Or is it something you have some confidence in?
Katie Stockton 42:22
Well, I would say I don’t tend to worry about it terribly much, because I can’t control it. If it’s gonna happen, it’s gonna happen. Nothing I can do about that. But what I would acknowledge is that, you know, if you think that there will be a recession, whether that’s from the inverted yield curve, or some other indication, the market doesn’t tend to bottom before a recession. So if you look at the s&p 500, versus recessionary periods, it almost always has bottomed during, and maybe once or twice at best has has bottomed after the recession. So if you believe that a recession is coming, from a macro perspective, we won’t add value on that front, then you should be positioned more risk off, if you believe that we can avoid the recession, then I think you should be more inclined to be looking for that buying opportunity.
Adam Taggart 43:18
Okay, and just to map it back to how you manage capital. Sounds like it’s, it’s something you’re not worrying about in your current day to day. But if you see, if we if we start, if we start to go into a recession, you almost don’t care until you start seeing the price action being impacted. And then you would make a tactical reaction to that price action, correct?
Katie Stockton 43:41
That’s right. Yes. So it’s a dynamic strategy. And this is how we think about the world. In our research, we will present short term views, but in our investing, we’re expressing longer term views, and we don’t mind, you know, sort of riding out some noise, meaning, a move that hasn’t proven to be major in terms of a reversal or breakout or breakdown. But it’s when we see those major reversals of trend, that’s what we want to concern ourselves with, sometimes is take time to develop sometimes they’re much more abrupt, like, like 2000. But when they occur, we want to be there and we’re fine, you know, not top ticking something or bottom ticking something, because we want more weight of the
Adam Taggart 44:26
evidence from a lot more confidence in your decision. Yeah, exactly.
Katie Stockton 44:30
Confidence and that that it is more than just noise because that noise again, we’re okay writing that out. But we want to because otherwise you’re you’re overtraining. But you know, if it proves to be something that is more of a major reversal based on our indicators, and that’s where we really want to change our positioning. So it’s a matter of not getting terribly caught up into these short term moves. But certainly reacting to something that’s more long term and its impact sodas, it is somewhat reactive, but it is dynamic. And what’s nice about the the charts and the indicators is that there’s really no emotion to it. So I think, you know, the average macro strategist you talk to will, will really have a passion for for their views, we can at times, you know, get a little defensive or what have you. But it’s math, I mean, if something changes, we can’t really argue against it. From a technical perspective, so we approach things a little bit more, like, you know, without any emotion. And I think that that unbiased perspective, can really help in environments that are challenged and more highly volatile.
Adam Taggart 45:43
Yeah, and, you know, look, on this channel, we have a lot of discussion about emotions tend to be our worst enemies, you know, when it comes to generating long term returns, they generally drive us to make poor decisions at the wrong time. It’s one of the things I like about your approach is it tries to just, you know, remove that emotional component, as you said, and, you know, we may have a recession, you know, people might be right, but you can, you can see it coming, get to safety, and the market can continue for much longer than you expect. And, of course, you know, you’re giving up the opportunity cost there. And, you know, that might be a fine trade off, if the correction that comes along is steep enough to have made it worth you getting out. But, you know, there are people that that got out years ago, because they were worried about the market then and they’ve missed great gains. So that that tends to be the danger of those that are, you know, basing their their investing primarily off of a macro thesis. And again, what you offer is a way just to trade the markets that we have, and yeah, maybe you remain in a little bit longer than these other people otherwise would. And maybe you ride a little bit of a downside until you get enough confidence to say, okay, yes, this is a reversal of trend, things are not going down. But presumably, you have higher confidence in that call, and you can make it early on enough to have really managed your overall downside exposure. You’re not, I’m saying all this
Katie Stockton 47:19
now, and you know that the uptrend that preceded it, we wouldn’t have missed perhaps as much. You know, I think it’s a matter of letting the market guide our decisions, you can still have the macro views. But but always with those macro views know where you need to change in your views, because there has to be something that will guide you in a different direction, from a macro perspective to whether it means you know, the Federal vs course, or something of that nature, something in the jobs data, just to have defined metrics around what will change that macro view is really important, as a way to keep yourself honest, right? Because I worry about, you know, just kind of getting married to a bias because of your own sort of personal attachment to the views, right. So that’s what we’re trying to avoid. And we want to make sure we’re not missing that trends. But we do want to miss the downtrend. So that’s the goal. And I think that technical analysis is one of the best ways to go about it. All right,
Adam Taggart 48:29
great. Well, look, Katie, I’m going to ask you in just a second, where folks can go to learn more about you and your work and follow you. But real quick, is there anything else about your approach, or your outlook for the markets, or success in investing that we haven’t talked about yet that you think is worthwhile for the audience to hear before we wrap things up?
