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Renowned technical analyst Katie Stockton, CMT is Founder and Managing Partner of Fairlead Strategies, LLC, an independent research firm. Additionally this year, she became lead portfolio manager of the Fairlead Tactical Sector ETF – $TACK. Her conservative and unbiased approach to markets has helped clients navigate volatility for 25 years and she has now translated that discipline into an investable strategy. This month’s interview was really a masterclass in how to responsibly analyze markets – top down, multi-timeframes, quantifiable measures, bottom-up corroboration on sectors and individual securities all in a repeatable process. Dynamite takeaways for our listeners in every role of the investment industry.
This month’s conversation takes listeners on a journey across three sets of market indicators: trend following, mean reverting and market internals. With each measure there is exact science in the computations of market statistics, but also nuance in how to interpret their message in the context of multiple timeframes and larger market regime shifts. Beyond the commonly used technical tools, Katie also employs ichimoku clouds and the TD Sequential and TD Combo tools from highly decorated market timer, Tom DeMark. Listeners will understand the use of these and many other tools in the context of Katie’s systematic approach to analysis and money management.
- Whitepaper: The Impact of Sector and Market Variance on Individual Equity Variance
- Jason Perl’s Book: https://www.amazon.com/DeMark-Indicators-Bloomberg-Market-Essentials/dp/1576603148
- Tom Demark’s site: https://demark.com/
- CHARTPACK: S&P 500, sector relative strength, TNX, DXY, BTCUSD across multiple timeframes
Tyler Wood 0:13
Welcome to Fill The Gap, the official podcast series of the CMT Association hosted 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 filled 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 refined the discipline of Technical Marketing.
Good afternoon, Dave Lundgren and welcome to Episode 19 of Fill The Gap the official podcast of the CMT Association. This month, our special guest is Katie Stockton, CMT. She is the founder and Managing Partner of Fairlead Strategies LLC, and also the lead Portfolio Manager on the Fairlead tactical sector ETF ticker symbol TACK. Dave, how you doing today?
David Lundgren, CMT, CFA 1:35
I’m doing excellent. Tyler, it’s great to see you. And another. Another great guest on the on the podcast, somebody that I’ve known for over a decade followed her work consistently through my time at Wellington, of course. And what I was really happy to hear about was was her as you just mentioned, managing a new ETF, which is, which is really great to see somebody in a technical community getting their hands on the wheels of money management and experiencing that a little bit differently. And but we’ll have more to talk about on that. But I just I think the idea that we’ve got yet another technician in the world, managing money is a great thing.
Tyler Wood 2:13
Absolutely. You know, when I first joined the CMT Association over a decade ago, Katie was the vice president of our global board of directors. And she, you know, she’s just one of the best of us in the sense that she’s got a really responsible, robust approach to technical analysis, taking a look top down, using a number of quantifiable technical indicators to get a reading on what market price is doing. But she also gives back to the community in just tremendous ways. She has always been a first call for CMT conferences, events, she gives her time, very generously to students in our academic partner program, and lots and lots of activity that she was engaged in as, as the vice president of our board of directors. So Dave, from our conversation that certainly went over time, I think we kept Katie right into the last second in her schedule, what were some of the key standouts for you this month,
David Lundgren, CMT, CFA 3:07
but you hit on one already, just just the comprehensive nature and the systematic nature of a process, very similar to mine in the sense that it’s both top down looking at broader indices looking for messages there, but also cooperating them from the bottom up in looking at how the individual stocks screen through the very same process to make sure that they’re in agreement with each other, but then to turn around and do that on multiple timeframes to make sure that you have proper context of whatever daily signals you might get. So when you have a daily signal that, you know, all odds being equal, there’s a buy signal, that buy signal on the daily chart can mean something very different when you’re in a bullish configuration on a monthly chart versus a bearish configuration on the monthly chart and not having that proper context of the multiple timeframes is, is a big sort of undoing of many technicians. And so obviously, Katie’s all over that. And then I also along the lines of systematic, her process is very repeatable, which I think she stresses time and again, is intended to to remove the bias and the emotions out of the process. But what I really liked about her processes on the one hand, it’s very simple and straightforward in the sense that it’s driven by known indicators with known formulas, MACD or moving average convergence, divergence, stochastics and things like that, which are very simple indicators very repeatable, etc. And they’re very, very powerful. But then she also leans heavily on the less well known inputs like the Ichimoku clouds, which I can barely say, let alone use but she’s an expert at it. But then also the Tom DeMark indicates suite of indicators, which I do know a fair amount about. Having followed her work, as well as having known Jason Perl, who’s probably a noted expert on the buy side, in the DeMark arena, having written a book about DeMark indicators, etc. So I’m a big fan of it. And what I do like about it is that it’s very process oriented and very repeatable and very systematic. So, Katie has found a way to take these very complex indicators and very simple indicators and help her sort of develop this systematic process across multiple timeframes, bottom up, top down, etc, and just put together a really cohesive research process for our clients.
Tyler Wood 5:20
Absolutely. Dave, you know, I hear from folks in the, you know, in the industry who might use a few moving averages on their charts, they, they’ve picked up some technical analysis early in their career on a trading desk or as an associate analyst. But I think Katie demonstrates just the level of rigor and depth. She is not a hobbyist. This is a person who had a very clear direction from very early in her life with some great mentors that she mentioned in this interview. But I think for you know, key takeaway for all of our listeners is just how broad and deep that discipline of technical analysis is, and that you know, used incorrectly indicators can can just add confusion, and certainly you don’t rely on anyone, nor do you go down the rabbit hole looking for that silver bullet that’s going to solve all all market regimes. And I think Katie has a really responsible, as you said, repeatable approach. That’s, that’s got a lot of great takeaways for our listener. So without any further ado, let’s bring on Katie Stockton CMT for the July episode of Fill The Gap. 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 at optuma.com.
David Lundgren, CMT, CFA 6:57
Welcome to Episode 19 of Fill The Gap, the official podcast of the CMT Association. This month, we are really looking forward to our conversation with Katie Stockton. She’s the founder and Managing Partner of fairlead strategies and of course, Katie is a CMT charter holder. Prior to forming Fairleads strategies. Katie’s was Katie was Chief Technical strategist for BTIG, and chief market technician at MKM partners. Plus she had stints at Morgan Stanley as well as with Soundview. For several years she has been honored by the technical analyst, a UK based publication, including an award in 2022 for best cryptocurrency research. What I’m most excited to talk about with Katie today is her recent launch of the fairlead tactical ETF tactical strategies ETF we’ll dut this out sorry about that. What I’m most excited to talk about, let me try that again. But I think I actually want the sentence in a mumbo jumbo here
I can do this.
Katie Stockton, CMT 8:13
You got this Dave. Okay.
David Lundgren, CMT, CFA 8:18
What I’m most excited to talk with Katie about is her recent launch of the Fairlead Tactical ETF symbol TACK or TACK. So without further ado, let’s get into this conversation with Katie Stockton, Katie, welcome to Fill The Gap.
Katie Stockton, CMT 8:32
Thanks so much, Dave. I really appreciate it. I’ve been listening to the podcasts all along and you guys are doing a great thing.
David Lundgren, CMT, CFA 8:39
Thanks so much. We’ve been we’ve been really enjoying our conversations. And to the extent that this is a good podcast at all, it is absolutely because of our guests. So thanks for taking your time out of your busy schedule to be with us today. We definitely appreciate it. I think for our listeners, why don’t we just get started with a brief discussion on your background? What got you into the markets. And then of course, because of our audience might be helpful and interesting to learn about that juncture in your career where you decided to really lean technically, as opposed to fundamentally what got you to technicals?
