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Summary
This month’s guest on Fill the Gap is a household name in the field of technical analysis – one of the most widely read market commentators of this generation and a role model to aspiring financial professionals around the globe. JC Parets, CMT is what you might call “an All-Star.” He has spent years within the community learning from the men and women of Wall St who discovered, engineered and created the tools and methods we use today.
When he is not crushing grapes at Chateau Fibonacci or watching the Miami Dolphins crush rivals, JC and his many colleagues at All-Star Charts are ripping through thousands of charts to see the markets from every perspective. Their comprehensive cross-asset multi-timeframe perspective is at the forefront of what JC brings to the interview this month.
In the April episode of Fill the Gap, JC will discuss the emerging data sources made available on-chain and how DeFi terminology is the only difference between these new market internals and the data we’ve seen from traditional equity and futures exchanges for decades.
To kick off this month’s episode, we’ve brought the architect of the annual CMT Symposium for the past decade – Bill Kelleher, CMT, CFA who shares a bit about this year’s phenomenal conference, the impact this member community had on his own career, and some fond memories of a young JC Parets discussing the early days of FinTwit with Wall St. legends at the Symposium in 2013.
Enjoy episode #16 with our special guest JC Parets, CMT!
Resources
Transcript
Tyler Wood
0:13
Welcome to fill the gap, the official podcast series of the CMT Association posted by David Lundgren and Tyler Wood. This monthly podcast will bring veterans market analysts and money managers into conversations that will explore the interviewees’ investment philosophy, their process and decision-making tools. By learning more about their key mentors’ early influences and their long careers in financial services fill the gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered engineered and refine the design of Technical Marketing.
Tyler Wood
1:10
Good afternoon, Friday, April 1 of 2022. David Lundgren Welcome to Episode 16 of fill the gap.
David Lundgren, CMT, CFA
1:19
How you doing my friend Tyler? Good to see ya.
Tyler Wood
1:22
It’s good to see you too. You know still wearing some polar fleeces some vests up here springtime Upstate is a chilly affair but very happy that today we get to have our other best friend Bill Kelleher CMT CFA, how are you today, Bill?
Bill Kelleher, CMT, CFA
1:34
I’m doing great Tyler, Dave, thanks for having me. It’s my favorite time of the year, it’s time for our annual symposium. That’s exactly
Tyler Wood
1:41
what we wanted to talk about. Before we get to today’s episode with JC parets. That annual get-together for Market Technicians, asset managers, research analysts, institutional traders, Bill, you’ve been the chair of the symposium for well over a decade. Now, talk to us a little bit about what’s going to be happening this spring?
Bill Kelleher, CMT, CFA
2:00
Well, Tyler, it’s a great tradition. I’m really excited to bring this event back. You know, as we’re starting to normalize a little bit, it was important for us to bring back that in-person tradition where some of the best networking happens, bringing some of the best minds of technical analysis and bring everybody together to learn to learn from each other. And next year is going to be our 50th anniversary of the CMT Association. It was important for us to bring this event back before that 50th anniversary. And so this year’s event is going to be a hybrid event in Washington, DC.
David Lundgren, CMT, CFA
2:34
Hybrid, meaning live and online.
Bill Kelleher, CMT, CFA
2:37
That’s right. We’ve been virtual for the last two years with all of our events. And so we wanted to have that live event. But we also recognize that there’s still parts of the world that can’t travel.
Tyler Wood
2:48
Fantastic. I’ve been talking to hundreds of members over the last few months members and candidates and lots of folks who had questions about why aren’t you going to be back in New York City, you know, the headquarters of the CMT Association being right down on broad and Wall Street as it has been for nearly 50 years. But we’re in DC this year, in part because the facility for this conference is fantastic. They also have all of the capabilities of a fully service television studio so we can broadcast that around the world. But in talking with with JC you know, the the networking component of this conference has been so important for him and his career and finding mentors. I think it can’t be understated to be outside of New York City in a space where got a little more room to move around. For all of our networking events, we’ll have some outdoor space so people can feel comfortable getting together with colleagues and clients and old friends without any fear of you know, being confined in small spaces, as we often find ourselves in New York City. So that element of Washington DC in the springtime cherry blossoms better weather, I think this is going to be an event to remember, Bill, why don’t we talk a little bit about some of the speakers that are going to be there this year in 2022.
Bill Kelleher, CMT, CFA
3:55
I’m terribly excited to bring back John Bollinger, John Bollinger is going to kick off the event. This symposium is a great mix of classical technical analysis, as well as some of the emerging new trends in the market, whether it’s market structure, whether it’s new products, like like crypto currencies, all coins, we look at the symposium from, from both the bottom up and top-down approach, meaning that from the bottom up, we try to highlight different individuals that you know, that we’d love to have present. And from the top-down, we’re looking at content, you know, what’s trending in the market or the market environment today in the industry today. So we’re looking at building the symposium from both approaches for me, you know, one of the things that really excites me about the symposium early on in my career, it was actually attending one of the symposiums that really inspired me to get more involved in the CMT Association very early in my career when I was working on the Boston Stock Exchange and learning new tools and to become a better trader. I attended the event symposium down in Florida, and I was much younger at that point to 15 – 20 years ago,
David Lundgren, CMT, CFA
4:58
and you said Boston Stock Exchange. So you had to be quite young. Yeah. Yeah. That is.
5:07
Yeah. Remember those things, those exchanges when things were actually trade?
David Lundgren, CMT, CFA
5:10
It used to be one in Boston? Yeah, I used to be on the floor. Remember that? You remember that?
Bill Kelleher, CMT, CF
5:14
That’s right. Yeah. David used to report live from the Boston Stock Exchange
DL
David Lundgren, CMT, CFA
5:18
WBEZ channel four five o’clock in the morning.
Tyler Wood
5:22
Okay, so for all of the millennials who are listening, that was on a TV, it was a thing that we used to use to get information. Now it’s all streamed on Netflix, or you just go to Twitter. But in the old days, we used to watch TV.
Bill Kelleher, CMT, CFA
5:35
And a hot technology at the time was the fact that we thought we were connected electronically. And of course, you can do all this from home now, which is amazing. But early on, recognizing to become a better trader is actually the fact that exchanges were in transition, and vintec was, was changing the market structure quite a bit. And even then the exchange model had changed. Whereas the New York Stock Exchange, you know, was really where prices were established. But as new exchanges and markets picked up, you know, we recognize that you had to become a better trader. And that’s actually led me to the CMT Association. And I attended their annual symposium and just to meet more people, and actually meeting John volunteer at the time, it was one of the highlights for me at that symposium. And so it’s kind of come full circle, which is kind of neat, where John’s gonna be presenting for us this year. And he’s just, he’s so generous with his research and his philosophies and, and just the market history that his knowledge over the years and to share it publicly. And that’s what really inspired me to get more involved, actually led me to become more involved in our Boston chapter, and then eventually led me to chairing up these events, the symposium events,
Tyler Wood
6:42
and we’ve got a number of fill the gap guests who are going to be speaking at the conference again, this year, Mr. Jim Bianco, who we had the pleasure of interviewing late December, episode came out in January. And Bill, you know, we’re talking about all asset classes, when you come to a technical analysis conference. It’s not an equities only game. It’s not a currencies conference, it’s all across the board. And I think that today’s guest for this episode really exemplifies just how you can look across all asset classes across global indices using the same technical tools and process to get an understanding of what’s happening from an inter-market or cross-asset approach. And, Dave, I just wanted to ask you, you know, in terms of this interview with JC what were some of the biggest takeaways for you from our interview?
David Lundgren, CMT, CFA
7:27
Well, I mean, for me, I think I’d have to highlight the incredible innovation that he’s bringing to the crypto space, we actually had a conversation after the recording, and we may have mentioned it in the recording as well, but developing advanced decline lines. And what was fascinating to me was just the ability that to take an entirely new Truly from the ground up new asset class, and just apply the very same technical tools that we’ve been using since the beginning of time, it seems like and they’re all just as relevant in this new asset class as they are in any asset class. And that’s one of the great things about technicals is there’s volumes of academic research that demonstrate the efficacy of technical analysis across timeframes, asset classes, geographies, etc. So I thought that was pretty incredible. And his knowledge in his engagement with that community, I think is is a real asset, because he brings a lot of knowledge to the conversation, and he’s very generous with his willingness to share what he’s learned. And he’s very humble about what he doesn’t know. And from that perspective, it’s just another great conversation.
