We’re more than halfway through November. Historically, it is the second best performing month of the year, right behind the month of April. So, will this be a November to remember?
Jay Woods, Chief Global Strategist for Freedom Capital Markets joins Eric Chemi to discuss what trends he’s seeing in the markets, what data points he’s been looking out for and whether or not he thinks this will be a November to remember.
Jay Woods 0:00
You don’t know what the top or the bottom is, you’re not going to time things perfectly.
Eric Chemi 0:11
Welcome to Wealthion. I’m Eric Chemi. November has historically been one of the best months of the year, the second best month. In fact, for US equity markets. We’ve seen the same trend so far this year, a big pop up since Halloween. My guest today is here to discuss those moves. He’s also going to show us the charts he has been looking at the data points he’s most concerned about. The big question, of course, will this November be one to remember? Jay Woods is my guest. He has spent over 25 years on the floor of the New York, New York Stock Exchange. He’s currently the chief global strategist for freedom capital markets. Jay, you’re also if I might CMT. Isn’t that like a chart chartered certified market technician? It’s something like that, right.
Jay Woods 0:56
Chartered market technician, yes, I’ve had my CMT designation for several years, I serve on their board of directors and technical analysis has really helped me from a trading point of view, from a risk reward point. And now gives me a good perspective on what the markets are doing as well.
Eric Chemi 1:12
What are the markets doing right now? Almost, I don’t say be crazy as could you even show us some of the charts you’re looking at? What are you looking at if you have an s&p 500 charts and show us how this is playing out?
Jay Woods 1:23
Well, Eric, I’m glad you mentioned the charts the s&p 500. I like to look at things from the top down and it doesn’t get any more macro than the s&p 500. So let’s share my screen here on the s&p 500 chart. And what we’re looking at is just over a year, we’re looking from that October low in the bottom left corner to the 4600 high which now we have our targets on going back to the end of July.
Eric Chemi 1:48
Let’s slow down because there’s a lot in this chart and I glasses in here pretty soon to take a look at this. So we’ve got this is this a one year chart.
Jay Woods 1:58
So we’re looking at going back to the October lows, there’s one year daily, plus three months to give you that October low to show you the trough to the peak, the nice run that the market has gone on. And then what happened once we peaked. We retraced a lot of people were panicked. Once this market broke this, what we like to look at this support line here 4200, the one vertical line going across the screen, I’m sorry, the horizontal line going across the screen, the market pulled back, the s&p 500 generally pulls back 10% On average, every 18 months. So what did we have? We had a 12% correction from our oil July high down to our October 27. Low and then we rebounded? And how have we rebounded? That is what we’re looking at you talked about in November to remember, as we kicked off the show, well, what I’m seeing is we had a failed breakdown, where we spent six days under this red line, the 200 day moving average. This is you know, it’s not a line in the sand. But it gives you that barometer of whether the markets acting bullish or bearish. And when it breaks below a 200 day moving average, something may have changed. So but spends a lot of time under that average, you got to be concerned. So we weren’t concerned coming into that last week of October as we broke down. But we quickly recaptured it. And not only did we recapture that average we gapped up above it, we get to the 50 day moving average. And then we broke the intermediate downtrend, where we had a series of higher lows going back to our peak, and we held up above 4400. Now 4500. This is positive momentum, and the momentum is starting to broaden out. And that’s what we’d like to see.
Eric Chemi 3:51
I’m looking at this breakdown, run the Halloween time, right we go right here weeks where it used six days under that horizontal line of looks like around 4200. Correct. How is somebody supposed to know when you’ve got the real breakdown? Because it’s a hey, you went under that support line, now you’re down, you’re down, you’re down? It suggests that it’s going to keep going down, and then all of a sudden it flips back up. So how do we as investors as traders try to look at these charts and and say, Okay, well that line, that line is support made sense. And then all of a sudden it did it right? And it was a head fake there how you’re asking with the divot?