Katie Stockton, CMT 9:11
Yeah, you know, so I started at a pretty early age. And it wasn’t because of a passion for the markets, I would say it was more of a passion for math. So revealing myself as a bit of a math nerd here. And so I went to University of Richmond. And you’ve probably heard and know that Richmond has technical analysis coursework, which is pretty unusual, more unusual than that it is now, but it was a great offering for someone like myself who had that kind of way of thinking the way of approaching finance. So I was a finance major. I went to the undergraduate business school at Richmond, and I found just more you know, I really enjoyed the courses that were more mathy and more numbers oriented a little bit less, sort of qualitative. And that’s where I just found that I excelled. And then I got wind of this technical analysis course, which was at that time at the graduate level. So I did audit that course, and really found a passion for it through that course, which, thankfully brought in some of the best, including Ralph Acampora. And, of course, Ralph, it was a very dynamic speaker, and especially at a young age can be incredibly, it’s very strong, and he stood in front of our classroom. And mind you, these are finance 101 types of folks here. And he took the Wall Street Journal, and he ripped it in half. And it’s very controversial. And he said, you don’t need this anymore. And of course, he had our attention and brought us through some of the, I’d say fundamentals of technical analysis, and I was really inspired by him. But then on top of that, I had the pleasure of having an internship at Dorsey Wright and Associates. So it’s almost like my career was sort of predetermined in my junior year of college, and that I had the exposure, and then also had a proper day job doing technical analysis for Tom Dorsey. I was hand charting point and figure charts, you know, keeping keeping the books up to date at a time when they they didn’t have the same software that we do now. And with that, I was exposed to not only point and figure charts and the discipline, but just really the industry as a whole. And I got myself a great mentor and Tom Dorsey and his peers. So it was really an outstanding opportunity at a young age to pursue technical analysis. I remember telling my friends what I was going to be doing for a living and, and they just said, I have no idea what you’re saying. But But congratulations. And the reason that I had wind of Dorsey Wright, was that I had an internship at Paine Webber at the time and one of the investment advisors had on his desk at some point and figure charts and again, visually very interesting with the X’s and O’s. And that’s how I got wind of the local firm, being Dorsey Wright. So we’re really, really very fortuitous and how it came about. I was with my first job out of college, I worked for a firm called McCullough Anderson Cappiello. If you recall, the capital and Frank Cappiello was one of the Wall Street elfs. And so he was a little technically inclined working with folks like Gail Dudack. And so he was inspired by technicals as were his partners, and they were a client of Dorsey Wright. So so that’s where it all began. And, of course, over my career, I’ve done technical analysis in different capacities. But But thankfully, I received the CMT designation pretty early in my career, and that’s helped me navigate it, but also, you know, build my network. And it gave me an education above and beyond the point figure charts that I that I brought to my first job. So sort of, I guess, expanded my horizons in a way and now that the discipline that I hold is completely different than what I did at the start. But I’ve had the great pleasure of working with some fantastic mentors along the way, and really have benefited from the educational content from the CMT Association and the designation which, to me that, you know, to publish technical research, you know, it’s a requirement to me to have a CMT. Personally, I feel that that gives you the credibility and to, you know, go out there and say, I’m an expert in this subject. So that’s how it all began. And I think, Tyler, maybe you can confirm this or otherwise, but at the time, in 2002, I was the youngest female to receive my CMT at that time. So that I was pretty proud of that. And it was, you know, helped by the fact that when I graduated Richmond, I had already started with that CMT one designation.
Tyler Wood 14:04
Yeah, I’ve heard this story from Ralph, I can pour about John Earl coming up from the Robins School of Business, meeting with some of the folks on Wall Street and finding out that there was this whole set of tools that they weren’t teaching in colleges and universities and he had the foresight to know that that would differentiate his graduates helped them bring a different kind of viewpoint and skill set. And I think University of Richmond was the very first academic partner of what is now the CMT Association.
Katie Stockton, CMT 14:32
Is that right? Yeah, no, it was great. And I just remember my advisor, Dr. Jerry Stevens, he was completely fundamental in his orientation. And because he was my advisor, we became very close. And I kind of feel like I converted him. He now really pays attention to technical analysis and of course, still has his fundamental, you know, foundation to what he’s doing but um, he was enlightened to it over the years helped by Dr. Earl as well. And now, like you said, they’re, they’re bringing a new skill set to a younger audience, which I think is just invaluable. And, and as you guys are well aware, you need to have the price based analysis and an understanding of market psychology. It’s absolutely essential. It’s not one or the other, it needs to be both.
David Lundgren, CMT, CFA 15:24
Right, that’s really well said, and, you know, it’s so many folks that have been on on the podcast as guests, it’s incredible how many of them have actually had Ralph Acampora as an early sort of lead into technical analysis. And I mean, when once you speak to Ralph, it’s particularly if it’s your first time, if it’s your first exposure to technicals, you know, Ralph has an incredible gateway, not just the technicals, but of course, the CMT Association and whatnot. So here’s yet another example of Ralph, you know, leading the way for yet another, what turned out to be a star in the technical community. So that’s wonderful. And of course, Tom Dorsey is, is also one, I mean, just to have those two folks as your as your early on mentors in the business, what a great fortune for you on that, in that regard. So Katie is you know, I’ve been following your research for 15 years or so. And what I’ve always loved about your research is that you, you don’t get too deep into the, you know, there’s so many different tools that we can use, and you really keep it simple, on the one hand, but on the other hand, you’ve chosen a couple of really, sort of off the radar type tools to use as well, which, of course, is the DeMark indicator, as well as the I think this is properly pronounced Ichimoku. Is that correct?
Katie Stockton, CMT 16:41
Or not? I’m the wrong person to ask.
David Lundgren, CMT, CFA 16:44
So I mean, to the extent that I look at that, that form of analysis, the Ichimoku at all, it’s because of what I’ve learned about it from you, and how I’ve seen you make some great calls with it over the years. So let’s, let’s take a moment. And just from a very high level, let’s talk about your process. What tools do you use? And how did you settle on those tools versus the plethora of tools that exist in the technical community?