Tyler Wood
8:21
Absolutely. One of the things that JC highlighted during the conversation was just how much he has learned from mentors throughout the association. And I think it’s hilarious to think about JC who was a youngster like myself 10 years ago, just just getting involved. And Bill here you are talking about being a youngster on the floor of the Boston exchange, but getting access to people that otherwise are probably bombarded throughout the week by sales traders and folks trying to get them to buy into things. But within this community, they are extremely generous with their time with their expertise and their willingness to coach others. And so to see the young JC who is now so influential, and such a mentor to so many young technicians all over the world, whether you’re talking about New Zealand, Venezuela or Madrid, it seems like there is a young technician working with JC on something. And Bill you’re mentioning just just a moment ago about one of your favorite moments from our first year running the symposium together to share with us a little bit about what you remember from the young JC
Bill Kelleher, CMT, CFA
9:19
Yeah, Tyler as we were talking about JC in this month’s podcast, sharing more of my favorite memories from an earlier symposium, and yeah, I believe is 2014 About eight years ago, JC was sitting with Louise Yamada and the two of them were in a very in-depth conversation and I happen to you know, walk over and and here’s Louise, one of the you know, most influential Technical Analysts over the last second the last few decades and and JC the, you know, young one of his first symposiums, I believe, and here he is teaching Louise about social media and about twitter then back and forth about what the different symbols mean. And you know, ofcourse there’s dollars signs in front of symbols and
Tyler Wood
10:02
tags and hashtags.
BBill Kelleher, CMT, CFA
10:04
I know I know, So I was to see JC teaching Louise. And it was just the beginning of another relationship that over the years where they’ve been able to share back and forth and Louise teaching JC about, you know, different elements of her research and year after year seeing them both come back to the symposium and you know, having those conversations, which all started just from a simple conversation that they were having in between sessions. That’s another great thing about our symposiums, you know, the caliber of attendees, like most of the attendees, most of the people there could actually be presenting, or should you or how presented in the past, that’s one of the great things about, you know, our event, not only the ability to network, but to share research or to share perspectives, experiences, and a lot of times, even our content, you know, I always say it’s great, we get great takeaways, or for me, it’s always been great attending those early in my career, this symposium and learn a little bit more about a topic, not just great networking, but also you get great takeaways.
Tyler Wood
11:05
And you see that living spirit of lifelong learners where Ralph and Louise and JC are always in the front row with a notepad taking down as much as they can learn from all of our illustrious speakers and guests. Well, gentlemen, I really appreciate you spending some time this afternoon. Let’s introduce JC parets, Episode 16 of fill the gap.
David Lundgren, CMT, CFA
11:24
Thanks, Tyler. And thanks for joining us, Bill. It’s great to see you and thanks for everything you do for the organization. Thanks, guys. Great being here. We’ll see you in DC.
Tyler Wood
11:31
Register now for the 2022 CMT symposium, April 28 and 29th in Washington DC. fill the gap is brought to you with support from Optuma, a professional charting and data analytics platform. Whether you are a professional analyst, Portfolio Manager or trader, Optuma provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study, learn more@optuma.com.
David Lundgren, CMT, CFA
12:27
Welcome to fill the gap, the official podcast of the CMT association we are sitting down with perhaps the industry’s most well-known technical analyst JC Parets. JC is a CMT charter holder and founder and chief Market Strategist at all star charts. In addition, JC is a rabid sports fan being a former division one athlete himself and of all things. JC is a wine sommelier. I suspect this will be a wide-ranging conversation, JC Welcome to fill the gap.
JC Parets, CMT 12:54
Well, I appreciate that Dave. It’s all those very nice words thank you.
David Lundgren, CMT, CFA
12:58
But you live up to them so I’m sure they weren’t nice enough. As I just intro we have so much we can talk about and you you are a prolific contributor to the conversation in social media and traditional media. You cover everything. You even coined some new pattern names. I don’t know if you caught this Tyler but you know JC you’re the first person I’ve ever heard someone refer to the Kardashian bottom. Yeah, was that yours?
JC Parets, CMT
13:21
No, that’s Joe. Fahmy?
Tyler Wood
13:22
Sure wasn’t Alan Shaw. I think he’s paying attention to the Kardashians,
JC Parets, CMT
13:27
Listen the Kardashian bottom is an important pattern because we’re talking about big bases right like big bottoming processes explosive resolutions.
David Lundgren, CMT, CFA
13:37
I think I think when you said it you referring to energy relative performance bottom, that’s when I say
JC Parets, CMT
13:43
listen, look, look at look at energy on a relative basis been been bottoming out for a little bit. I mean, nothing has been in decline forever. From what I see early stages, maybe of a commodity supercycle kids these days don’t know about oil and gas stocks, like, you know, those of us who traded and both of You’re older than I am, by the way, I’ll throw that one out there. traded in prior cycles. So we remember when technology and growth was an afterthought. By the way, interest rates were rising then too.
David Lundgren, CMT, CFA
14:11
Yeah, right, exactly. So I can’t wait to jump down this rabbit hole with you talk about markets, everything else. But before we do that, give our listeners a little bit of insight into who JC parets is a little bit of a background, what gets you into the business, but more importantly, what got you to a trough we call technical analysis.
JC Parets, CMT
14:28
Yeah, I mean, listen, I appreciate you guys having me. This is fantastic. It’s totally an honor for me. I’ve always looked up to technicians, you know, yourself included David for sure, among many others that I’ve learned from over the years, and the association has really been that bridge for me and for a lot of other people, by the way. So I didn’t my family wasn’t really into the market, you know, mutual funds and 401ks and real estate and just entrepreneurship was really sort of where my family was. I grew up in Miami. Both my parents were born in Cuba so I’m first-generation here in the country, along with a lot of other people that I grew up with in Miami and my high school and elementary was predominantly human immigrants. So that’s really who I was surrounded by, until I was 18 years old. And I went to Fairfield University in Connecticut. You know, I went to a Jesuit High School. So a Jesuit university was, you know, appealing, and it was very good school, certainly a much better school than my grades could have gotten me into, but I just happen to throw a pretty decent curveball, you know, I you know, you call me a division one athlete, I was a pitcher. So, you know, athletes a strong word, and although, yes, Division One, we played in the Mac conference, you know, with the likes of St. Peters and Marist and Niagara and Canisius and Siena You know, those are the those are the schools in my conference, I got back to back home runs hit off me at UConn, though. So that was a big highlight for me.
David Lundgren, CMT, CFA
15:51
We can we can edit that out, don’t you worry.
JC Parets, CMT
15:55
I also I also shut down FIU who was ranked like 15th at the time. So you know, it goes both ways of scenario, a good lessons for the market. Most certainly, as an athlete, you’re going to fail constantly, you know, and being able to deal with that and move on and go, you know, you strike out all right. So what you go back on the field, you play for a few more innings, maybe you’ll get another chance, then you can hit a homerun and you probably won’t, you’ll probably grind into a double play. And you can have to get over it again. And you’re just getting punched in the face so many times, and you just become numb to it after a while. It’s like whatever this is part of the game. I understand it by bat 300 or god forbid, 400 that makes me the best player in the league, you know, so that means I’m going to fail 60 to 70% of the time and if I do that for a career, I get inducted into the Hall of Fame. So once you understand those mechanics in it’s the same thing in the market, right? You know, you’re gonna fail a whole bunch of times when you’re wrong. Make sure you’re wrong, small when you’re right, make sure you nail it. Just like when you get a fat watermelon. You want to hit it 400 feet over the fence. And you want to lay off the curve balls in the dirt. Right. So, you know, there’s a lot of a lot of lessons that I learned playing baseball to help me in the market. So anyway, here I am in Fairfield University, just playing baseball, you know, trying to throw good parties. I mean, like any college kid, and I interned at Merrill Lynch and that was it for me love at first sight. 100% I was all and I was an accounting major at the time. Man Do I hate accounting? i There are things I hate more than accounting. It’s like accounting, the Florida Gators and the Jets. And the New York Jets like I have this passionate hatred for so as soon as I started working in Merrill though, that was a that was it for me.
David Lundgren, CMT, CFA
17:34
Yeah. What was the internship?
JC Parets, CMT
17:35
I mean, I was like, I was getting coffee and you know, stuffing envelopes and making coffee, you know, making copies and stuff for like big PMs at Merrill, you know, big financial advisors. These guys were monsters. They were playing golf every day. It was awesome. But I you know, so I started reading the journal, I started reading IBD like, and that’s really what my first glance into technical analysis was this little like blurb that Investor’s Business Daily used to have I think it was like on the front page, and it would talk about like, the advanced decline line, like market breath, you know, certain price action, and I was like, this is way better than like this, like, M&A gossip that they keep writing about on this page over here, you know, so that and then also nothing else worked. Right. Nothing else seemed to work then fundamental analysis. And that’s how I got into technicals. And as soon as I opened up, the John Murphy books on the Edwards and Magee Books, this was like an old five. That was it for me. I was hooked.
Tyler Wood
18:30
Yeah, I could see why. And who put the Edwards and Magee Booksin your hand JC
JC Parets, CMT
18:33
MTA Association? Gotcha. Because back in the old days, which is the way it should be, is that they would just make us read all the old books, right? Like now there’s a curriculum and this whole thing, which if anybody’s listening out there, who’s studying the curriculum, obviously do that, because that’s what you need to pass the test. But you still have to go read those old books. Also, right! Like there was not enough.
Tyler Wood
18:53
I love that this is maybe the first time JC Paret sounds like a curmudgeonly old grandpa. You just put like 30 years on your belt, bro. Go back and read Edwards and Magee
JC Parets, CMT
19:04
and when you’re done reading it, read it again. Yeah, exactly.
David Lundgren, CMT, CFA
19:10
So tell us about all star charts is a great service by the way.