Jay Woods 4:39
No, you’re asking a perfect question because as technicians, we get a lot of grief for this because oh wait, it broke support. That means you should have sold it. It depends on a few factors. This is what we call the classic bear trap. So do explain what a bear trap is. It breaks a line of support and it looks like it’s going to follow through and then it doesn’t it quickly reverses When you get caught in a bear trap, it’s not a good thing, because the reverses tend to be very fast and furious in the other direction. So we did have what’s called a bear trap, they are very difficult to predict, from a technical point of view, I look at it on multiple timeframes. As a trader, on the floor trading minute, by minute, by minute, I would have been short, I would have shorted this move. And I would have tried to buy it as it, you know, went under, and I probably would have held my short a little too long thinking, This is it, this is the breakdown. These are the things I’m worried about. Okay, but we didn’t have follow through, you need follow through. And what we had was a reversal, about three days under it. And then a retest, when you break a level of support, and you go back up to it, it should be resistance, but in this case, it recaptured that level, recaptured it on good momentum, positive news. And then seasonal factors, which we talked about. And you mentioned at the top of the show, November is the second strongest month of the year, December the third. So we know markets tend to bottom in October. In fact, the market is bottoming October more than any other month by far. And that means just a reversal, and then a trend down 5% And then a reversal when I talk about these bottoms to quantify for you. But that is a very fair question. It’s something as a technician, we do get judged on a lot, well wait a second, it broke down that should have been the end of the world. And yes, a short term trader would have got caught. But what you have to do is you have to be nimble, you have to manage risk. And as a risk manager, job number one, two, and three of anyone trading in this market, it rally back above it, you have to respect that trend, respect that change, and then adjust. And as soon as it broke back above the 200, day moving average, those shorts were covered. And this is what you see, this is where the momentum comes back in. Because a lot of these algorithms a lot of the way people trade now, they’re no hand to hand combat, like I used to deal with them at the stock exchange. It’s programmed. So when you break above a moving average or break below it, momentum tends to follow. And that’s what we saw here. We saw a nice, short squeeze plus positive news economically, a fed that is now pausing, and we tested other levels. So when you go back up, all right, well, maybe it will pause right here at this 4350 level or at the 50 day moving average. It didn’t maybe it will pause at this downtrend, there was a lot of levels where the downtrend could have continued, it didn’t then you throw in the fundamental news behind what’s driving this, plus the seasonal factors. And it’s very difficult to be bearish for the next six to eight weeks easily. And if we were to forecast it out, my eyes right now for year end are at this 4607 level, which is the 52 week high. And you know, given the stocks that are driving this market, and now the broad based rally we’re seeing with the Russell participating, it wouldn’t shock me to see not only us test those 52 week highs, but those, but us break them by the end of the year. And we’re talking, what, five, six weeks now.
Eric Chemi 8:16
So this this is all very good. And I’ve gotten so many more questions on this, right? Because please, let’s go back to February where we saw the 50 day moving average that’s in blue cross the 200 day moving average, in red, and then I forget there’s the death cross and Golden Cross and what is that cross? And and what did that mean for us here? Because it did it did actually happen right at that sort of local maximum that that 4200 level though?
Jay Woods 8:48
Yeah. So and by the way, congrats, you You nailed it. A golden cross is a bullish crossover when the blue line the 50 day moving average crosses above the 200 day moving average the red line. So we had what we call a golden cross. Now, if you were to trade that Golden Cross, it’s a lagging indicator. It is great for long term investors over time, especially golden crosses, and then you have the fear of what happens if the 50 day goes below the 200 day that is called the Death cross that is generally a sell signal, especially over time. But that also is a lagging indicator. Because if you’re waiting for this 50 day moving average, to go below the 200 You’re still long this market and you’ve been holding since 4600. If the market does turn, you’re going to miss out a large portion of it for the long term investors using those indicators. They do work but you’ll miss a large chunk of the trade. But the good news is for a bullish trader, the golden crosses once you buy those golden crosses, and you sell a death cross, you’re generally getting about 70% On average of the meat of that trade. So the risk reward setup is Good, but the timing is a little laggy. So I’ll use other momentum indicators. And I don’t want to, you know, go too deep in the weeds here. You know, as far as RSI and MACD crossovers, I just want to keep this simple because this simple chart really does tell the story. And you were very, you know, astute to see that we had something changed here. And then let’s look what happened after February, it came back and retested the 200 day moving average from above, and it spent about six days six closes below that average. And then it rallied. And guess what we spent six closes below that average this time, and we’re rallying again. So the momentum given seasonal factors, given you know, the low bar for the earnings, there are a lot of positive signs, plus the Fed is on pause for the foreseeable future, that this market can continue to go.
Eric Chemi 10:53
So it’s something I’m still looking at that crossed that looks like you’re seeing a golden cross where the short term moving average went above the long one. But if you had bought right then in there, you would have lost 10% In the next two months. Yes,
Jay Woods 11:06
yeah, like I said, it’s a lagging indicator. It’s for the long term trend. And those averages are just a barometer to me, they tell you the health of the overall market. And once it goes above or below, you have to kind of say, okay, something’s changed, what’s the significance, and that’s where the fundamentals come in. I don’t just, you know, look at price and say, it’s going higher, it’s going lower. I know what’s going on in the world. We follow the tenure very closely, because the tenure has been driving that bus. In fact, if you want to look at a chart on the tenure, I gladly pull it up for you.