Katie Stockton, CMT 17:06
Yeah, and I don’t think I was intentional on how I created my methodology, it really just kind of unfolded over the years and things that kind of resonate with the way that you think, are ultimately what what are going to be right for you. That’s that’s how I think about it. And I really believe in approaching the equity market, at least from a top down perspective, because what I think Tom Dorsey had said, and forgive me if I misquote, but he had said something to the effect of, well, 70% of the move in any given stock is driven by that stock sector in the broader market. And while we can’t really quantify that, I do believe that something close to that is the case, because especially in this type of environment, where we have a bear market at hand, you don’t just notice that no stock is left unturned by this kind of weakness, and there’s really no place to hide. So I think to have a top down approach is incredibly important, at least as it pertains to the US equity market. And so that that’s something that we do adhere to. But with that, we also do what we call a lot of bottom up work. So not bottom up fundamental, we leave that to those experts, but rather bottom up by looking at a lot of individual stock charts. And we do that for a couple of reasons. One, to generate ideas, but to to make sure that our top down analysis is supported about by what we’re seeing among the individual stocks in terms of their setup. And as you alluded to Dave, we are attuned to technical indicators, I know that not every technician is really adherent to indicators. But going back to that kind of mathy approach to things, I love anything that can take some of the gray area out of out of price trend. So you know, tell me, does it have positive momentum? Does it have negative momentum? Is it overbought? Is it oversold? And I want to know that from a mathematical perspective, because that takes my guesswork out of it. Just like anyone else. We’re all we’re all human. And we all have our biases. And it at least removes that to some degree. And what I found is that where you have success in using technical analysis, is it really in adhering to a discipline and I guess that’s the case for a lot of things. But coming back to the same tools, knowing that those tools, none of which are perfect, can give you information that taken together can help you shape a market view. So it’s really in how we combine the indicators that we feel like we get takeaways that are beneficial to our investing process. So we think about the technical indicators as being classified three ways first would be trend following or momentum and the second would be overbought, oversold and third would be relative strength. So those are our primary goals is to have an understanding of those kind of three categories. And we do that also in part through identification of support and resistance levels. And we get asked all the time, what are the key levels, and we always have those in mind. But we’re having those in mind with always an eye toward the technical indicators as well, because the support level, let’s say, for the s&p 500, well, we can have a sense of whether that support level is at risk of being broken based on the posture of our momentum gauges or overbought, oversold gauges. So we can’t look at any of these things in a vacuum. It’s really in how we combine the indicators with each other and also with identification of that support and resistance. The third piece, which is is somewhat as an aside would be the market internal measures that we use, we use them often, but but really pay most attention when they’re at extremes. So we find that the market internals which are a great reflection of of market psychology at times, they will give us a sense of when something’s over done. Of course, they’re not always at extremes is sometimes we really aren’t paying much attention to them. We’re just tracking them on a daily basis. But but there are times like now when we’re seeing some pretty interesting extremes.
David Lundgren, CMT, CFA 21:11
So that you’re referring to like breath and things like that. hit new highs and new lows and percentage of stocks above and below moving averages and things like that.
Katie Stockton, CMT 21:20
Exactly. Yeah, exactly. So Brett, we call it breath, leadership, sentiment and volume. And we notice we categorize volume there, because we’re looking at volume more in aggregate than we are on the individual stock level in our work. We found that over the years that the volume trends on the individual stock level weren’t quite as helpful as what they were in the early part of our career. So that kind of fell off of our radar as an indicator.
David Lundgren, CMT, CFA 21:43
And how about sentiment? I know you just briefly mentioned that there. But how do you use sentiment?
Katie Stockton, CMT 21:48
You know, what I love about sentiment is when you can find a transactional gauge, like the volatility index or VIX, you know, there’s a lot of tools out there that help you understand how people are positioned not just how they’re feeling. And those are the ones that I give more weight to. But I also pay attention to the investor polls. And I love the fear and greed index just as an aggregated view of market sentiment. So there are some neat tools out there. There’s even a fear and greed index for cryptocurrencies that we’re keeping an eye on it. It’s been oversold since inception. So let’s see if that starts to add value.
David Lundgren, CMT, CFA 22:24
Interesting. So I noticed you got you got your start using point and figure but it seems like maybe you don’t use point and finger as much today Is that intentional, or maybe you do use it, you just haven’t mentioned it or
Katie Stockton, CMT 22:37
I don’t use it and and yet, it wasn’t really intentional, as I’ll be honest with you, it was really more from a marketing perspective, it was difficult to sit in front of a new client, and say, here’s these X’s and O’s, and here’s why they’re meaningful. And so I really believe in the discipline. But it was a really difficult thing, especially at a young age to impart you know, in those kinds of conversations from more of like a sales perspective. So I think it was really that that got me away from it. Not you know it really by my choice necessarily, but then I worked under Mike Hurley for one who was was using you know, the the bar charts and trend lines, and I really found some value, especially when the Point and Figure charts that I used would always have a 45 degree angle that’s a trendline and I just found like that wasn’t quite accurate for the the market environment that I was trying to navigate at the time which of course the dotcom bubble so we need more and more 90 degree angles. So we found that for risk management purposes also that the the tools that are were a little bit more refined, like the moving averages were really essential.
David Lundgren, CMT, CFA 23:50
Tyler Wood 23:51
Katie just mentioned within the segments have indicators that you follow trend you follow overbought and oversold or what maybe I would call a mean reversion reminds me a lot of Dow Theory and multiple timeframes looking for mean reverting secondary period to the primary trend. Do you look at charts across multiple timeframes, particularly as you start from the top down?
Katie Stockton, CMT 24:13
Yeah, I love it. In fact, you know, I’d never be able to give a short term bias without knowing what the long term biases so I like when we say multiple timeframes, it makes it sound fancier than it is all it means to me is that we have a monthly bar chart, a weekly bar chart and a daily bar chart up on our screens at all time. And we really do have an eye towards all those timeframes using the same indicators across those timeframes. And we feel that that gives us a good sense of the prevailing long term, intermediate term and short term trend and for our conversations with our clients is some are very long term in their orientation. And I’ll actually try to ignore some of the shorter term work that we’re doing because you could consider some of it to be noise where we have indicators that will give you a sense of what to do next. Two weeks look like, but they don’t care about the next two weeks, they really just want to know. Okay, well, am I positioned correctly for the next two years? Well, that’s a different kind of conversation. So we do consider who we’re talking to, and how we’re sort of imparting that, that analysis. We’re not Dow theorists. But I think that there’s value in every discipline out there, Elliott, wave, you name it, because I think it’s all in how you employ it. Is it? Is it been employed systematically? Well, then it’s probably helpful.
David Lundgren, CMT, CFA 25:30
Mm hmm. Can you talk a little bit about how if you’re if you’re following both trend following measures, as well as mean reverting measures how you combine those two and you know, by almost by definition, at least half the time, they’ll be in contradiction with each other. And speaking of course of overbought uptrends, which is when they’re in conflict with one another versus oversold uptrend, which is where they, they both signal basically the same thing to buy. So one is telling you to buy, the other is telling you to buy no problem, but one one is telling you to buy say an uptrend. And the other is an overbought reading. How do you balance those two?
Katie Stockton, CMT 26:08
Yeah, I think that’s the art of it. And it actually does draw us kind of back to the multiple timeframes question in that we find a lot of value in looking at, let’s say, the long term trend, and then using the mean reverting information for a short term bias within that context to see if we have a good entry. Let’s say usually, we’re thinking about bull markets long term uptrends. And we’re looking for oversold entries within that context. So let’s say on a monthly that bar chart, all of our indicators were pointing higher. And then we saw a corrective phase. And that corrective phase yielded a counter trend DeMark signal or something of that nature. Well, that’s going to be a great heads up. So even though they’re somewhat contradictory, it’s over different timeframes that you can get a lot of information from them. We do publish a report that has we aggregate some data for the stochastic oscillator, which is an overbought oversold measure for the MACD indicator and for the demark indicators. And you’re right, Dave, it’s often completely contradictory. And it’s hard for me to say, well, yes, this is on a buy signal, this is on a sell signal. But here’s why it’s it, we see it as more just imparting information that can be helpful. And what where we get the most information from those indicators is when they’re changing, right, so when you actually see new crossovers in the MACD, these new upturn is in the Stochastics, that type of thing, that those will give us information and lead us to pull up the chart, which is then sort of a requirement that that kind of visual element to what we do, and it’s with that visual element that we’re able to, I guess, determine how much we’re giving, or how much weight we’re giving to each of those indicators. And I’d say most often, and this is with some nuances, that it’s derived from the prevailing long term trend, that that’s how we’re kind of deciding how to wait them. It’s not a scientific process, necessarily, but if we have, let’s say, a strongly downtrending security, and it has downside momentum, well, we’re going to be less inclined to take those oversold, buy signals, you know, as face value, we probably, you know, make sure that there’s some kind of incremental improvement otherwise, or make sure that there is support nearby. So we do really let those kind of longer term indicators set the tone for the rest.