JC Parets, CMT
19:14
So 2009 2008 2009 financial crisis you know is it had a front-row seat I was working on 46 and Park literally kitty-corner to Bear Stearns so like, front row seat to the whole thing was sick. Great experience. So I don’t care how old you are. You haven’t seen anything? I haven’t seen, you know?
David Lundgren, CMT, CFA
19:31
Yeah. Well, you still at Merrill at the time?
JC Parets, CMT
19:35
No, no, no, I was working out Merrill was just an internship. While I was in college, I ultimately got hired by Josh Brown, who’s you know, built a $2 billion RIA, right out of college when I was 22 years old, so been old buddies ever since obviously, and so him and I went through that period together. And then he started his blog so that you know, the financial crisis was really what sparked financial social media that we know today. Not that many people trusted the banks in the media back then to begin with, but that was like the final nail in the coffin. Yeah, you can’t trust the media. They’re full of it, they have their own agenda. We obviously can’t trust banks, this is all their fault, blah, blah, blah. So what happened? That was the beginning of the blogosphere. So now instead of having to go to a TV channel or a newspaper to find out what the analysts or the trader says, we could just go to the analyst, or the trader’s blog and hear it directly from the horse’s mouth, or the economist blog, or the VCs blog in the case of Fred Wilson, but like you had experts in their fields, all now having their own voice, where you can just go directly to the voice instead of the dinosaur, you know, newspaper and television, right, you can go and that was the beginning. So now, I’m a consumer of all of these blogs, I’m learning tremendously. And then some of my other friends are starting blogs, and they’re like, JC Why don’t you have a blog? I was like, I don’t know, I don’t know how to do that. So you know, we figured it out. And we got a blog. And this was in 2010. So you know, at the time, they told me that everybody has a blog, it’s too late for blogs, this was in 2010. They were telling me it was already too late. Obviously, it wasn’t, you know, early in that game, and you know, Twitter was getting popular as well, because that was an intraday conversation amongst the blogging community. So now, not only do we have the individual blog landing pages, but now everybody’s having this conversation together on Twitter, and those who are on Twitter, having these conversations that didn’t have blogs were like, Well, I’m gonna go start my blog, you know, so that’s how really, you know, and financial Twitter was a happy hour in SoHo in 2008, and 2009. Yeah, massive global infrastructure and conversation happening intraday, and, you know, it’s been beautiful to watch it, you know, grow. So All Star charts was my blog, it was just my way to put ideas down on paper, hey, look at what the dollar is doing to get a breakout and six, Cisco gold breaking down, whatever, I encourage
Tyler Wood
21:55
10 places to eat in New York City, you know, point your friends to the blog, as opposed to answering the same question for everybody that comes through to New York.
JC Parets, CMT
22:03
Right. So yeah, so that’s another great point, Tyler, because I would get a lot of questions they still do. And when a question keeps coming up, I just read a blog post about it. And now every time in the future, I get asked about it, here you go, here’s everything on that subject is very good. And, you know, we turned it into a publishing company, right? Everybody’s like JC give us more, give us more. I was like, alright, I’ll give you more. So than we just started, you know, started the publishing side of it. And I mean, it turned into what you see today. I mean, we have 1000s of clients all over the world, everybody from the biggest hedge funds and banks that, you know, pretty much every major RIA, a lot of major hedge funds, Market Wizards, these are all clients of mine. Now I get to talk to all of them, and share ideas and go back and forth, and they’re paying me to talk to them, like I should be paying them.
David Lundgren, CMT, CFA
22:45
Yeah, so obviously, that’s massive success. So what else is there left to do, but to become a wine sommelier? Right?
JC Parets, CMT
22:51
Well, alright, so rewind. So alright, so 2022 so it’s easy to say in hindsight, but like, at the time when I realized, you know, the publishing side of the business could be massive. I was in New York City, a lot of networking lobby dinners every night. Like, I mean, we were out a lot like it was just I was busy. All of that stuff is great. And it serves its purpose, but like I had to like build, put my head down and build and I was like, I’m getting the hell out of here. So my girlfriend and I, my wife and mother and my daughter today but at time Morgan with my girlfriend, we moved out to California we moved out to Sonoma in California right in the heart of wine country. So I started reading some books on wine I figured if I’m here maybe I should probably know a thing or two about wine so I started reading the wine for Dummies books one thing leads to another now I’m a certified sommelier, I got a vineyard in Napa making Cabernet Sauvignon. So I got some things happened.
David Lundgren, CMT, CFA
23:41
Oh, fantastic. Okay, so I have to ask this question then. So we all know the the lines that can be drawn pretty easily between say like what you just did earlier baseball and investing anything that you learned in learning about wine that translates to the markets otherwise, other than they go together really well on very
JC Parets, CMT
24:00
Sommelier is a technical analysts, don’t you understand? They use a deductive method. It’s a top down approach. So in the same way that we start with the trends of stocks and interest rates and commodities and look at global markets and look at stocks as an asset class and work our way down, be like okay, Latin America is underperforming, it’s more Europe, it’s outperforming and industrials over there. So we work our way down. So by the time we decided we’re gonna buy Caterpillar, there’s 1000 reasons why you’re buying caterpillar that have nothing to do with the chart of Caterpillar right? We’re doing that top down deductive approach that a lot of technicians I’m not gonna put words in your mouth. I know you, you do some of those things, but for us, I’m very top down oriented. And then I’m sitting here like in sommelier school like going to this. I’m like, Are you kidding me? You guys do the same shit as us. Like, just you look at the you look at the wine and if it’s a white wine, then you know it’s not cab sav it’s not a Pinot Noir. It’s not a
Saint-Gervais it can’t be any of those because it’s a white wine. And then you look at the color of the white wine. You can start eliminating others and you smell If you can eliminate more, by the time you’re even tasting the wine, you’ve already eliminated 80% of the possibilities. The top down approach,
David Lundgren, CMT, CFA
25:07
I’d say yeah, so you’re going through that exercise to try to understand what the wine is without knowing what it is.
JC Parets, CMT
25:13
Right? So that’s this is what’s called blind tasting. So they put on the exam, they put two whites, two reds, and you got to say everything. The vintage year, the country, the grape, the acidity levels, alcohol, tannins, the whole thing. It’s like next to impossible. And not only is it next to impossible, they don’t tell you what the wine was they just tell you whether you passed or failed. So I don’t even know if I even got it. Right. Right.
Tyler Wood
25:39
That’s so funny. In my experience, there’s only one question is that bottle more or less than $20. And then I can decide whether or not I’m going to enjoy drinking it.
JC Parets, CMT
25:49
But that’s not the point, Tyler because there are certain wines that are just more expensive. But if you understand that, you could find good deals. Also, you might not like those expensive wines, right? So you know, you stay away from and then also, you’re going to learn that there are excellent wines that are cost you 12 bucks, and you can get a venial veered from Portugal, it’s gonna cost you 999 You walk into a party with a case of those and you’re a hero.
David Lundgren, CMT, CFA
26:12
No, it’s funny. I thought I kind of teed you up for this where I thought what you were gonna say was the correlation between wine and the market says that just because it’s a good wine doesn’t mean it’s worth the price. Or sometimes you can get a good wine for a cheap price or is in the markets as well just because it’s a good company doesn’t make it a good stock, right? And it may be a bad company might be an awesome stock, right? And those are the those are the differences that we wrestle with every day.
JC Parets, CMT
26:38
It all comes down to your own personal objectives in both the market and in wine. Like you could tell me this is the best day trade in the world this micron day trade. I’m not going to put it off because I don’t day trade. I’m a terrible day trader. So I’m just not going to do it and you can be like but JC this is I’m all in this is the trade and you can make a zillion dollars and I’ll be happy for you. I’ll let you buy me drinks, but like I’m just not going to put it on no matter how much conviction you have. Right and I can tell you about this Luna YOLO that I got on and you’re gonna be like JC is crazy. I’m not putting on Luna you know, and then the same thing with wine like if it’s noon in Miami, on the beach, am I gonna drink a Cabernet Sauvignon? Or a Super Tuscan? Or like a Siraj? No, I’m gonna have a nice bright Riesling or Sauvignon blanc or like, you know, a Chablis.
Tyler Wood
27:28
Yeah. All right. So thinking about your clients and the process and All Star charts, obviously, you have your own objectives in how you like to look at the markets and the time horizon that you care about? Do you ever find that certain clients can influence you to look at things a different way? or modify what you’re publishing to meet their objectives? Does that ever influence your process?
JC Parets, CMT
27:49
We listen to our customers in terms of what they want, we’re generally doing it right. So we don’t really get a hey, can you guys look at this, like we’re looking at it, that’s never really an issue. But in terms of listening to our clients, like, our clients are really, really, really smart. I don’t know if you do this day when you talk. But I have like certain workbooks that are just ticker symbols that I get asked about by customers of mine. And I just keep those workbooks. And I got to tell you, I go through those workbooks a lot. And they are awesome. And there’s no trades that you just miss, like we do so much work. We have so many scans, we look at so many charts. And even still, there are some things that slipped through the cracks. And I yell at the team, I’m like, how did this slip through the cracks? And it’s like, well, because our mid-cap scan is minuscule, like little sliver that it slipped through. I was like, Okay, we got to fix this. Right. So that’s how you keep fine-tuning. But yeah, I learned about ETFs that I didn’t know existed, we have a lot of financial advisors. You know, I learned about more sophisticated bond trades about like, what the institutional positioning currently is, and where the weaknesses at the institutional level, like where there’s too much exposure, like those buttons and catalysts I get from our larger institutional conversations where I get called on on those markets.