Eric Chemi 11:38
Let’s do it. Let’s do it. Next. My last question, bring bring that back, because this is the s&p What is so key, right, so let’s just look at that here for another second. If you’re able to bring it back up, hopefully, there we go. Draw it, there we go. Are you able to draw a line? I’m ready to get to us? We have plenty of time, right? Oh, are you able to draw the line from the lows like that 3491 low, then you see 1308? And March? Are we able to see kind of that that upward diagonal trend? Because unfortunately, can that’s going to break down on us at some point like
Jay Woods 12:11
well, it actually did break down on a longer term basis. And you can see, right in this area here, when we broke down, we broke down pretty aggressively. And that’s where a lot of people got spooked. Now, when did we break down, we broke down in the seasonally weak September period. And we had that 4200 level in sight. So at that point in time, you know, targets were it’s going to test the 200 day moving average. And let’s see if it holds. It also is a major Fibonacci retracement level, I know a little little too deep in the weeds, but from the blow in October to the high in August. And it just quickly tested it and rebounded so quickly that you had to be very nimble in your trading. And then if you want to back it out over a long period of time, when you know, as a technician, when in doubt, we have an expression when in doubt back it out. And can you back it up for us later, we can back it up because I
Eric Chemi 13:10
look at that trendline that you show the upper trendline. And even though we’ve popped back up recently, it almost looks like it’s gonna hit it’s gonna hit that line, again, is as resistance on that upward diagonal. So to me, it feels like this is a bearish chart, but maybe I’m not understanding Okay,
Jay Woods 13:27
well, I’ll tell you why it’s not bearish because of this gap on the right hand side and the breakout of the long term downtrend. That’s why it’s not bearish to me. But let’s, you know, when in doubt, let’s back it out. So what I’m going to do is I’m going to go to a five year weekly chart, and that gives you you know, it takes out the noise of the days you want to look at a longer term, weekly chart. Now I don’t know if you can see this on your screen. But what did we do we just as
Eric Chemi 13:54
you’re filling out your weekly and then here’s, here’s the lawman by the what system is the stock charts. I use
Jay Woods 14:00
stock charts. Yeah, they’re good friends of mine. And they’ve been very, very good to me. And their charts to me are very crisp. I don’t know how it plays through on this broadcast. But to me on the weekly chart, you can see this red line at the bottom. And what I’m seeing in that red line is the 200 weekly moving average. Now we have that COVID Drop, where it went below it for a quick period of time and it quickly regained it. So for the longer term investor for the person that’s not watching the market every day. I watch every tick every minute of every day. It’s not a fun way to live. But when I talk about my own retirement funds, I don’t look at them every day. I know I put them in the index. I picked some of the stocks that I feel are the best play stocks within different sectors. And then I said it and I forget it. And then the s&p 500 If we want to go back five years on a weekly basis, all right. We had the call With low, we retraced we got back on a nice V shaped recovery. And we continued on a nice uptrend, it got a little too accelerated. But what I see here now is a nice little rounded bottom. So we tested 200, weekly moving average it held. We’re back above the 50 week, and we broke the intermediate term downtrend. And we’re probably, and I’m very confident we’ll go to this 4607 level, which is the 52 week high, and then we may pause, and that’s fine. markets don’t go straight up and don’t go straight down for an extended period of time. Yes, you have outlying days, we just had 10 straight days of the video going up, we had 15 straight days of Tesla going up earlier in the year. But over time, they will trend and the trend continues to be fighting to go higher, we’re still not at this 4800 level where we peed on the first day of trading in January 2022. But if this momentum continues, maybe we peak right back there the first day of January 2024. And we go round trip in two years. So we’re trying to fight back to where we were just two years ago, but you put it in a bigger perspective. Can
Eric Chemi 16:14
you want to chart for me? Almost like can you cut off all of 22 and 23. It’s almost like keep what you have here. But it at the 4018 ended on Jan 120 20.
Jay Woods 16:27
That gets a little confusing for me. So you want me to end it? I see what you want. It’s
Eric Chemi 16:31
more like if we didn’t know what the last two years were could have predicted it from what we knew up to that point. Because when I look at it 1418 Yeah, obviously Hindsight is 2020. We know that it went down. But if I was standing on that day trading on that day, we wouldn’t know this is the top right. So you never do know. And
Jay Woods 16:53
in that’s a great question. And I get that as well. You don’t know what the top or the bottom is, you’re not going to time things perfectly. And we all want to when I buy a stock and it ticks down 10 minutes later, I’m upset. But I didn’t buy it for 10 minutes later, I bought it for a longer term, what I look for if things get overbought, like the index was at 4800, because it went on a tremendous run or oversold or reached levels, then I dip in, I don’t go all into a trade. But I’m never going to catch that top, I’m never going to catch up on them. And people in this industry say I nailed the market there. I nailed them, no. But if you manage your risk accordingly, you’re going to ease out of a trade because you got the meat of it here. And then where I did get out was when it broke this 50 week moving average, something had changed, and then the trend had changed. So you get out you reevaluate, because you don’t have to just trade the s&p 500, you can look at every sector within the stock within the index, this last leg has been driven on seven stocks, we need this s&p to make all time new highs, not just to ride the back of seven stocks, but to broaden out. And that is what I’m starting to see now. And that’s what gets me a little positive because as rates have started to come in, the broadening is starting to continue. Now I think we’re higher for longer, it’s not going to be a straight shot up. We should turn sideways for a little while. But to answer your question. Yeah, you don’t have the price history. The history gives us a guide, because it’s market behavior in price form is my emotion, your emotion to work in the form of price. It’s the only thing that is factual when you talk about earnings earnings are estimates. But the way price reacts to those earnings is what I judge that’s human behavior in market in market form right there on a chart. And if something changes, meaning we break down through a certain level or a momentum indicator indicates All right, we’re not going up as aggressively as we did on this last move. Then I adapt I’m not going to be a perma bull or a perma bear. I look at things three to six months in my current role as a Market Strategist as a trader, you know, I mean, we could go deep in the weeds on volume weighted average price movements, and you know, intraday swings, but for the long term investor and that’s what I hope most people that watch Wealthion are, they’re here for the long term, they’re here to learn, because that’s what your platform does. And we can talk about the next few weeks the next few months gladly, but I like that you raise the simple question. Well, how do I know it’s the top you don’t, but you are acting accordingly. If you have a profit, start the leg out of it and take some of that profit off the table. That
Eric Chemi 19:46
was gonna be my question is we hear advice from people that say look when things are making new highs that’s because someone smarter than you knows that this is an opportunity to to buy and and I’ve heard the opposite from people saying well you should be selling when and things are making new highs. So I still haven’t figured out what is the right approach is it? You know, on the flip side when things are crashing down, Hey, these are cheap. But others say they’re crashing down for a reason, right? They smart people are dumping this junk and you don’t want to step in front of it and catch it. So is it really you shouldn’t be buying Lowe’s, or you shouldn’t be selling Lowe’s like this is this is the thing because you don’t know like we said you didn’t know on Jan. 120 20. You didn’t know that. That was the top right. But we’ve had two years of positive momentum. Let’s jump in now. Right? How do you how do you know?