David Lundgren, CMT, CFA 28:34
So I have actually two copies of Jason Perl’s book on demark, indicators, the whole suite of indicators, and, and I feel where you’re probably the most noted, technician of the day who uses and leans heavily on demark. So I can’t have this conversation with you, without taking the opportunity to have have the expert give a very simplified explanation of what the heck the mark indicators are, and why you use them and how they’re best used.
Katie Stockton, CMT 29:05
Well, first I will I will give kudos to Tom Demark himself who actually just did a talk for for my clients, which was just incredible. I mean it to be able to access him and his genius, which is what I would accurately call it. I mean, he has created this suite of indicators of which I think there’s you know, probably probably 50 That that we know of probably far more that we don’t know of you know, he’s he’s found ways to identify a counter trend signals and trend exhaustion, that to me are unmatched. So we’ve had some good success using his indicators over the year we we over over our career, we do feel that there’s always benefit in cross referencing signals that we derived from the demark indicators with other tools, same tools that we mentioned, the momentum gauges, the support and resistance levels. That’s where we feel like we have the most success and for For the indicators that we use, they’re called TD sequential and TD combo. And the two, I’d call almost base level indicators that they produce, and they are really the most popular as well. And their design is to understand when an inflection point may be underway for a trend, and you can apply them over different timeframes. And we find that that a lot of times, they’ll be right on the pivot point. And I mean, we just don’t have other indicators that do that. So we welcome that kind of indication. Even if it’s not perfect, no indicator is perfect. It gives you a sense of when something might be exhausting itself, there is a foundation in a lot of his indicators, including these in the Fibonacci sequence. So he’s, I mean, very mathy himself, and that manifests itself and the way they’re constructed. But suffice it to say that, that he’s typically looking at an open high, low, close on a price bar and comparing it to a historical one. And if it meets various qualifiers that he’s deemed to be important by back testing and building these formulas, you know, that then it will be assigned a number, and, and so on. It’s like, as these numbers reach these culmination, like, at these inflection points, that’s where we get the information from the indicator. So it feels like it’s almost doing its work for us, especially now that we have the software to be able to see them in real time. That, you know, when when the signals pop up, we can react accordingly. It’s for us,
David Lundgren, CMT, CFA 31:38
then the numbers as they are assigned. I think one of the one of the misconceptions is that it’s it’s a process that’s constantly telling, trying to tell you that the trend is over, when what I think I learned from from Jason Perl over I think you still at UBS is that this idea that when when the numbers start, start to first get a sign that’s actually telling you that trend is underway. So it’s actually telling you that a trend has begun. And that it’s because you’re counting down to 13. For example, for example, the fact that you’re now at one indicates that there’s a lot of time left in the trend before it is at risk of reversal. That’s when you get to 13 you have to worry about it.
Katie Stockton, CMT 32:10
It’s it’s a great point, because that also in a way gives you a sense, it doesn’t tell you when the pivot point is going or I’m sorry, where the pivot point is going to happen. But it gives you a sense of when it might happen in terms of timeframe. So so we do pay attention not only to those, the when the signals culminate in, you know, the Thirteen’s where the nines for those that know it. But also, you know, how many bars do we need to get to those those triggers? And it’s imperfect, as as, you know, I guess an approach, but it does give us a great sense of of okay, well, you know, the soonest we could get the signal is, say, in four months, well, you know, four months out, the stochastics will probably look better, too. And you know, we’ll have some support in line. So it just becomes sort of a piece of the puzzle, if you will. And, you know, at the end of the day, we’re not trying to be ultra predictive in what we’re doing. But just trying to stay on the right side of the prevailing trends over whatever time frame is been in question. So the demark indicators definitely help us do that.
David Lundgren, CMT, CFA 33:18
Yeah, and one of the phrases that you’ve used several times so far in our conversation is systematic, which I really appreciate because I also heavily lean that way although I’m discretionary my investing the research process is highly systematic. And of course, there’s probably no other process that’s more systematic than than demark there is one one of the one of his indicators that was that I really enjoyed it. And again, I really learned a lot from Jason Peral on this was was the the mark wave, which is for those that don’t know it, it’s it’s, it’s the marks version or interpretation of Elliott wave, which, which is why I loved it, because it was it was Elliott wave, which I I’ve read that book a million times, just because I really thoroughly enjoy reading, I just think it’s a fascinating book. But I would, I would commit financial suicide if I tried to use Elliott Wave just because there’s just too much vague interpretation, in my view. But what what Tom demark was able to do with with the demark wave was to really truly systematize it into waves, waves of five in, in corrective waves of ABCs. As as it’s known, and I’m curious if you use it at all, or if you do any, because I don’t seem to recall you talking to too much about us. Maybe you do use it, but don’t mention it or
Katie Stockton, CMT 34:33
I respect it. I think it’s the same way. I mean, what I was always terrible at identifying the the waves are in a three but it could be a five. So so, you know, when we were able to access the D wave, I guess they call it and I just found that to be such a gift because it would just assign these numbers and ABCs for you. And again, it’s not not always perfect, but it can give you a sense of systematically, like what the readout should be. And I think that’s invaluable. We don’t use it, because it’s just not part of our process, not because it doesn’t have value. But I think it’s fascinating. And I understand it to be one of his more popular tools as well.
David Lundgren, CMT, CFA 35:18
Yeah, yeah, I really, I really enjoyed using it.
Tyler Wood 35:21
So as we’re going through all of these indicators, I mean, it sounds to me, Katie, like the process has evolved over the last few decades. Do you? Are you on the lookout for new indicators? Do you read the new literature all the time? And are you open to adding more things to your process? Or I guess the the follow up question is, when do you decide to let go of something that you have been using?
Katie Stockton, CMT 35:45
Yeah, you know, my efforts to that end, I think the last thing I vetted was called the Rex oscillator, or something like this. And that was years ago. And I just, you know, I tried, I tried to incorporate it and use it and I just found, I wasn’t able to incorporate it to the degree with which it would have been helpful. Because I was so set in my ways with my methodology right or wrong. I think the search for like the Holy Grail of indicators is somewhat futile, because I don’t think it’s out there. So rather than spending a lot of time looking for new tools, I really do rely on the tools that we have at our disposal already, at some of the very popular tools like the MACD indicator, or moving average convergence, divergence indicator, these tools have been around since technical analysis has been around pretty much and I find that that they can collectively add value if they’re used in a systematic fashion or with a methodology. And I think that that brings me to like, my, my observation is that folks that you know, down technical analysis, it’s often because they’re almost consuming, you know, one offs, like they’re, they’re saying, Okay, well, this technician said this, this technician said this, while they were wrong there, you know, that so it means it doesn’t work. That that’s never the case. It’s it’s in the eye of the beholder, whether it works or not. But the technicals don’t lie. I mean, it’s, it’s really an art interpretation. And where i, where i think that folks would find that they have the most success is in going back to the same chart style and tools, you know, every day, and I always tell people to dedicate a little bit of, of landscape on their laptop to a chart, and right there, they’re starting to approach it more methodically. And because it is so visual, and they don’t feel like they’re really doing anything, but having that same chart up with the same indicators and referring to it every day, that’s a great place to start, as opposed to going and consuming opinion based interpretations on sort of a one off basis, if that makes sense.