David Lundgren, CMT, CFA
29:03
Yeah, so I’d like to definitely dive into markets specifically because again, you have a prolific mindset on all the different markets around the world. But before we do that, so that we can help our listeners frame how you’re thinking about things. Can you maybe just run through the tools that you you rely most heavily on the timeframe, you focus on some indicators and you know, averages or whatever you overlay on the chart?
JC Parets, CMT
29:23
Yep. So for me, the fewer the lines on the chart, the better. You know, we’ve all seen those charts, it’s got like 200, moving averages, 10 indicators, Bollinger Bands, like you got to like which ones price you know, so for me, I am like, less is more through and through prices trend. We know that people are like, Oh, it’s just random. It’s like, well, we know it’s not random. Like we have the math returns don’t fall in normal distribution, like markets trend. So because markets trend and we know that that’s why technical analysis works, because what are we doing? We’re looking for trends, and that just happens to what markets do. So I incorporate a multiple timeframe approach, which is something also that is difficult to do it with other disciplines is incorporate the same viewpoints, but on different time horizons to be able to use them together. So we’ll start with a longer term view going back 20 – 30 years depending on the asset, maybe even longer than that, you know, we do have like cycle work on interest rates and gold and like things have traded for 100 years, but on a more, you know, day to day stuff, 20 years, 25 years, just so you can get a few cycles. That’s where we start, whenever in doubt, zoom out. And we do that to get structural perspective on those trends on both an absolute and relative basis, but we’re looking at them on their own, and we’re looking at them relative to their alternatives. And when I say what are we looking at every single country’s index in the world developed markets, emerging markets, both in local currency and it priced in United States dollars. So we do both every US stock market index from S&P Dow NASDAQ, small caps, mid-caps, micro caps, Value Line, all of those things, we do the same thing for every commodities future everything from oil and natural gas to silver and gold and platinum to sugar and soy beans and coffee to cardamom futures in India and palm oil futures in Malaysia and everything in between really to get perspective and find themes that are going on globally. So same thing with interest rates in all of those countries as well. And all of the currency crosses as well in all of those countries. So by the time we get to tech stocks, or you know, financials or even the S&P 500 There’s so much other analysis that’s already been done that we’re gonna take this US action and put it into context with everything else. So everything we do falls within the global macro landscape, which is that top down approach that I was talking about with wine like the white wine and Cabernet.
Tyler Wood
31:50
it felt like a Salvador Dali painting the other day I looked at I think it was your Twitter feed gold priced in yen. I was like, it’s not the chart of gold. What are you doing JC like, but it was totally mind-altering, you know, you got to look at things from a different perspective.
JC Parets, CMT
32:05
Yeah, but I learned that stuff from the technicians because when I first got into technical analysis 2005, 06, 07, Who are my mentors Alan Shaw, Louise Yamada, John Roque all these guys all they were all gold bugs so I was a gold bug too and everything any good technician was a gold bug in the 2000s because the trend was up, worn right they were right and anyway I was I always laugh about it because people are like JC you always get the gold bugs a hard time like I was a gold bug Hello like I know what gold bugs are and you know gold just really acts more like a currency than a commodity you know for me it’s kind of like in purgatory probably has you know characteristics of both so we treat it as such so not only do we treat it as a commodity even the last year every commodity in the world went up except for gold so we treat it that way and you know gold price and Japanese yen is making new all time highs gold price in Euro making new all time highs, you know, as we get that breath expansion, if you will, in terms of gold in different denominations, we have 29 of them that we look at and we’re getting breath expansion we’re getting new highs in gold price and more and more currencies. You know, just because we’ve seen dollar strength if you take the dollar out of the equation, gold has actually done very well particularly Japanese yen. Now the ongoing joke at the firm internally is like well, JC you price anything in Japanese yen? It’s gonna look good, right? And while that might be true, you know, it’s on some of the other currencies that is breaking out also. So we have to respect that.
David Lundgren, CMT, CFA
33:33
Let’s hop into into markets. There’s obviously a lot going on these days on many fronts, obviously inflation hitting depending on how you measure it 20, 20 year highs in terms of rate of change, gold, not moving dollar going up war in Europe, commodities exploding, and you see better than anybody that all the activity going on beneath the surface of the market, not just here in the US but globally as well. Seems like there’s a lot there’s been a lot of false breakouts in many cases. In both cases in both directions you could argue so when you you know finish your comprehensive review of the world where does it leave you today? What asset classes do you want to favor for the next year and I don’t think it’s worth talking about the next three to five years because that’s not how we think next is called the next year.
JC Parets, CMT
34:13
That’s probably bad. I mean, I don’t know what I’m having for dinner tonight yet I know what I’m going to be trading five years right
Tyler Wood
34:17
we know you’re not eating complex carbs JC looking good.
JC Parets, CMT
34:22
Shout out to Phil Perlman we’ve been on this commodity supercycle sort of thing and you know we say that like tongue in cheek like I don’t know if it’s supercycle. Maybe it’s a super-duper cycle. I have no idea. But what I do know is that I it’s hard for me to find a better catalyst to spark a new commodity secular bull market than Crude Oil Trading below zero. I mean, can you can you draw it up any sweeter than that? So as soon as that happened, the Unwind began. And that’s why after a decade of stocks outperforming commodities you know, that parabolic you know, Ripper with gold with oil trading below zero, that was it. That was the bubble popping there and It’s been a commodities outperformance ever since commodities are now making three year highs relative to the S&P 500. And what do we know about these commodities trends both on an absolute and relative basis that these aren’t swing trades? These aren’t things that last days or weeks, these trends last a decade. So if we’ve been at this for a couple of years now, like, maybe we’re in the second inning, maybe we’re entering the third perhaps, you know, and they’re like, Oh, well, maybe we go into extra innings? Who knows? Right? So yeah, but when I see that, and then I look at energy as a percentage of the overall S&P 500 is like 2%. Two point something percent of the S&Ps, you got 2% S&Ps are materials, right? So when you look at the NASDAQ 100, or the NASDAQ in general, there’s zero percentage in energy, there’s zero percentage in materials. So when I look at the composition of most American portfolios, they got a ton of growth. They got a ton of technology and consumer discretionary and communication. They got no commodities, no commodities whatsoever. And I think that that pain is starting to be felt. You’ve seen growth stocks get slaughtered over the last year, like slaughtered like almost half the NASDAQ got cut in half. Like hello, people are like JC are we going into a bear market? It’s like, What the hell do you call that? Right? You know, already happened?
David Lundgren, CMT, CFA
36:17
Yeah, no, that’s that’s what I was referring to, like all the stuff going on beneath the surface, when it just seems like a nice, docile bull market. Now with a little 10% correction, there has been epic bear markets going on beneath the surface, all the while. So one of the things you just said I thought was interesting. Was oil going below zero planting the seeds for the next secular bull run? I can’t help but ask the question. You must feel the same way about rates.
JC Parets, CMT
36:39
Yeah, hard not to right. You know, and when you look at you asked about inflation, right? So you got commodities doing what they’re doing. It’s not a secret. They’ve all been ripping obviously, from the Ag to the energies to the base metals. And then when you look at what the bond market saying you look at inflation protected treasuries versus traditional treasuries making new highs. So you got the bond market pointing to inflation, you got the commodities market pointing to inflation, stocks are probably doing great in that environment, and bonds should be doing terribly, and guess what bonds have been doing terribly, and what types of stocks should be doing well in that environment, and which stocks should be doing poorly? Well, your growth stocks, technology, those are the ones that historically do poorly in that sort of environment. Meanwhile, your energies, your materials, your industrials, your financials, you got your insurance stocks tend to outperform and that sort of environment. And that’s why those are the stocks that have been outperforming so many people are talking about how crazy the market is, I couldn’t think of anything more normal, the market is doing what it shouldn’t be doing in this environment. I mean, I couldn’t think of anything less crazy.
David Lundgren, CMT, CFA
37:38
To your point, which you alluded to earlier, to use your phrase, these kids don’t know anything about this, because I never managed through it. I mean, this is the first time think about this, if rates break through, I don’t know what it is, it’s probably to 265s to 270 that the trend line on the 10 year note off the 1980 peak. If it breaks through that trendline it’d be the first time since 1980 that we’ve broken that downtrend. So there’s literally at least a generation or more of investors who have never invested during a rising rate environment.