Jay Woods 20:34
Yeah. And like, like, I go back risk management. I don’t know what the low is. And yes, it is better as a trader, a trader to buy stocks that are making new highs and it sounds ridiculous. Well, it’s at an all time high. Why am I buying it? Because highs beget new highs and we can see it in this trend. All right, it broke above the old COVID pre COVID highs, and it turned and then we went on a nice leg. Alright, I didn’t sell the top. But I got in when that momentum changed. And I wrote it on the way up. But no, I taking profits is the smartest thing you can do. The big the biggest complaint any trader can have is I sold it too soon. And you know, we all have stories I can tell you about buying the Google IPO and making 50% and being really proud of myself, because I made 50% in that trade. And then I look back 15 years later, and I you know I live in this small house, I could have lived in three houses. If I held on to that stock. It’s all about what your goals are, what your timeframe is. And I like to trade the momentum, and the technicals give me that momentum on the way up now on the way down. Yeah, it’s tough. It’s tough to pick a bottom they always say in our world, never tried to catch a falling knife. And we’ve seen it and I’ve used the example of Disney. Disney is a stock that I bought for my my daughter when she was born and my daughter is now 19 years old. But I bought it because it was something I knew something I believed in something I loved and used every single day. Me when didn’t we have a Disney movie on in the woods household? The answer was we always did. So let’s just you know, we’re gonna generalize. I’m gonna just show you a downtrend. Let me just move my screen up here. Appreciate the audience’s patient here. This is the longest term downtrend what we’ve seen over two years. All right, it makes a series of lower lows and lower highs. And as we get back into these volume bars, we continue to make lower lows, but it started consolidating, every time it got below 80. It helped. And that to me, was a big change. It used this blue line, the 50 day moving average, it used it as kind of a line in the sand, a little resistance, it broke above it, I went out and I made a call based on the fact that some good technical things were changing and have a new CEO that’s familiar with the company finally in there for over a year and he’s going to stay there a little longer and Mr. Iger and I saw a series of higher lows here recently going into earnings. So to me, risk reward setup was actually bullish if favored the bulls, if it broke below 78 I get out, I take a little loss, you cannot be afraid to take little losses. The oldest thing I learned when I started as a trader on the poor four things can happen when you get into a trade can make a little bit of money, you can lose a little bit of money. And those are usually what happens in every trade. The goal is to make a lot of money. And when you have that good trade, you let it ride, but you take profits along the way. And then you can lose a lot of money. You can’t afford that one thing to happen to you because you don’t have the money to replenish and make it up because if a stock goes down 50% You need 100% rally for yourself to make that money back if you put it all in at one point. But Disney to me, it had the ability to mean revert, which would be just getting back to his 200 day moving average, which it did it gapped above it. So it was there it was on some strength. It had nice volume because the news the earnings, so right now, I would take profits if it I listened to myself back when it was trading at 82. Full disclosure, I own it long term I never got out of it. And I did not trade this. But for customers that I talked to for clients. The risk reward setup was too good not to share that idea we saw with Nike the earning cycle before and then we saw it with target this cycle. So I can just punch up real quick. Just give you another example.