Tyler Wood 38:00
Very well said, I’ve heard scores, if not hundreds of folks on financial news outlets so far this year saying, timing the market as a fuel fuels errand, it can’t be done. It’s, you know, and they’re encouraging more buy and hold strategies. How would you respond to that?
Katie Stockton, CMT 38:19
Ouch. You know, listen, buy and hold is probably right for certain extremely long term investors. And, and yet, I can’t do it have because I’m too close to the market. So I feel that it’s really difficult to ignore a 10-20-50% downdraft, you really put yourself at a disadvantage by not responding to a loss of at least long term momentum. And, you know, you’re climbing out of a much deeper hole at that point. And that’s what the buy and hold strategies, you know, they they push into that hole 100% And then you have to climb out of it. So if you were to just manage risk to some degree through that downdraft, the returns would be just better. So I really struggle with just saying buy and hold indefinitely. There are certainly markets in which it’s a good strategy. And there are certainly, you know, investors for which it’s a good strategy, but I’d say as a technician, it’s a really hard thing to do. When volatility picks up.
David Lundgren, CMT, CFA 39:32
Tyler, can I take it? Can I take a shot at answering that? Yeah, please. Absolutely. Dave. So one of the things that I’ve always has always irked me is when you hear people say that you shouldn’t try to time the market to in other words, to avoid digging large holes in your equity. You shouldn’t try to time the market because when you do that you run the risk of missing say, for instance, the 50 best dates of the market here and That’s certainly true. And then those that advocate for market timing will tell you Well, I’m trying to avoid the 50 worst days of the market. And so that’s why I do it. And so neither one of them are telling the whole truth. The truth of the matter is that when you’re trying to market time, and you’re trying to avoid bear markets, the the obvious point is that the 45 of the 50, worst trading days since 1940, have happened in bear markets. But the other side of the coin that nobody tells you is that 45 of the 50 best trading days in the history of the market since 1940, have happened in bear markets. So you know, the whole point of missing the 50 best days as well, you’re okay with that, because you’re you’re missing them in the context of a bear market and to Katie’s point, what you’re trying to do, and it’s an a really important point is you’re trying to dig a smaller hole than the market during these bear markets, so that when things get underway, again, you’re coming out of a, you know, you don’t need a ladder to get out of the hole, you just step out. That’s the whole point. And, you know, the whole point of this podcast is to one shed value on the value of technical analysis, but not just exclusive, but to show how you can bring them together in in, you know, look at 88% of, of actively managed mutual funds, underperform the market, and that’s predominantly run using fundamental analysis. And all we’re advocating for is clearly there’s a, there’s a hole there. And we think that technical analysis as a as a discipline can help backstop a lot of the holes that exist in traditional non risk aware fundamental analysis. And that’s just the point.
Katie Stockton, CMT 41:29
Yeah, and I know that the CMT sort of mantra is to navigate that gap. And I really it to me, that makes a ton of sense, because, unfortunately, good companies don’t always act well. Right. So the stock does not always trade in a manner consistent with the fundamentals of the company. And the technicals can help you navigate that. So so that, to me, is really a major benefit. And to have both components on your side, it just increases your odds of success. And I think that’s what we’re trying to do we want to understand what not only the price trend is, but what are their earnings trends. And if you have both of those things on your side, well, well, that’s going to be a higher probability investment, in my opinion. So I think to have, you know, the foundation and fundamentals, and then the trending sort of inputs from technicals, I think that that’s really the best way to approach things. Because they’re, they’re very complimentary.
David Lundgren, CMT, CFA 42:32
Yeah, absolutely. Better said than that. I think.
Tyler Wood 42:36
If we could switch gears on you just a little bit, Katie, what I looked up was that you started CMT level one in 1997, took the second level of the exam in 1998. Obviously, the markets at that point, in a feverish, bullish bubble, and then you completed the program just after that bubble burst. What did that experience feel like? Where were you working at the time? And do you see any parallels to maybe what we are going through right now, in this post COVID Bubble popping?
Katie Stockton, CMT 43:11
Well, I was in a really good mood when I completed CMT level two, and when I completed all three, I was not in such a good mood
Tyler Wood 43:20
that we wanted to celebrate with you in 2001.
Katie Stockton, CMT 43:24
The reason I was able to complete level three in 2002, is because I was out of work. Yeah, you know, the bubble was was lots of fun, I have to say, you know, I started my career in San Francisco, where it was really felt. And to live through that bubble at such a young age early in my career. I wasn’t that invested. So it didn’t hit me personally, except for the fact that I was laid off, you know, during the downdraft. And that was just part of what was happening all around me. So, so I really felt it in that regard. I first was working for McCullough Anderson Cappiello, as mentioned, and I went to a company called E*Offering, which was at the time the investment bank of E trade. And that company was later bought by with sound views. So that’s how I ended up with sound view. And that’s when I worked with Mike curly, who was a great technician. He approached the markets, like an engineer would approach the markets, which I just loved. It really resonated with me his approach. And he has definitely given me, you know, so much of my methodology that I still use today. But I found that that to understand that things don’t go up all the time that at that stage of my career was really beneficial. And I talked to my analysts who’s sitting near me here that, you know, to live through this bear market cycle so early in his career is actually sort of a good thing as hard as it is and, you know, it makes us much busier than we would be otherwise. It’s actually You’re really healthy, because it helps you to know that the market can go against you. And it can do so for a prolonged period. And with that, you have to be creative in how you’re approaching things. So I actually think it really benefited me over the long run in terms of living through that that cycle. And also humbled me because, you know, there weren’t really any indications of the inverted V top that we had, I mean, we really didn’t have any negative divergences in the tools that I was using at the time. And it was, it was really very upsetting by by the nature of how sharp that reversal was, I remember we, we wrote up a research report, and it was called, no rally for Novell. And people got so upset with us, you know, it just things were just popping and the sentiment was was, you know, turned on a dime, it was really, it was a really hard time in that regard, because people are losing their jobs. But at least we lived through the cycle. And we saw how it came out of it. And it came out of it in a fashion that that wasn’t like the corrective low that we saw around the pandemic bottom, it was very much a baseline phase with a Reese retesting type of process. And that’s often the case, I think after these bear market cycles, it doesn’t end in a V bottom fashion, as it had talked
Tyler Wood 46:27
about the Miller at the Sony conference was sharing very, very candidly some of the mistakes he committed right near the top, but also talked about how important it was to really lean into things that are working. And his first mistake was to not participate in that final parabolic move of the rally, because he was trigger shy and then got into late and made other mistakes. So my follow up question to you is, do you find that you are risk averse in bubbles? Because of that sort of formative experience early in your career? Or do you use the technicals to really help you press your bets when when trends are moving in that parabolic fashion?