JC Parets, CMT
38:05
And we’ve all been there and we all have to learn the hard way and we all got punched in the face. And we all thought we knew and we figured out that we didn’t know like we’ve all gone through that. But at the end of the day, the data is there so like even though you haven’t traded through it, you could study prior area that by the way, I was born in 1982 So interest rates have been going down for 40 years so I need to figure out a way to learn how to trade in a rising rate environment because maybe maybe this isn’t it I don’t know maybe it’s not maybe there’s one more low who knows. But one day it’s gonna happen and I just deal with it and I’ve never seen it in my entire life let alone my career my life so you’re just gonna have to realize that we’ve been in rising rate environments in the past you know more cyclical anyway and we we have been in environments where growth is the afterthought growth is the outperformer growth is the underperforming that tends to happen in rising rate environments and rates have been going up and growth has been underperforming makes perfect sense.
David Lundgren, CMT, CFA
38:59
So it sounds like long commodities it’s fair to say commodities across the board other than gold which seems to certainly be not I guess we could put you put silver in that camp as well but is it industrial metals, grains energy across the board? Pretty much
JC Parets, CMT
39:12
I think what we’re seeing is that we’re getting this breakout in copper, you know, and if we get the breakout in copper gold’s probably going with it but I’m more interested in the copper because of the implications there you know, you look at things like US Steel Freeport-McMoRan, Nucor, like all of these things continue to act while you look at steel futures. They continue to press up against new highs, you know, for me, all of those things point to rising rates. So I’m very inner market-oriented. So like if you’re asking me about rates, I’m gonna think about what commodities are doing and I’m gonna think about which stocks are doing well you know, if you ask me about commodities I’m gonna think about what rates are doing I’m gonna think about what stock right like that’s that’s great. And you talk about a diagonal trend line me I’m more of a horizontal trend line kind of guy. So me I’m looking at
David Lundgren, CMT, CFA
39:54
can you can you explain why. Explain what you mean by that’s a super important point, and I couldn’t agree with you more. Can you hear Explain what you mean by diagonal versus horizontal and why you’d prefer one over the other.
JC Parets, CMT
40:03
You know, there’s a tool called market profile, which is really, really useful, especially for new traders, people new to technical analysis, because you can actually see the volume on the y axis by price as opposed to by date, right. So instead of on the x-axis, you have it on the Y. After a while after you do this enough, you don’t need that anymore, you know where the volume is, because you can just see the churn on the charts and the support and resistance. But that’s really what that’s really where technical analysis begins and ends. As far as I’m concerned, all the other stuff is gravy. You know, we want to draw trend lines with crayons horizontally, at former peaks when something’s going up, stock, ETF commodity, whatever going up, if it reverses at a certain price, and starts falling. Why is that happening? It’s happening because there’s more supply than demand at that price there are more willing, there’s more selling pressure and buying pressure are more willing sellers than buyers, there are maybe one big aggressive seller, whatever, but there’s more supply than demand there. So the next time that the stock returns to that level, we need to assume that there’s still going to be overhead supply there because the market hasn’t proven that demand has finished absorbing that supply until the market proves that and we’re able to exceed those former highs, then it’s guilty until proven innocent, and there’s still overhead supply at that price, many times that second test does fail and we do retreat back. And then maybe the third time by then maybe demand will have absorbed that overhead supply and we break out but probably not. And it needs to return again. And that digestion of supply takes time. And you can visualize that in a chart, you could see where that churning is taking place, which creates these really critical levels. Because once we’re able to exceed those levels, and make new highs, anytime that we return to those levels, we know mathematically there’s more demand than supply. The market proved that last time we were here. So we want to be accumulating in those conditions. And if it were to fail, that’s information then too, but it all comes down to supply and demand dynamics and the way markets trade, whether we’re looking at stocks, ETFs, options, commodities, currencies, cryptocurrencies, it’s all a supply and demand game. And you can see that happening in real-time in a chart
David Lundgren, CMT, CFA
42:19
just to restate what you said with a horizontal and then compare that to a diagonal trendline. So our listeners should be thinking about a horizontal line is just being drawn off the top of what’s a clear former resistance level or a clear former support level either way, but it’s a horizontal line across a chart. And the reason it’s important is because that demarks on the chart, a clear point of inflection in supply and demand, then what we’re also prone to do as technicians is to then take all those former highs and draw trend lines off of them, thereby having a diagonal trend line in wherever that trend line happens to be when we hit it could be completely irrelevant, because that specific level may have nothing to do with supply and demand. Is that the distinction you would draw?
JC Parets, CMT
42:56
Yeah, I mean, it’s it they’re not they serve a purpose, you know, more of like a rate of change of price, you know, and stuff like that. But in terms of your supply and demand dynamics, like I was explaining before, and like you just said that it’s not that right. We’re it’s two different things. So because supply and demand because support and resistance is the most important thing, then by definition, it’s going to be the horizontals going to be more important than the diagonal
Tyler Wood
43:22
you know, JC when we’re talking about the curriculum, all the changes that have happened in the CMT Association, since you went through the program, a lot of it has to do with how our association is talking to the rest of the industry, in particular people who are well versed in the fundamental aspects of Valuation. And what we’re talking about right now with support and resistance levels, I think was really well explained or was embraced by the academic community when it came out of the mouths of behavioral psychologists like Daniel Kahneman and Amos Tversky. And when we talk about support and resistance, they talk about the anchoring bias. And I think for everybody who’s listening to this podcast, if they’re, you know, you’re still on the fence about whether or not you think markets are purely efficient. JC has done a lot of work on the human behavioral element. And it’s just, it’s faster to explain when looking at a chart, and you can see where people actually put money to work or took money off the off the table. As they say, people vote with their feet, right? You watch you watch where their money is going rather than what they’re talking about. And that’s I mean, to me support and resistance levels and the anchoring bias, like that’s the proof in the pudding of why we have to pay attention to technicals because humans are not purely rational creatures, right? We just want to get out back at that level where we bought it. It’s been a negative position for all these weeks or months or days or whatever in your portfolio and you just want to sell the minute you get back to breakeven, right? That’s the human element, good resources on behavioral finance that you like,
JC Parets, CMT
44:50
listen, Tyler, I think you nailed it. It’s really what it is. Once you understand the way humans are thinking, understand it a little bit better. You don’t have to be an expert. You don’t have to be a Ph.D. like You know, a couple of bucks I’ll do it. You know anything, you know, Thinking Fast and Slow and all the stuff by Daniel Kahneman. I mean, fantastic. John Beck does a lot of good work Annie Duke is fantastic. She’s great. Brett Steenbarger,, Dr. Brett Steenbarger,, one of the old school OG. I mean, this is Paul Tudor Jones, his personal trading coach to the point where he was he was the Trading Coach for a lot of other traders and Paul Tudor Jones is like, no, now you work just for me. Like that’s what a badass Dr. Brett Steenbarger, so like and he talks to the best traders in the world that constantly Andrew menaker out in San Francisco. Good AG, Dr. Phil Perlman, obviously, you know, mental and physical side of performance and being and putting yourself in in the position to make smart decisions.
David Lundgren, CMT, CFA
45:48
Sounds like commodities bullish which naturally in obviously, but we can also see the charts translates to bearish bonds, equities sounds because there’s a lot in the in the equity world, not just in terms of sectors, but in terms of Cap Sizes regions and everything else. Yeah, I mean, if you get to think about the next year, I know you’ve been pretty bullish on emerging markets. It’s been a trade that’s been slowly working its way up into actually becoming pretty decent leadership on the long term charts. Is that where you’d be focusing your boys are on the equity side?
JC Parets, CMT
46:15
Yes. So the way I like to think about it, you know, this isn’t your father’s emerging markets, right? This isn’t like, you know, the way I grew up, emerging markets had much more like natural resource exposure. You know, when you look at something like EEM, a lot more energy and materials and less technology. And now it’s like 40%, China, ton of technology. So I think it’s important to, to remember that, again, this isn’t your father’s EEM, this is a different emerging market. So I think you need to be more careful with different regions, like when you talk about like China, for example, it’s had a terrible start to the year, but you look at Brazil, and Peru, and Chile, I mean, these things have been ripping and why their natural resource exposure, as opposed to all that tech and China and China’s got some other things going on. Whatever, you know, you look at the strength in Canada, for example, you know, what are the types of stocks that do well, in a rising rate environment, you’re going to get some of the more cyclical value-oriented sectors. And what’s Canada? A lot of natural resources and banks like Hello, like if this is if Canada can do well in this market, like it’s never going to do well. So you’re seeing some outperformance out of Canada for similar reasons that you’re seeing outperformance out of Latin America? When was the last time you can say our performance in Latin America in the same sentence Dave
David Lundgren, CMT, CFA
47:28
Yes. Since the last full cycle and commodities right
JC Parets, CMT 47:33
early 2016 or something like that thelast at a hot second?
Tyler Wood
47:37
Yeah, yeah. You’re going to give any love to the to the Australians and the Kiwis.