Eric Chemi 24:51
Let’s see. Let’s see. And while you’re pulling it out, how much should people put stock into the charts right how much You know, and we’ve heard different people say, Oh, the charts don’t matter. It’s all about fundamentals. We know people that they don’t even know what the company does. They don’t even know the fundamentals, they are just looking at charts because they say, this is human psychology, this is human behavior. And these patterns are reflective of a psychological moves of how people deal with greed and fear and risk and reward and all that. So where do you find yourself on the spectrum, in terms of the religion of the charting? Well,
Jay Woods 25:30
full disclosure, as as, when I was in the private sector for three months on a garden leave, I became that day trader who was trading stocks that I didn’t even know what they did. I saw a symbol, I saw a pattern, I saw swings, and I’d be in, I’d be out. So those aggressive day traders that may be watching, they know that if they’re following the technicals, they can see momentum, they can see patterns, they can hear chatter, that’s something that I never got to listen to being on the floor of the exchange, we were just glued to our screens. But what is the first thing anyone does, when they ask you about a stock you don’t know, I punch up the symbol. And I look at the chart, because the chart tells you a story, it tells you whether the stocks one going up or going down. And then you can see gaps in this in the chart itself. Like let’s go back another year and target. And I’m going to show you some major gaps as and this is target j here. This is target. So this is target on a two year daily chart, just to let you know, and what happened in that you see this giant gap to the left of the screen with a huge spike in volume. All right, you’re not going to see that coming as a technician, but you’re going to want to react to it, it’s going to tell you a story. It tells you they missed earnings, and they got it really poorly. And what happened, it took that drop, and it stayed below this gap. Still, I mean, we’re going back a year and a half it has not filled that gap. And then it went sideways for a while good volatile action. So the the, you know the daily the weekly traders could have could have traded the stock had a little floor involved around the 100. Now I really have to squint to see this 120 level. And then it broke down again, it broke down here, another earnings spike. And it is at a new level, what we see are cycles of about three months, which is a quarter once the earnings, which is generally the biggest catalysts for a move in the stock. That will be what moves it up or down. I don’t like to trade earnings, but I anticipated and if something it looks like it’s moving up into earnings, then something may be actionable. And what we saw in target here very similar to Disney, a double low, a long term downtrend, a company that’s been beaten down, and we saw Walmart making 52 week highs, Walmart had a better quarter than target, in my opinion, if you’re looking at the fundamentals, but their guidance was a little tepid target. They beat finally and there there’s some positivity to it, and investors rushed into it. It’s still a long term downtrend. But this move is a mean reversion. In a longer term downtrend. It broken gapped above the 50 day moving average, and now it’s pausing, where’s it pausing in this area of consolidation where it traded two quarters ago, and at this 200 day moving average, which is declining. So it gives you these levels that set you up from a risk reward point of view. I am never catching the top and then catching the bottom fight. And then then I’m lucky. I just want to know that my risk reward is favorable to enter the trade that I’m entering.
Eric Chemi 28:45
What right now is the current most relevant chart that you’re looking at. It could be could be fed could be Mecca, what is the number one you wake up in the morning, this is the chart that I need to focus on the lookout.
Jay Woods 29:00
Well that chart has changed, it would have been the 10 year was the 10 year and that 5% level as the 10 year rose, the Russell went down the inversion was great. The dollar has been a strong driver. I’m watching to see if that breaks down. But as we’re airing this on Tuesday, there’s one chart that matters and that is the video and I’ll tell you why. Let’s go to the chart
Eric Chemi 29:22
show you a single company just a single company.
Jay Woods 29:25
It sounds insane, doesn’t it? Let’s look at it. Why isn’t the video so important? The video is one of the Magnificent Seven, it is up 240% year to date is is accounted single handedly for 15% move to the upside in the s&p 503 stocks Microsoft apple and the video. Their gains alone this year are 50% of the s&p 500 gains. Plus it’s a leader in the semiconductor index. It’s a tech leader and you know if AI is the future, I want to hear what they have to say Yes, I’m listening for the fundamentals. Because the price action has been very interesting. And this is one that scared me scared me to death as a technician, at the end of October, if you are looking at this blue line, this blue line was support around $400. What I’m looking at in the video is after that big gap up we had in June, you can see it right here with this big volume surge, this gap, the stock has never turned back, that was a solid earnings report, we had another solid earnings report here at our peak at 502. Then guided higher, they were looking strong in already had a tremendous run. But something changed on this Black Candle at 502 62. On their last earnings call, it opened towards the highs of the day. And then it reversed. And that reversal to me was, you know, telling because price action momentum stopped going up. And now we had a ceiling in the stock. And then it turned down, where did it turn down to turn down to this $400 area. And it rallied, it didn’t make a new high it had what we had what we call in the industry, a head and shoulders top, it had a left shoulder with a lower high a head which is at the height. And then when it came back, it made a right shoulder with a lower high as well. We have this blue line here, which is the support and that head and shoulders pattern, which we call the neckline. If that stock broke 400 and closed below 400. I was ready, I had to tell him my hand that day or it was trading at 392. And it reversed and it rallied and it closed above 400. It was like it was there to be broken in, you want to throw in the towel. But you got to wait for that close, you got to wait for confirmation. We didn’t get it. And that little line under Support reversed and it closed back above it. And then when did this happen, happened at the very end of October. And then the market turned in video was up for 10 straight days, and not just 10. Straight up, you know a fraction of a percent, it went on a run it was up 20% From 400 to 500. In just 1112 trading days, 11 out of 12 it was up and now it’s consolidating. And it’s pausing at that ceiling is not ready to make a new high. It’s waiting for the next catalyst does the
Eric Chemi 32:29
dumb basic question. You see this chart has been range bound 400 500 400 545. At 500. You’re at this top, are you just knowing nothing? Are you more likely to sell that top? Or buy that? You know, hi, what do you do in these? It’s like, are we buying the momentum or are we selling the end of the trade,
Jay Woods 32:51
I would be selling the end of the trade and lightening up going into earnings. So that’s just my personal preference. There are technicians that will be like this is the time, it’s you know, it’s testing it again. And they believe the momentum going into the end of the year. For me, I am not as aggressive as some of the people in my industry. But what I would do is if it gaps up and it can stay up above the 502 level on an earnings call, I would buy that. And I would buy it and hold on to it until it gets back to that gap as a stop and I raise my stop. So for those that don’t understand, once you entered a trade and you’re right, you can have a trailing stop. So big gaps and it opens it’s a 515 on Wednesday morning. And that is where I entered and it continues higher. I will say if it gets back to 515, I’m out I took a shot, I broke even it triggers a sell order. And I sell it for a little bit of a loss or breakeven. But as the stock moves higher, the trader in me will move my stop higher, it’s at 520, I want to guarantee a three point gain, move my stop up to 518. If it comes in, it’s a trailing stop. But from a longer term perspective, and this is what I really want to focus on is you have a nice measured area of 100 points here from 400 to 500. over about a six month timeframe. If this breaks out above it, given the AI story, given the momentum in the sector, given the momentum we’ve seen in this stock historically, I think a $600 price target over the next three months would be very, very reasonable. Thank you. Thank you for helping me in basic sad words are failing me right now.