Katie Stockton, CMT 47:09
Yeah, I think it just led me to respect the slow moving averages in a way, because they are such a great, they’re, they’re almost a gift from the market, in my opinion, because they do eliminate noise. And they help you understand if what the prevailing long term trend is, with some hindsight, and sometimes that hindsight, you know, it’s just not as obvious unless you have a tool to say, Okay, well, the 200 day moving average is pointing lower. Well, that means that that guess what the markets either sideways to lower, and it’s going to be more difficult to make money on the upside. That information, as simple as it is, I think, is incredibly valuable, especially as it pertains to those kinds of longer term, bear market types of moves, of which we haven’t had a terrible amount of since since my career began. But it does, it does lead me to respect those long term trend following engages. I knew someone who was working for a short biased fund in 2008, and did very, very well. And yet never, you know, came out of it in the way that they should have, right, because they sort of got married to that short bias, if you will, simply taking something like a 200 day moving average, and letting it keep you honest to suggest that okay, well, even if we’re late, even if we’re not capturing the low or the high, it will help you understand with a lag time that something has changed. So I really have always given a lot of weight to those very long term trending gauges.
Tyler Wood 48:43
Very well said.
David Lundgren, CMT, CFA 48:45
Yeah, I think we’ve got a pretty good deep dive on your process and how you think about markets. So thank you very much for that. Why don’t we take that lens and take a look at what we see today in the markets? Maybe we can start with equities. And you know, I know you have your analysis is conducted in multiple timeframes. We’ve done a lot of damage to charts. When you step back and look at the the carnage What do you see, as I’m sure a short term is not not as good as a long term as a long term broken. How do you see things today for equities?
Katie Stockton, CMT 49:15
I’d say overall, I think it’s a cyclical bear market move within a secular bull trend, that the secular bull trend could be changing. So rather than predict that we will just react to it if we feel it’s it’s underway. We became long term neutral in October of last year when we started to see those long term trend following gauges shift. Within that context, we had a lot of movement, short term, intermediate term in our biases. But But of course, it really deteriorated at the start of this year in terms of momentum we started to see MACD sell signals develop on the monthly charts and those are widespread and they still are very pretty much an issue for the market right now. So we feel that this bear market cycle still has a hold. And using the overbought oversold measures long term like the demark indicators like the stochastic oscillator, and combining that with the breakdowns below support that have unfolded, we sense that a major low is probably a few months out, and we’re watching the indicators for signals that could unfold closer to September October. And maybe we’re being hopeful in that regard. But but that to us would be a natural time for the market to at least find a footing more intermediate term and lend itself to some kind of buying opportunity. But but that long term bearish context for now has led us to, I guess, really be creative and how we’re approaching things recommending hedges, you know, trying to understand what next support levels might be just to try to understand what market risk is. And then of course, you know, just watching the individual sector relative strength to look to see if we have any places that we can hide, looking at alternative asset classes, things like gold, to try to understand if there is any relative strength coming from those areas of the global markets. So it’s led us to be much more creative, I’d say and idea generation as well. You know, we do try to put out a lot of long short ideas. And of course, the shorts have been better than the Long’s of late. But, you know, it really requires some creativity in how we’re approaching the markets. But but we are bearish here for the next few months at a minimum. And we really just want to be respectful of this long term, gauges. Short term, we feel that, you know, the bias is more neutral to positive just based on some oversold indications that we have on our shorter term gauges. And then also some oversold extremes and the likes of those breath, sentiment, leadership and volume data. But that to us is not an easy type of move to capture, we don’t generally advocate taking countertrend positions, because we feel they’re very difficult to to take advantage of just because it can be so short lived. We’ve noticed that in this market year to date, the relief rallies have it with hindsight really lasted no more than a few days. So they you know, we have more of a neutral bias at times, but it’s really like four or five days that tend to hold those biggest gains. And maybe Dave, to your point on the best days of the year are tending to be in or overtime tending to be in these bear market moves. Well, yeah, it can be really fast and furious on the upside when you get these relief rallies. But boy, that’s a real exercise and requires I think not only intention to the daily and weekly charts, but also even the intraday charts to try to capture that kind of move and leverage the that volatility it’s a really high maintenance type of way to approach the markets.
David Lundgren, CMT, CFA 53:05
Do you think that there’s, we’re I see the same data in the sense of the markets very compressed. I think the other day prior to this recent attempt to rally I think we had 95 percent of the market below its 50 day moving average. And that’s that will be one of the great indicators that you mentioned earlier. So we’re we’re really compressed from a from a internals, perspective, momentum, etc. But what what I’ve always been leery of is getting to leaning too heavily on the on the short term oversold condition in environments where we’ve started to sort of chew into the structure of those longer term trends. Because sometimes when you get really compressed and you start to do long term damage, what matters more is the long term damage that’s being done than the short term oversold. And you’re actually to your point, we’ve had several instances of being this oversold and gotten very lethargic rallies and responses from them. So that’s ultimately can be the the actual message that’s more important as we’re not getting response to the oversold condition is so how do you how do you balance those two things when you’re trying to give advice to clients that?
Katie Stockton, CMT 54:06
Yeah, no, I like how you say that in terms of the the lack of a response to oversold, which is indicative of a downtrend. And that that’s a cause for concern. We have the most oversold readings collectively in the market internals that we track since in some cases 2008. And yet, if you look at the readings, they can be sustained that way for weeks at a time, though, and some of them really are more short term sensitive gauges as opposed to longer term gauges is a great example is just what you say which is the percentage of stocks above either their 50 day moving averages or 15 day whatever it may be something real sensitive like that versus something like the percentage of stocks above their 200 day moving averages, which isn’t quite as oversold, as it has been after such sort of pronouns bear market types of moves. So we want to see a little bit more out of Have those, I guess indicators longer term to suggest that we have a better potential reaction to the oversold. But it goes back to why we really adhere to the trending gauges, the momentum gauges, because as much as we want to have the backdrop that has conducive is sort of market sentiment and also that oversold condition, we’re pretty risk averse. And that we want to wait for that momentum to shift. So we’re not the demark indicators can help us get closer to the inflection. But our goal isn’t really to grab that inflection, we don’t want to run the risk of catching a falling knife. And we much prefer to wait for at least short term momentum to shift and in this case, probably more intermediate term momentum to shift just because we’re unwilling to put ourselves at risk or our portfolios at risk of just you know, buying into weakness and you know, things getting more oversold, or revisiting oversold levels consistently because it does happen. So to rely on those momentum gauges, and just realize that what we’re we’re really trying to do is capture the bulk of trends. So even if it’s not at the exact inflection, I think you can succeed by just capturing the intermediate and long term moves that way.
David Lundgren, CMT, CFA 56:23
And one of the things that I guess the hallmarks of a true bear market is it, you know, eventually it gets to everything. But to your point about the percentage of stocks above the 200 day moving average, it hasn’t quite yet reached as extreme a level to indicate that the bear market has gotten to everything. And so when you think about what’s left, it’s kind of like, you know, energy, if you will, the fang stocks are still at Tesla. So do you view those as the sort of the canary in the coal mine for at least the beginning of the end of the bear market in the sense that when energy finally breaks, Tesla finally finally breaks that, then we can start talking about being closer to the end?