JC Parets, CMT
47:40
you know, Australia should do well, I mean, I got to tell you from a currency perspective, that Australian Dollar versus Japanese yen ripping man and from a risk appetite perspective, when you see that aussie yen doing what it’s doing. By the way, if you overlay a chart of Bitcoin with a chart to aussie yen, they look exactly the same. So love to the Aussies. Yeah,
David Lundgren, CMT, CFA
48:01
yeah, we’re gonna get to Bitcoin for sure. Okay, so for a domestic US investor, the way you translate your exposure and towards these themes, is obviously energy materials. Deep cyclical so it sounds like you would just say value of growth. That sounds pretty obvious
JC Parets, CMT
48:15
mean you’re getting mean reversions in the really beat-up growth names and I think those mean reversion is probably still have some legs. And you know, again, I’m not saying technology, stocks can’t go up or growth can’t go up. But where do you want to be? Do you want to be in the leadership or do you want to be bottom fishing the garbage and if you are bottom fishing the garbage and there’s nothing wrong with that. And we have done that? I think it’s important to understand that that is a trade, right? That is a mean reversion trade. That is those are not secular leaders. So if you’re buying Freeport or you’re buying, you know, US Steel, or you’re buying, you know, uranium CCJ breaking out of this base, if you’re buying those things, that’s one trade. If you’re buying DraftKings and you’re buying like any of these Zachary’s and all these Cathy wood funds, like if you’re buying those, it’s a mean reversion. And you as long as you know that, and you understand that? I think you’re okay. But they’re two different things. And I think there’s a there’s a time and a place for both of those things. Again, it all comes down to your objectives. Are you trying to drink Cabernet Sauvignon at noon on the beach? Probably not. Right? Like, are you trying to, you know, buy leadership, you know, and again, these these relatives trends can last a long time. And I think the fact that US investors have no exposure to these areas, energy materials, none whatsoever, I think is really a bullish catalyst. Not to mention, a sentiment in general has been so pessimistic, you know, by, you know, by our work, we were this quarter at some of the most pessimistic levels since we’ve seen since 2016, which is worse more bearish than during the pandemic when we were staring into the abyss. So the fact that there’s more pessimism today, I think that’s a bullish catalyst. You know, I don’t think it’s gonna it’d be a straight up line, but we want to be buying weakness in energy. We want to be buying weakness and materials, I think industrials, I think the countries with exposure there continue to outperform. I think this is a secular theme until the market proves otherwise. And I think interest rates go with it, you know, so you fade bond strength, you continue to fade bond strength, you know, you’re going to get mean reversion is there too, for sure. But I think 3% on us 10 year yields a lock, you know, oil 200 250? Why not? You know, I don’t think it gets there tomorrow. I don’t know if it ever gets there. But I think as investors not as technicians, or CMTs, or portfolio managers forget all that just as humans, as investors, when we approached the market and be like, Okay, what am I going to do my portfolio? I think, oil at 250, you know, gold at 5000 10,000? I don’t know that they ever get there. But I think we need to think and approach the market and thinking that that’s on the table. And what does that world look like? And are investors ready for that? And I would argue Absolutely not.
David Lundgren, CMT, CFA
51:03
No. So be open-minded, right? I think you have to be, you know, anybody that’s struggling with believing just because of behavioral bias and anchoring bias and whatnot, any of our listeners that are struggling with believing that tech could possibly underperform for an extended period, even if they do well, in the short term doesn’t have to look any further than after the 2000 peak. And all those stocks tanked. 90% 50 to 90%, lots of them went out of business. And then that sector went sideways for a very long time, underperforming for a very long time. And so, wash, rinse, repeat, there’s no there’s nothing different today about what happened back then. And so there’s no reason why we couldn’t see that type of a scenario. They don’t have to keep going down. But if we’re trying to buy leadership, that’s an important context to keep in mind. Right?
JC Parets, CMT
51:46
I think so. I think so on the fact that they’re not they’re not able to knock them down. You look at small cap growth doing really well this week. You know, you’re getting these mean reversions in these in these growth tech archy you know, is the adjective we use archy type stocks, if they can’t, down who’s left to bring the market down, right?
David Lundgren, CMT, CFA
52:04
Yeah. And of course, AMC just bought a gold company then quickly broke out of a base, right. Go figure.
Tyler Wood
52:09
Go figure,
JC Parets, CMT 52:08
David, Nothing surprises me anymore.
David Lundgren, CMT, CFA
Yeah, you’ve seen enough. Right? You’ve what you think you’ve seen it? All right. And then AMC buys a gold company. Okay, so,
JC Parets, CMT
52:17
Yeah Why Not, Ofcourse. Yeah, for sure. A movie theater buying gold companies? Yeah.
David Lundgren, CMT, CFA
52:21
Yeah. Yeah. You can see the synergies. Yeah. I saw that coming from a mile away. Okay, so the there’s only two remaining asset classes. So let’s go with the old school. Snooze city, the dollar, and then we’ll get to the more exciting crypto, what’s going on there? It’s it’s going up what’s going on?
JC Parets, CMT
Why you hating on the dollar David?
David Lundgren, CMT, CFA
I’m not I love it. i Well, actually, I think what I think is kind of comical is if you look at the chart, it’s actually in a range. And so there’s been a lot of noise about what the dollar is and isn’t doing. But the actual reality, the truth of the matter is it’s doing nothing. Now I’m talking about the DXY right now, which which is really driven by the euro. There’s a lot of other things going on. There’s a lot of currencies, we’ve as we’ve already talked about a lot of crosses at a movie quite a bit. But the dollar index, the DXY is basically range bound. And it kind of looks
Tyler Wood
53:07
Are you talking about the range going back to 2014 Dave? Or are you talking about the range more recently?
David Lundgren, CMT, CFA
53:11
Make me look at my charts are you?
Tyler Wood
53:12
Yeah,
JC Parets, CMT
53:13
So this I could draw for you. I’m gonna tell you about dollar. This is what this is what I think about the dollar. Yeah, first of all, technicians love overthinking the dollar. So I think as investors, I think it’s very important to know where your weaknesses are one of my personal weaknesses, I you know, I’ve historically over overthink the inter market relationships. So I always have to be cautious of that and always ask myself, Am I overthinking the market right? Also just in general, the overthinking of the dollar for sure. I see it so much. I do it myself. We all do it. So I think don’t think about the dollar. But I think it’s important to if you’re if you’re overthinking if you catch yourself overthinking the dollar, which I do a lot ask yourself, are you overthinking the dollar? Okay, so with that caveat, the US Dollar Index has had a very strong negative correlation with risk assets for about the last half decade really got going strong in 2016 when stocks broke out in q4 around the election in 2016 actually broke out in September but whatever they started getting going and what happened The dollar fell apart. So stocks peak in January 2018 What happens dollar bottoms that quarter starts ripping after the COVID dollar peaked dollar gets slaughtered stocks rip best year in history or something for you know stocks depending on what index you’re looking at. And then what happened a year ago, growth stocks started getting hit advanced decline line peaks in February, you know 2021 A lot of things that was the best things were everybody had a SPAC if you recall, you know, all these things are happening. That’s when the dollar was bottoming. So since then, we’ve seen dollar strength, and we’ve seen deterioration and a lot of stocks being sold over the last year. So if you can get this dollar weakness, and I think that it’s setting up if you look at the dollar index, in particular, if you’re looking at about 97 – 98, if we lose that. And we’re right there. That is the 61.8% retracement of the entire 2020 decline in the dollar. That’s 61.8%. So we start losing 97. And we start breaking below that I think that’s a heck of a catalyst for risk assets. And I’ll tell you one more thing with new highs in the US Dollar index over the last month, we have an advanced decline line of 29 currencies against the United States dollar. Right? So we’re essentially looking at all of the other crosses, not something that’s 60% euro and another 10 – 12% yen that’s gotten murdered, right? So if you sort of take those out of the equation, you equally weigh 29 currencies all over the world. With new highs in the dollar index, you had lower highs in q1 throughout q1 in that AD line. So essentially, breath deterioration at the currency level of dollar-denominated currencies around the globe, setting the stage and a bearish momentum divergence if you’re looking at a 14 day, RSI if you’re into that sort of thing. So check, check, check, check if we lose 97, dollar gets slaughtered. I mean, I think that’s good for commodities. I think it’s good for stocks, I think it’s good for risk assets. I think it’s good for everybody except dollar Long’s
David Lundgren, CMT, CFA
56:13
as all of that was unfolding. What we can see happening on the charts was that the definition of risk assets, particularly within equities, not equities, at the top level, but Within equities, the definition of risk assets has actually changed, right? Because prior to say, 2021, I guess you could even say risk assets were really growth. And now risk assets or value. So if that makes sense, because if the dollar does break down, that goes that works with commodities, breaking out that works with inflation, that works with value working and all these other things. So when we think about risk assets, we have to also consider the fact that fact but the possibility, at least what the charts are saying is that how we define risk assets today to implement that strategy actually has changed, we need to think about owning energy materials instead of consumer and tech. Right.
Tyler Wood
57:03
Yeah,
JC Parets, CMT
57:04
I think that’s right. I think that’s right.
Tyler Wood
57:06
All right. So alternative scenario, the dollar doesn’t get slaughtered here, what’s the reverse play JC let’s say we broke out of this range, and we’re back up towards the 2001 highs.