Eric Chemi 34:38
But it’s a longer term chart of this video because oh we
Jay Woods 34:43
sure can shorter so yeah, let’s let’s you know, give me one second. Okay. Just going to reset the whole thing
Eric Chemi 34:55
when you’re pulling up that Lord, how much has how much you Have the trading game changed with the technicals when it’s become so much more the computers the bots, the algos, the trend chasing AI that are doing a lot of these trades, has that changed the way you approach these technical charts? Or does it still remain the same when humans are less involved
Jay Woods 35:18
in the charts are always going to be the charts, there are more people with access to add more indicators that will look for different momentum swings in stocks than we’ve ever seen before. And everyone is coming up with something new AI is tapped into the technical industry, and they’re looking for any triggers any gap that they want to buy any term below that specific average. There are all sorts of ways that AI and the people, you know, basically programming and other technicians are going to try to get an edge on the market. So what has changed to me the most over 30 years in the industry is the speed at which things move that, you know, when you’re going hand to hand and actually physically seeing the people and looking in their eye. And then manually entering those trades. You know, it took time, and trades didn’t happen at the speed with which we see. But news is instantaneous. Rumors circulate bigger and better than they ever have before. So you always have to make sure as a trader, you have limits, use limits, do not use markets, try to have a limit to your price, or you know exactly where you’re buying where you’re selling it. You stop orders, use them wisely to limit and manage that risk. But as far as how the charts tell the story that has not changed the charts go back in time. And you can see just the basic trends. And what we’d like to do is we’d like to go back in time because you know, price doesn’t always repeat, but it certainly rhymes. And we see patterns evolve over time what I’ve seen in the last two years, if you look at the s&p 500, we’re pretty much below where we were two years ago, and we’re working our way back.
Eric Chemi 37:09
We looked at that right, Jan? 120 20 to 32. Yeah, there. Yeah.
Jay Woods 37:14
And now we’re getting back there. So what happens if we Eclipse it? Well, historically, we have a two year base of you know, a nice wide range, and we should see a rally continue. So to me, that means something has changed. But I look at the video, you asked me to punch it up. This is five years on a daily basis. And what really stands out is that gap on the right hand side of the screen on that earnings. We this peak here, going back to basically the top of January 2022 2022 was a disastrous year for the Magnificent Seven for the stocks that led us in 2021. We have just recouped them in the various case we gapped above it. And now we’ve found a new level of consolidation, where if you know the future looks bright for 2025, we’re about to get that leg up. And we can start to see that uptrend over the long term continue. So to me, this is a very fascinating report. And there are definite levels to which you can participate. So at this point, it’s a coin flip whether or not it breaks out or breaks down the fundamentals will dictate that and I will react to the fundamental news as a long term investor. Now I always say by what you the Warren Buffett approach the Peter Lynch approach by what you know, buy what you use, buy what you believe in. And a video is a company that fundamentally it fits that characteristic. For me, it is the main player in AI Microsoft, another strong player in AI and these are companies ironically, right at 52 week, right it all time new highs. I think this story as as a guy like Dan is from wedbush. And, you know, Tom Lee like to go on the big networks and say, it’s early innings for this tech cycle. And when I look at the charts, I can see why they’re saying it because they just broke out the 52 week highs, they just broke out to all time highs and positive earnings positive guidance. And you’re going to see the stocks trade higher for another three 612 months. And that’s good for another 20 to 30% to the upside and that’s a conservative call.