Katie Stockton 48:50
Yeah, I would just say, the systematic approach, I would emphasize, so I alluded to it, it’s in how we’re, we built our tech portfolio, but also it’s in how we think about the best way to leverage tools of this nature, then it can apply to other disciplines as well. But to come back to the same tools, knowing that no tool is is perfect. But to come back to kind of the same suite of indicators or same methodology, or even just simply to have a methodology is really key, I think, to success in investing. Because you know, what you run the risk of is confirmation bias, perhaps if you’re just consuming multiple sources of news and research, you know, you’ll essentially see something that’s aligned with your perhaps macro views and say, Well, I’m gonna listen to that. That makes sense to me. But you aren’t approaching things systematically and in doing so. So I think there’s real value to that because it makes that sort of risk of getting emotionally caught up in something less it makes up a little bit more For an unbiased approach to markets, so we try to be very systematic and I guess, you know, disciplined in our approach. And I find that helps you know, what the recommend ideas, trading ideas in different formats. And for those, we always have a threshold at which we’re uncomfortable with that position in the market, it humbles us often when we always feel that if you have your defined risk reward metrics, which is one great thing to take away from the charts. Well, that will just help again, keep you honest, and make sure that you’re not writing a trend that that wasn’t expected
Adam Taggart 50:41
in your work. All right, well, very well said. Look forward to having you back on this program periodically, if your schedule allows Katie to offer exactly that, which is just sort of the the unbiased monitoring of just the heartbeat of the markets, no judgment, that just this is just what is happening. Now. This is what the TA says is likely to happen in the near term. Be a great complement to you know, all the other experts we have here. We’re also very data driven. But I really appreciate and value kind of almost the Vulcan approach that you guys take there, it fairly just to just to it’s just the facts. So for people that have really enjoyed this discussion, really appreciate your your Outlook there, where can they go to follow you and your work and learn more about you.
Katie Stockton 51:28
I would say that I’m probably the best way is to visit our website, it’s fairly strategies.com. Or we always offer free trials of our research for a month or so. And that’s just so folks can see if it aligns with the way they think or their own existing methodology. And so either the website, you can sign up that way for a free trial, or email info at fairlead strategies, dot comments and other way we do have a substack newsletter outside of our regular research product. We also have a Twitter feed and that you know, occasionally we’ll touch on markets. We are CNBC contributors. So you’ll see us often on CNBC talking about markets as well. So a lot of ways to find us.
Adam Taggart 52:14
Okay, great when we edit this, I’ll put up the links to your website, your Twitter, feed substack, etc. So folks know exactly where to go. We’ll also put that information in the description below this video to Katy have really enjoyed it. Thank you so much for coming on the program. It’s really been wonderful look forward to having you back on and folks, if you’ve enjoyed this, please do us a favor and support this channel by hitting the like button and then clicking on the red subscribe button below. Thanks so much again, Katie. Really appreciate it.
Katie Stockton 52:44
Of course. Thank you
Transcribed by https://otter.ai