JC Parets, CMT
57:17
I think the Russell 2000 remains in this messy range. You know, I think just messy markets, sloppy markets that we’ve been in for the better part of you know, the last three, four months in particular, even some of the stronger areas have really been range-bound. I think that probably persists dollar strength, I think you would probably see more weakness out of like Europe, and some of these other areas that have gotten hit recently on that dollar strength. You know, listen, it’s a possibility. I think it’s the lower probability outcome. If you asked me based on the weight of the evidence, I do think we see dollar weakness. And I think that is confirmed true. If we’re losing 97 on the dollar index to the downside, we could really press those bets in that environment. So for right now, it’s just, I think this happens, but I have no idea on the breakdown there. I think that’s pretty good confirmation, I think
Tyler Wood
58:03
Excellent. Thank you.
David Lundgren, CMT, CFA
58:05
Okay, so that leaves us with the last but newest asset class crypto and everything that spins off of that, it’s hard for me to ask you what your opinion is of the crypto space, because as technicians, we’re not really supposed to have that type of an opinion. Because in certain moment, you have to abandon that opinion and just kind of go with the trend. But I do know that you are intricately involved in that industry, you’ve done a lot of research, you’ve spoken to a lot of people. So I’m going to ask you anyway. In the 90s, we had the internet in a change the world, right? But you couldn’t buy the internet, all you could do is buy things that were tangential to the internet, in particular traded on markets, right. So what ended up happening was, indeed that the internet did transform the world. But most of those stocks that we played back then went to zero, if they didn’t go to zero, they took a decade to come back. Right. Is it conceivable that today, the technology that’s transforming the world is blockchain in this you can’t buy and sell blockchain. Right? It’s transforming the world but you can’t buy and sell it. So you buy and sell the things that are tangential to it. If you look at like in the beginning of COVID I mean, I don’t know how many 1000s of cryptocurrencies came out it was sort of like an IPO boom in the 90s. Right. Is it conceivable that these Bitcoin and cryptocurrencies are mostly going to go away and there’s going to be there’s gonna be a Cisco and an Amazon that survived the.com Bust? There’ll be like Bitcoin and Ethereum but most of these things are going away. That will be my question for you.
JC Parets, CMT
59:27
Like stocks, right? You know, a lot of stocks go to zero, you never hear about penny stocks and things like that. You’re gonna have that here. You have them all the time, you know, so they do go to zero they do disappear, and that’s never gonna go away. That’s a good thing. Right, you know, bad companies, you know, poorly designed, cryptocurrencies should go to zero, they should fail. Like if you if you’re a terrible business owner, like your company should go under, right like if you are a good business owner and you do good things, you know, you have a higher likelihood of it working out for you. Right that’s that’s just business that’s just America. That’s just global business, not even just America. So I think that’s no different. As far as a Bitcoin and Ethereum, you know, you have your layer one applications. And then you have your layer two protocols that do have their own token. So it’s like, you know, you’ve got tokens on top of tokens, you know, and that will continue to evolve, because it’s like Legos, right? So think about like some of the ones you mentioned, those are like the bottom of the Legos. And you’re able to build on top of that, because it’s all open source. And, you know, I like to stay in my own lane. David, you know, I’m a technical analyst, I look at price, you know, I’m the dumbest guy in the room. You know, I don’t need to know anything about oil and gas stocks to trade oil and gas stocks all day. I don’t have to do you know, I don’t, I don’t know anything about semiconductors. I could barely spell semiconductors, but I can name you friggin plenty of them that I’ve traded in the last like, several months, right? In the in the case of grip, and I’ve always been very discipline in the case of cryptocurrencies, it’s been a different experience for me, because I’ll have a irresponsibly large position in a particular coin. And I’m just like, hey, you know, maybe I should find out a little bit about this, you know, this axie infinity that I own half a million dollars, stay up all night watching, like conspiracy videos on YouTube, you know, learn about these things. I’ve been doing that for the last couple of years, and you pick up a thing or two, you know, through these videos. Now, just to be clear, none of those things have any impact on my decision making in terms of you know, trading and investing and risk management and none of that matters just but just my personal interest. You know, I’ve gone out of my way I made some money trading Helium HNT, so I use some of that and I bought some Helium miners. And then I bought some more and now I have 25 Helium miners, you know, all over the East Coast. You know, mining Helium for me, I’m making a couple of bucks there, you know, ain’t bad. And then I made some money trading Mana, which is the currency inside of Decentraland MANA. So what did I do with those profits? I took some of them and I bought some property inside of Decentraland. And it’s not like oh, boy, okay, because I think HNT is going to the moon. And you know, Tom Brady, and you know, the Metaverse like, I don’t know, bro. But going through this process. I’ve learned a lot just by doing Uniswap buying NFT’s trading NFT’s like understanding the different communities on Discord. Like I’ve come a long way in understanding what’s going on behind the scenes like I never have in my life, because I’ve never dug into oil and gas because I really don’t care. You know, I’ve never dug into semiconductors or health care. Like I just don’t know anything about that stuff. I’m okay not knowing I’m good. Like I like wine and sports and family. Like that’s for me. And now I’ve learned about the metaverse, and I’ve learned a lot about blockchain. And it’s fascinating. And I know a lot of smart friends that are heavily heavily involved. I don’t think it’s going away. There has been more money from venture capitalists invested in the last year than every other year in history combined into web 3.0. And there’s a lot of smart people building really, really cool protocols, and it’s just not going away. And it’s going to work its way into our everyday lives more and more every day without even people realizing I think it’s a good thing.
David Lundgren, CMT, CFA
1:03:17
So along that those lines, what is the justification for buying property in Decentraland? Is it just to see what happens? Or do you actually can you actually stay? I bought this parcel because of this, because there’s no chart.
JC Parets, CMT
1:03:32
Right? So one thing I learned from venture capital friends of mine, you know, I’ve been a closet fin tech nerd for a long time, Tyler knows, you know, I’ve just I don’t really know how to code and they say words that I’d like words like API, like, I don’t know what that is, but I hear it a lot. Like so I’m not like good with that stuff. But like, I like learning more about it. And one thing I’ve learned from VC friends of mine very successful people is that you got to play with the toys. You got to play with the new toys that the kids are playing with, like, you know, like Mark Zuckerberg, for example. He was married or he had a girlfriend at the time, but he was playing with Tinder like so that he can understand the way that it works. And he actually matched with like one of his wife’s friends or something like that. Anyway, the point is, like, you want to play with the toys, even though it’s not really up your alley. So like, I have like one of those Oculus headsets, you know, virtual reality. I haven’t played a video game since college, but like I’m learning, right? And same thing with Decentraland. It’s not like I’m some real estate mogul in the metaverse. You know, like, I don’t know, I pick the cheapest one and just got some land and you know, just go through the process, right?
David Lundgren, CMT, CFA
1:04:35
Yeah. Okay. All right. Interesting about Bitcoin here. I mean, we know the chart, it looks pretty, pretty similar to the last pullback that it had. Are you a buyer here? Would you know of course,
JC Parets, CMT
1:04:47
I’d like to hire the higher beta cryptocurrency so like if you’re bullish bitcoin is probably better vehicles in order to express the bullish thesis and as the market right? Yeah, you know, go your Bitcoin serves this purpose. But what I’m looking at, I’m looking at breath expansion in the Cryptos. So what you’re seeing is that new 52-week high list was non-existent all year. And now you’re getting waves, you’re getting Luna, you’re getting the APECOIN breaking out to new 52, week highs, new all-time highs in those cases. And we haven’t seen that in a while. And you’re also seeing breadth thrusts. You know, David, I know you’ve done a lot of work in the past, looking at different breadth thrusts a lot of technicians do, obviously, because it’s very powerful information. We just got a whole slew of breath thrusts in the stock market, for example. Yeah, and now you’re seeing like expansion and percentage of Cryptos above their 10 day moving average percentage of Cryptos above the 30 day moving average, Off the charts. Right. So and then expansion in the new all-time highs list, you know, a lack of new lows expansion and new highs, like, Does this sound familiar? Right?
David Lundgren, CMT, CFA
1:05:47
Yeah. So what’s interesting about that is that you’re just taking very creatively and very uniquely, because I don’t know anybody else that’s doing that. But you’re just taking the old school lessons that you’ve learned from how to actually make money in equities. And you’re taking those same technical tools and translating them to Bitcoin, because it’s a price.