Eric Chemi 39:26
What about that gap that we saw there six months ago? It’s obviously this chart right? It’s a big gap. And I’ve heard the theory that all gaps have to be filled at some point so that suggests a massive downturn here and invidious it’s still to come that we’re waiting for well it
Jay Woods 39:43
all gaps most fill that is actually on the CMT level one exam. Do all gaps fill true or false? The answer is actually false. You have a series of gaps you have the breakaway gap and that’s what we see here. This was a breakaway gap. It was rate at an all time high and broke out, there’s your breakaway gap, then you had a couple of gaps in between they backfill, those are your your common gaps, and then you have what’s called an exhaustion gap. And that’s what we saw on the last earnings cycle when it gapped up 20 points on the opening, and then it filled. So there was really no gap on a daily chart, there was no gap on a weekly chart. But if you followed it tick by tick, you followed it day by day, it kept 20 points and it filled to me, that was a near term exhaustion gap that did feel fill, and it said, Alright, something has changed. Now this this big gap here, it could fill, there’s no doubt about it. And that’s why I got so nervous come October 27, when it was back down below 400. And you were like, alright, as a technician, this is not good. If it continues on its downward trajectory is going to fill that gap. And you had a measured downside. Thankfully, it didn’t get there. But I was looking at that very carefully.
Eric Chemi 41:02
If you can, can you pull up a chart of a 10 year bond or whatever the the yields were that you were looking at? My guess is it was the 10 and not the two or the 30 or something like that. You’re
Jay Woods 41:12
correct. It was the tenure. And I’m going to pull that up for you now. Let me just see if I can share that on the screen.
Eric Chemi 41:20
Although before we go. Maybe before you share your screen. We did keep mentioning the Magnificent Seven. So let’s remind our viewers. I know it’s Microsoft, Apple and Vidya. I think Jess was in there. Maybe Facebook, Google. Yeah, that’s well more.
Jay Woods 41:36
You probably have a package outside your front door for them right now. There you go. Amazon, Microsoft,
Eric Chemi 41:41
Apple, Microsoft, Apple and video we did those three. Those
Jay Woods 41:45
are the biggest three this year too. So that’s 50% of the s&p 500 games, right? We
Eric Chemi 41:50
got our Facebook and Google our social media play Correct. Tesla and Amazon. Okay. consumer
Jay Woods 41:55
discretionary plays. That’s exactly what you have. And those had been the leaders. And I watched Tesla Tesla has got me a little concerned right now that may be falling out. And it may be just a sweet six, or we can come up with a cool name. We’ll
Eric Chemi 42:10
pull it up real fast Tesla before we get to that 10 year.
Jay Woods 42:13
Okay, let’s go. Let’s go to that. Then. Share.
Eric Chemi 42:17
You mentioned that you were concerned one
Jay Woods 42:18
let’s talk fundamentals their earnings as Dan Ives, I mentioned him once before I’ll mention him again. He came out and said it was the worst conference call he’s heard in their history. Okay, that’s not good. But what do I see in Tesla, I see a series of lower highs. I see a breakdown below key moving averages, it got below a gap lower on its earnings. Okay, let’s
Eric Chemi 42:42
one year chart I can’t this is just the this is a
Jay Woods 42:45
one year and I’m gonna give you a much better look at it in a second. Here we go. This is the one year and what you can see is the blue line the 50 day moving average, it broke below that. And now it gapped lower that gapped lower was on earnings, it continued to make lower highs going into earnings. It was what we call coiling where you had an uptrend and a downtrend converging. And it broke the 50 day moving average the day before earnings, which was very interesting to me. Because usually you wait for the earnings, the price was telling us something isn’t right as it went into earnings day. And then the earnings confirm price action the next day with a gap down it broke below the 200 day moving average it flirted with it for a little while. And now it’s stuck between declining 50 day moving average and a rising 200 day moving average. This stock is not in a healthy uptrend right now, what we like to think is consolidating, and maybe it will be setting itself up after another good quarter of earnings, but for the next three months from its last earnings, so another six weeks until its earnings come out, then the stock to me is is a Don’t touch. And you know, there are better places to play. So I like to go where the momentum is. And that momentum continues to be Microsoft is Amazon as well. And we’re now starting to see some mean reversion some of the smaller caps as well. Okay,
Eric Chemi 44:15
so that’s good on the Tehsil side, they don’t touch. Don’t touch stock from J. Now let’s let’s pull up that 10 year bond yield. Yeah,
Jay Woods 44:22
let’s let’s go to the 10 year. So let me stop sharing for a second here. And
Eric Chemi 44:28
that’ll be our last chart of the day because I know you’ve got some trading to do and as I spend a lot of good quality time. Well, I do want to look at that tenure because you said it was the number one thing you were looking at up until very Exactly.
Jay Woods 44:39
So here we have the tenure and we look at the moving averages first the moving average and
Eric Chemi 44:45
the barometer. What is this 4450 What
Jay Woods 44:48
is this 4450 is the last sale we’re looking at the right hand side 44 So it’s at 4.45%.