Katie Stockton, CMT 57:00
Yeah, I would agree, I think it’s it’s reasonably a concern that just in the past week or so we’ve seen a loss of relative strength from some areas of the market that have been working like energy and like basic materials. And that, of course, is related to commodity prices coming off their highs as well. So that could be you know, it shouldn’t get in their armor that then could reflect exactly what you’re saying, which is breath deteriorating even further than it has done already. And to your point on the Mega caps, I think that they are a likely source of downside leadership on the back of any kind of stabilization. Because when you look at their monthly indicators, they’re just not as oversold, they just have newer sell signals, and more room to key support levels. And this is, you know, after they’ve already come in quite a bit, in terms of their corrective phases. So I think there’s risk to those mega caps in there. And, of course, there’s risks to the major indices still, as well. And it’s based primarily on the indicators. But I do agree that the breath is certainly not getting any better. And, you know, we have a breakdown as an example, and the materials ETFs that we track, so, and yet they’ve really outperformed. But if you looked at those, you know, benchmarks in absolute terms, well, it doesn’t look very good. We don’t have breakdowns, necessarily yet in energy or in utilities, but we’re starting to see them and consumer staples, which is a very defensive sector. So it is cause for concern, it does, again, further than the need for top down analysis and to realize that no, no stock is likely to be unaffected by a bear market.
David Lundgren, CMT, CFA 58:46
And you mentioned that you’re looking for a bottom potentially sometime in September October is is that is that partly driven by seasonals? That that’s the typical window in which we typically bottom or is that more derived from when you foresee perhaps some of the longer term DeMark 13 counts started starting to find find the fire in favor of mean reversion higher? And then when you look at that timeframe, first, what’s driving you to that timeframe? And then what’s the level? I mean, can you can you assess where you think the markets potentially going before we can actually really look at the ingredients for bottom?
Katie Stockton, CMT 59:22
Yeah, and then we can at least try and try to understand what risk might be based on support levels. But I you know, I kind of love that it’s September October in terms of that seasonality, but the seasonality was not an input and getting to that timeframe. And I love it when things match up, not not only in terms of cycles or seasonality, but also in terms of fundamentals. I’m sure you guys have had instances where you’re looking at a price target that you can derive from a triangle breakout or a head and shoulders top or you know a trading range measured move that type of thing. It aligns with a fundamental price target that’s been popular. So these levels are important for a reason. And the timeframe is important for a reason. So I do like that it lands us into that September October timeframe, which does often capture major lows in the major indices. But it is based really on the overbought oversold measures that we track primarily, including the monthly demark indicators, which are about halfway there in terms of where we would expect them to flash some kind of counter trend signal. We put that out another four months or so on average. And then also the stochastic oscillator, which is newly oversold in a lot of cases, but often takes even several months to come out of that and give what we call an oversold buy signal. So we want to, you know, be aware of when the there’s a higher probability of these oversold buy signals on a long term basis. And that puts us out into that timeframe in terms of the levels that the s&p 500 and really just about everything has broken support recently. I mean, we’d had at one point this month that 12 month intra month downdraft or 12% Intra month downdraft and that, you know, how do you avoid breakdowns right with that kind of magnitude of a decline. So the s&p 500 is pending confirmation and our work have a breakdown by this 3815 Fibonacci retracement level. And below that. The next level is about 3500. And yet, we’ve always found that once a 38.2% Fibonacci retracement is taken out decisively, so that’s the 3815 that the targeted level is often the 61.8% retracement derived also from the Fibonacci sequence. And that would put the market somewhere closer to 3200. Before it can bottom. So we’re feeling like in our conversations that 3200 is our worst case scenario, before we get a major low, we hope it doesn’t get that bad. And if we see indications of it sooner or above that level, great. We’ll react to that when it happens.
Tyler Wood 1:02:13
Right? Yeah, 100, right at the retests after the the COVID rally, which makes a lot of sense in terms of a congestion area for for supply.
Katie Stockton, CMT 1:02:25
Yeah, yeah. And that’s what you often see is that the levels will align with other factors and forces. And that just would add to, you know, their potential importance.
David Lundgren, CMT, CFA 1:02:36
And a lot of folks would point to one of the catalysts to the markets becoming quite unsettled. The question is not just what the Fed is doing, but what the 10 year treasury note has done. And, you know, that’s, that’s drawn vertical, right up to that 325 area. I mean, what’s your what’s your take on that? At this point? That must be DeMark, countdown signal somewhere. I mean, it’s been so powerful. So where does that stand today?
Katie Stockton, CMT 1:03:02
Yeah, and I think it’s a matter of making sure that we know what timeframe we’re looking at for those demark indicators, right? Because if it’s a short term signal that the implications can be, say, two weeks, right, and that that’s not necessarily going to be much of an interruption in the prevailing trend, which, as you mentioned, is very much higher for Treasury yields. And what we’ve seen year to date is is not just a breakout above psychological resistance levels like 3%, but a reversal of what was a multi decade downtrend channel and Treasury yield. So I think it’s a really meaningful uptrend, that’s been established. Within the context of that uptrend, we can see prolonged corrective phases, and we probably will, in my indications, I don’t have anything telling us that one is imminent. But there is resistance is essentially in line at three and a quarter, as you mentioned, at the 2018 high and the demark. indicators on the monthly chart have a signal that would support potentially about four months of consolidation, which would again kind of put us into this end of summer timeframe for it to either prove to be a continuation pattern or reversal pattern. So we’re we have more of a neutral bias here. I’d call it in the intermediate term. But But big picture is that it’s a major reversal. And above that three and a quarter decisively the next hurdle is around 4%. And I don’t think a lot of people thought we would have to talk about 4% this year, but it is on the radar.
David Lundgren, CMT, CFA 1:04:31
Right? Right. It’d be interesting if if the market if the rates did back off from this three and a quarter level and we didn’t get the bounce for equities that we should get a because rates are backing off and be because it’s so oversold, but might be something to monitor so I know you follow asset classes across the board. And you’re obviously known for your calls on digital currency and in bitcoin and whatnot. So where does what’s your view on Bitcoin? And do you find that the DeMaRK indicators in your, in your analysis in a traditional analysis that you’ve used to equity, so your career doesn’t work as seamlessly in digital currency? And Bitcoin in particular? Or do you have do you have you had to make some adjustments?
Katie Stockton, CMT 1:05:16
No, I, it’s really transferred very well, in my opinion, because I think of Bitcoin and others or most others with liquidity as being more like a FX. And I think you guys can probably agree that FX and commodities lend themselves especially well to some of the levels and indicators that we use, because it’s almost like a more pure supply demand dynamic that’s been reflected by their prices, because it’s not as influenced by headlines for one, you know, the quarterly earnings reports are not an issue, that type of thing. And we have very deep liquid global markets that we’re talking about here, including for Bitcoin. So we found that the indicators have transferred very well, including the demark indicators, the thing that’s made it difficult for us and for everyone, I think, is the volatility. Because when your support levels and resistance levels are, you know, multiple percentage points away, or even more than that, sometimes you don’t feel like you’re adding a lot of value. But But unfortunately, I mean, with Bitcoin as one example down about 25%, just last week alone, we have to just be respectful of the levels as as they are, and you know, if they implicated another 40% downside, or, or whatever it may be. And maybe that’s the case. So so we’re just respecting the same tools in the same ways that we identify support and resistance, as we always have for equities. So we found it to be pretty informational. And yet, it’s been a difficult market just because it’s really reversed on a dime at times. And the volatility is such that, you know, a lot of people are really losing a lot of money, unfortunately. So it doesn’t give me like a happy feeling. Especially right now, because it’s just been such a difficult space for our clients. We don’t think that Bitcoin has bottomed, we do suspect that there’s additional downside risk. And it’s for a lot of the same reasons, as we feel the same for the equity market, the long term momentum is to the downside support level was recently broken. They’re not as oversold, as we’d like to see them on a long term basis. And we don’t have any counter trend indications from the demark indicators that are meaningful beyond the very near term. So all of that taken together tests suggests that we’re probably well served to be on the sidelines for now. And then just revisit when we feel like we have that more high conviction, entry point. And with that, we’re gonna look for not just oversold readings, but also that that shift in momentum, and knowing full well that we’ll probably not capture that first move off the low, which is often a pretty good move to capture. We we’d rather be more conservative and how we approach it.