JC Parets, CMT
1:06:05
It’s all it is. So what are we looking at, we’re looking at support and resistance, we’re looking at breath, we’re looking at relative strength, right? So Bitcoins, nowhere near the new highs, but waves and Luna and APECOIN are breaking out to new highs. So the relative strength is there, you have different sectors. So you’ve got like your DeFi protocols, you got your exchanges. So you’ve got like different sectors within crypto in the same way that you’ve got financials and healthcare and utilities in the stock market, right? It’s no different, you have your different groups. And then you know, when relative strength is popping up, like it’s comes out on the scans, just like they would in row stock scan, right, it’s no different. And then one thing that I would say that really adds a new layer of analysis that I’ve never done before, and nobody ever has either, is all of the on-chain analytics, we don’t have the transparency that we have in crypto in some of those other asset classes. I wish we did like in the bond market, you got to trust that they’re not lying to you and that the auditor is not full of it. And what do we know about both of those things? Like you have to trust that their balance sheet is what they say it is. And we’re old enough to know that a lot of times it ain’t right in crypto, you know, when you’re staking in a stability pool, you know, to the penny, how much what percentage of the pool you represent. In other words, what is the balance sheet look like you see it in real-time. Not to mention, you see all of the transactions, so we track the transactions in different wallets. So you can see what the whales are doing that own more than 10,000 You know, 1000 to 10,000 Bitcoin in their wallets. You can see what they’re doing versus the shrimp that have less than one Bitcoin. And then you have the crowds and the octopus and the dolphin, right? There’s different levels in terms of the size. So what does that remind you of it reminds me of commercial hedgers versus speculators. It reminds me of the odd-lot trades from back in the 70s. You know, it’s very similar themes. And it’s all comes down to human behavior. We’re just calling it different things. But it’s the same thing. You know, it’s like, you know, stability pool. Oh, like a market maker. Yeah, I know what those are. Right, you know.
David Lundgren, CMT, CFA
1:08:12
Okay. That was great. JC thank you for that explanation. I was really Yeah, that was really fantastic.
Tyler Wood
1:08:19
I wanted to ask, in your opinion, is there a major difference trading within the cryptocurrency space because of the volatility? Do you think about charts with maybe maybe looking at them on a little longer time horizon? Do you think about using a thicker cram for your Trend Lines, so that you’re not stopped out so quickly? I mean, any words of wisdom in terms of the difference in volatility of this asset class versus others?
JC Parets, CMT
1:08:42
Yeah. So I think that you need to adjust for time. So the stock market trades on average, 31 and a half hours per day, right on a week, excuse me, 31 and a half hours per week, right? You’re about to end something but when you smooth it out with all the holidays and stuff, it works out to 31 and a half hours per week in the stock market in crypto trades 168 hours per week. So you really have to adjust for time. So what we do is, or our what would be the equivalent to weekly charts in the stock market is really the daily charts in crypto. And what will be the daily charts in the stock market is really the four-hour charts in crypto. So we’re looking at four-hour charts in crypto to get the equivalent data of the daily charts in the stock market. So I think that that that time adjusted analysis, I think is important. And then one other thing that I’d add you guys have known me for a long time. No, I’m always talking about monthly candles. It’s like my favorite thing to do is look at monthly charts, monthly candles and then with the ratios I use monthly lines, right? boy does it bring you back home, you know, like those who are into yoga, like you know how like when you start thinking about stuff like you have to like focus on your breathing like bring it back home. Those are the monthly charts brings you back to the primary trends and it’s like, oh, yeah, that’s been going up for a while. Yeah, yeah. That’s right. And it’s so easy to get caught up in the noise. I gotta tell you weekly charts in crypto, you want to keep your sanity look at weekly charts in crypto is a good way to really zoom out in the same way that monthly charts are great for stocks and you know all the other asset classes.
David Lundgren, CMT, CFA
1:10:16
And just to be clear, when you say weekly charts and crypto you literally mean weekly chart, or do you mean the daily as you as you described it earlier,
JC Parets, CMT
1:10:22
literally weekly, right? Yeah, to really, I mean, granted, cryptocurrencies, you’re gonna get like two bars, but like, you know, there’s, by the way, in the same way than the stock market, you have new IPOs, you’ve got SPACs Right. So we try to keep tabs on all the new issues and stuff like that. It’s no different in crypto
David Lundgren, CMT, CFA
1:10:41
You know, a crypto index that’s, you know, well known and followed out there. What do you guys have one yourselves or?
JC Parets, CMT
1:10:47
Yeah, we built so we have like a top 5 and a top 10, you know, index like by market cap that we equally wait. So we do that stuff. And it really, it really does help we do a lot of relative strength analysis, I would say, if anything, David that I have translated from traditional assets into new digital assets, that has been the most helpful of anything that I’ve moved over relative strength, relative strength, crypto is real. When you’re seeing all these Cryptos selling off, and there’s a few of them that are green, there’s some funky going on there. And when all the Cryptos are off, and there’s a few that are down like you stay away from those, you know what I mean? Like, relative strength, guys, I’m telling you
David Lundgren, CMT, CFA
1:11:29
when you said relative strength, most of us or some of us might think that relative performance line between you know, Google and the S&P, so it’s Google compared to the S&P, do you do that type of work? And I’m curious if you do that, do you just compare crypto to crypto? Or do you actually have an index that you would compare a crypto to that crypto index?
JC Parets, CMT
1:11:46
Yep, so we do all of the above. So we’ll compare the different cryptocurrencies to Bitcoin, we’ll use Bitcoin as the denominator like we would the S&P 500, for example, create equally weighted indexes that will compare the crypto to those equally weighted indexes. And we’ll take it a step further. And we create and they already have a few that exists, but we create our own indexes, that it’s like an equally weighted DeFi protocol index, an equally weighted exchange index, and then we can compare, you know, the exchange to be basket of exchanges, if you will, in the same way that you would be doing like Bank of America versus financials ratio, right.
David Lundgren, CMT, CFA
1:12:24
Good stuff. Tyler, anything you’re in, this has been fantastic.
Tyler Wood
1:12:28
You promised us before we hit the record button that your secret to success is being the dumbest guy in the room. So I think you got a topic on Carlos. You just school, David, I
JJC Parets, CMT
1:12:40
You guys know everything I’m talking about, like, I’m not reinventing the wheel here.
Tyler Wood
1:12:44
No, no, you’re exactly right. History doesn’t always repeat. But it rhymes and nothing different about this asset class than any of the others. JC I want to close a little bit just in thinking about you as a business owner and manager in the sense that a lot of our listeners are really focused on their own portfolio and their process and their sort of, you know, sole contributors are independent athletes, but you’ve built All Star charts to have a whole team. And now you know, you’re running a company and you’re managing other people. And you’re you’ve got all these client relationships. How much does that take you away from the charting and the market themselves? You said, you hate accounting, but I got to imagine you have to pay attention to some of those things when you when you run a business.
JC Parets, CMT
1:13:26
I hate it so much, Tyler, I hate it so much. There is no there are a few things in this world that I have as much of a passionate hatred for accounting, I hated so much. Fortunately for me, I have Danny Jassy, shout out spider Crusher. Danny is like he loves spreadsheets. I hate em. Match made in heaven. And the more business I do, the more spreadsheets he gets. So great. And I would also say having a good team around you is really, really important. You know, I’m getting you know, reports every single day on different asset classes, workbooks with hundreds, if not 1000s of charts, whether it’s breath, or commodities, or currencies. And I could flip right through those. And I can make changes, hey, change that add this chart, take that one out, Hey, do a ratio of this versus that. And they’re on and you know, I could spend all day building some breath algorithm or I could be like, Yo, Grant, I need this. And then with this percentage of this moving average, you know, and there’s no one and for those of us who have been through multiple cycles, there’s no like, magic breath indicator or magic like thrust indicator. Like you have to think about what market environment we’re in and what information you want to visualize. So then tell grant like Grant, I want it like this, because of this, which is way different than how it was two years ago, or whatever. You know, for example, like the 2018 high was a key pivot high in a lot of countries and a lot of stocks. So over the years, we’ve done scans that pivot to those highs. So prior to that, we never did that because those highs didn’t exist yet. So that’s just a good example of anchoring to certain dates or anchoring to certain price points or whatever, that’s the secret. The secret is have a good team that you trust around you shout out Steve Stresa in Cali, you know,
Willie Delwiche Sean McLaughlin, Rashmi Shastry I mean,
Louis Sykes, you know, we got a crew, we got a crew Jean Carlo on the whole team. I mean, it’s a beautiful thing. Alfonso Alfonso is coming to DC next month.
Tyler Wood
1:15:25
We’re gonna meet our charts in person. I can’t wait. I can’t wait. JC this has been such a fantastic interview. I really appreciate you know, all of the work that you have done on behalf of the whole technical community, not just for All Star charts in the crew that you’ve built, but for all of us in terms of making sure that the rest of the industry understands what professional technical analysts do. I’m looking forward to our next conversation. Next one’s going to be not in this virtual environment but face to face at the symposium cold drinks in hand maybe a Chablis you know
David Lundgren, CMT, CFA
1:15:57
that you pick
JC Parets, CMT
We get antsy when drinking Chablis?
TW
Tyler Wood
1:16:01
Depends on what case you’re gonna bring. I’m rocking up with those $9 Vineyard verdeis what I heard earlier in this conversation,
JC Parets, CMT
1:16:06
Bro. You know that burgundy that’ll getcha.
Tyler Wood
1:16:12
That’ll getcha. I want you to take care of the family, the wife new baby, enjoy. And congratulations on all the success JC it’s been fantastic.
JC Parets, CMT
1:16:20
Tyler and David, thank you very much, man. It’s quite an honor.
David Lundgren, CMT, CFA
1:16:22
We’ll see you in Washington.
JC Parets, CMT
1:16:25
All right, adios.
Tyler Wood
1:16:30
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