Eric Chemi 44:55
You know, so it’s the yield times 10 is the yield
Jay Woods 44:59
times Exactly, exactly. So, yeah, stay and I love that you simplified in slow me down because I can as a trader talking,
Eric Chemi 45:09
I don’t think I don’t think the tenure is at 44% or $44. No,
Jay Woods 45:13
it’s 4.45% as we tape this, and what we saw was we saw a sizable rally from the lows here back in May, up until the peak here in October. And it’s the speed of the move, because rates don’t tend to move very quickly. For a move like this, historically, it doesn’t happen too often. And when things go quickly, you have an inverse reaction where you saw utilities and high dividend yielding stocks, real estate stocks, staples, they were all in deep downtrend. While this rallied well over 20%, the staples were down 20%. And now they found a bottom, where did they find a bottom? When we peaked out? Once the tenure got the 5%? It struggled to get back above it. And then all of a sudden we broke down. And what was that breakdown? That breakdown was the FOMC meeting. That was the dovish pivot, if you will, I’m not sure what we’re officially calling it. But it was basically affirming the pause waiting for more data points. And assessing there will be no December rate hike. And now we took another leg below where we broke a rising 50 day moving average in the index itself. And we’re making lower lows, this is positive. So we had a gap up. Now in this case, we hope this gap fills if you’re long stocks, we had a gap up and it rallied it stayed above it. Until recently now we’re testing that gap going back to the early summer. And if it continues to retrace, this is positive for stocks, growth stocks, in particular small caps as well. So what I’m watching is, as the
Eric Chemi 46:55
you want this, you want yields to go lower, so the growth stocks can go higher, correct,
Jay Woods 47:00
correct. And then you’ll see more companies hopefully test the IPO market, you may see more deals. This is very bullish if we can get to a more reasonable level right now, this is still, you know, historically going back, you know, a decade historically high, but the market is taking it in stride. And once they see the trend change like it has, we are no longer going up, we broke in some support levels on this uptrend, which was the 50 day moving average. If it can continue to decrease, this is very bullish over the next two, three months. And it fits right into the narratives we talked about in the beginning of the show your seasonals, your November, your December strength. You know from November to April 6 strongest months of the year, April is actually the strongest month of the year. So the way we’re ending this year, as rates are starting to decline if that path can continue. And I suspect it will utmost stay at these levels at best decrease. And we may be talking for a quarter, maybe even 4%, if it continues to, you know work its way down to its 200 week or 200 day moving average. So there are positive developments because as the tenure goes down, the s&p goes up, the Russell goes up. And that’s been the most beaten down index. It was up 5% Last week, and it’s up for the year now. So things are ending 2023 On a positive note. So the indexes and the selves they’re changing the stocks that make up those indexes, the Microsoft’s the apples making 52 week highs and now we watch the video to see if they can continue to join that party. And if the video goes, well then watch for tech to be lifted on its shoulders as well. It’s going to be exciting to watch Wednesday at the opening and then that price action going into Thanksgiving.
Eric Chemi 48:59
Jay, thank you so much. This has been really fascinating to walk through your charts, the way you’re looking at them some of the breakdowns, what you like what you don’t like what you would stay away from, I really appreciate it. And yeah, we’re gonna have to see how the rest of the month of the rest of the year plays out here. Eric,
Jay Woods 49:14
I appreciate this forum. And I thank you for slowing me down. Because sometimes I go on, I can get too excited when it comes to these charts. And, you know, I think it’s important, and you gave a great picture of, you’re not going to sell the high, you’re not going to buy the low, but you have to remember to manage the risk. And those charts are basically setting you up and also know your timeframe. If you’re short term, then we can go deeper in the weeds and look for more pivot points. But I think for the long term investor, you helped me paint a nice picture and I’m happy to join you and I’ll come back anytime you want. Where
Eric Chemi 49:51
can people find you? Are you doing a newsletter or social media? Where’s all the J Woods info out there?
Jay Woods 49:57
Okay, well, you can follow me on Twitter at J Woods Three and the pin tweet is a link to my newsletter at Freedom capital markets. I put out a weekly newsletter where we focus on guess what we focused on this will be focused on the video, we focus on the three charts that are really going to move the markets make the most news, we’ll do a macro look at what you know indexes are moving the market generally we’ll look at the s&p 500. Last week it was the Russell as well because that’s starting to move. And it gives you just a general recap of things we’re watching and what what to look out for from a week to week basis.
Eric Chemi 50:34
Very cool. Jay Woods once again, chief global strategist for freedom capital markets, thank you so much for joining us. And for those watching. If you’re looking at this thinking, I’m not sure if I’m going to be able to figure this out on my own. I need a professional to help me maybe an investment advisor, wealth manager, Ria, whatever you’re looking for, consider a free consultation, consider going to wealthion.com you can fill out the short form there, there are investment professionals that Wealthion endorses that we can connect you with. So it’s super easy, super short form. It’s free, no obligation, there’s no commitment, you can just talk to them, see if you like them, and if you don’t, don’t worry about it. So we do offer that as a free service. Trying to help people who want to get educated want to have more power over their family’s finances. This is one opportunity to do that. And once again, if you liked this video, like I certainly love this one with Jay Woods and I like it subscribe forward and share it tell your friends is how more people can watch the content here the content and get access to it. So thanks again for watching Wealthion with Jay Woods. I’m Eric Chemi. We’ll see you next time.