David Lundgren, CMT, CFA 1:08:10
I know you characterize the stock market as being a cyclical bear market in the context of a secular bull market. Can you draw the same conclusion in in Bitcoin? Are there other elements that go into that secular versus cyclical discussion and equities that just don’t pertain to crypto?
Katie Stockton, CMT 1:08:27
Yeah, I mean, we have limited price history. And so I think that’s the biggest challenge there is that some of the indicators that we would use to identify the secular bull trend are just starting to form for Bitcoin? And Bitcoin has really the most price history. So So I would say we suspect it is, but we’re not quite as convinced of it, just given the fact that we don’t have our indicators populating in the way that we like them to be. So lower conviction, but I suspect it is.
Tyler Wood 1:09:00
And with with Bitcoin Trading 24/7 365 As is the case with all cryptocurrencies, do you feel like the the secular trend is on weekly charts and the cyclical trend is on daily we do we adjust, adjust timeframes for that.
Katie Stockton, CMT 1:09:12
I know, it’s like, that’s actually been tough for us to adjust to because, you know, we always think, Okay, well, Friday 4pm Eastern time, that’s when things shut down for the week. That’s our weekly closing. Nope. No, we had to, to kind of mentally get out of that framework. But I do think that a daily chart at this is how I always frame my sort of short term, intermediate term and long term biases. I think the daily chart gives you a sense of where something could be in the next few days to the next few weeks. And then so uncertain next few weeks, the next few months on a weekly chart and next few months to next few years on a on a monthly chart. So not to not to oversimplify but that’s sort of our sense of of how we use the different timeframes. And if we had to center those around, like, you know, an average sort of objective that we can get, I would say, you know, nine months from a monthly chart would be about an average sort of takeaway, maybe three to four months and the weekly and maybe three to four weeks on the daily.
David Lundgren, CMT, CFA 1:10:17
Gotcha. And on the on the Bitcoin was still in a downtrend. Is there. Are you looking at any particular targets on the downside?
Katie Stockton, CMT 1:10:28
I was hoping you wouldn’t ask that Dave.
David Lundgren, CMT, CFA 1:10:32
Tyler was the Master Editor, he can take it out if you want. But
Tyler Wood 1:10:36
don’t confuse the bottom of your chart with support Dave.
Katie Stockton, CMT 1:10:41
There is actually support not terribly far from current levels between about 19,500. That’s a former resistance level, and then a Fibonacci retracement level of about 18,300. And we’ve already seen a test that was successful. So I think if we were to believe that there’s a long term bottom already at hand, that would be our final support level. And because I suspect that momentum will ultimately lead to a break down of that level. That the next support this is somewhat disconcerting is about 13,008 50. And it’s based on another former resistance level. So as as far away as that that is, you can’t rule it out, not based on the chart.
David Lundgren, CMT, CFA 1:11:27
What about the what appears to be like I guess you’d call it a double top on the weekly chart, it spans 18 months or so looks like that gets you down at 12,000.
Katie Stockton, CMT 1:11:40
Yeah, and we hadn’t like drive that downside projection. We do also see though, that that was a very important pivot point at the unsuccessful test of that resistance level. And that Thanks for always waiting for confirmation of breakouts and also break downs. And we like to do that on a consecutive weekly closing basis as a way to try to avoid those sorts of false breakouts false break downs, the double top formation, we tend to pay more attention when it happens on the weekly chart that lasts less the long term setup and more like the ones that will unfold over, say, you know, four to six months, we give those definitely a lot of weight, but we are not often using them for downside projections will usually use the Fibonacci retracements or will use perhaps a measured move on a break down. I love those measured moves, they can be so informational, especially at times that you don’t have a good gauge on resistance or support. Right.
Tyler Wood 1:12:42
Katie, we could literally be here all afternoon and selfishly I’ve got one more market that I wanted to ask you about, which is the US dollar. We haven’t talked at all we talked about rates and about the 10 year treasury. There were a lot of analysts expecting dollar to rollover. And as I’m looking at the chart of the Dixie, we’re approaching all time high close on a monthly basis that puts us above the 2069. Do you track currency markets? Do you see that as further headwinds and and what are your charts telling you?
Katie Stockton, CMT 1:13:15
It is a confirmed breakout. So we have the two weekly closes above that long term resistance for the dollar index, which for us was about 1037. And that puts honestly next resistance around 121 Which of course it’d be crazy for the dot for the dollar. And we can derive a Fibonacci retracement level in between here and there of about 109. But the breakout is major. And it does support a stronger dollar over the next few years even because of how major the breakout is. In the near term like treasury yields we are looking for sideways choppiness maybe just an indecisive period for for the markets on a macro front would be something that could drive that sort of choppy sideways price action. And we say that primarily based on the long term demark indicators which have a very similar signal on the dollar index as they do for 10 year treasury yields.
Tyler Wood 1:14:16
David Lundgren, CMT, CFA 1:14:16
Katie, I know you have a 12:30 hard stop. But I wanted to just take a quick minute because we’ve talked so much about your philosophy process things you’re seeing the market today, and I’m I for one am super excited for you for having lunch to new ETF. The ticker symbol is TACK, and I’d love to hear how you’re experiencing managing money versus conducting analysis. Neither one neither neither one of them is a particularly easy thing to do. So you’ve chosen to to do two very difficult things at once. So I’m curious, would you say that the the ETF reflects very well what your research says what do you think that there’s differences and how are you finding managing money versus doing the now To us,
Katie Stockton, CMT 1:15:01
it’s a whole new level of stress that that I’ve taken on. But I have to say it was such a natural byproduct of what we were doing already. And even on a daily basis, it’s the fairly tactical sector ETF. And sector relative strength is a huge piece of what we’re doing. And it’s a big part of our research. So it’s very much in following with that, I would say it’s a little bit longer term, the ETF strategy than our typical research report would be so there is a little bit of a difference in terms of it being a long term oriented sort of strategy. But the the methodology is derived from the same indicators that that folks are reading from our research every day. And it was something that we developed with the help of some some quants, because we’re not qualified on that front. And they helped us isolate our sort of methodology into a set of rules that we could then build into a system that we feel really good about sort of systematic it like, like, I know that you have a strategy as well, Dave, it’s systematic, but discretionary. And we feel that, you know, it’s it’s designed to leverage the upside when the markets are trending higher by being exposed to the sectors that are outperforming and have positive momentum. But it has a very important piece, in terms of its risk management, where it has the ability, the tactical piece, to move into alternative assets, including short term treasuries, long term treasuries and gold. And it will at times not not often, hopefully, sit in just those three asset classes. So move entirely away from the sectors of the s&p 500. And get exposure to those areas, the markets globally, that tend to outperform equities. And we found that the Diversified piece where it has that gold piece, the short term and long term treasuries, has helped it navigate what has also been a bear market for treasuries. So we’re we’re pleased to see it outperform and what has been incredibly difficult environment for equities. And yet we trust also that it will be there when the market comes out of this bear market cycle. And a systematic approach will help, you know, tack, and hopefully folks that are following similar methodologies get exposure to the market when they don’t feel quite ready yet, from a sentiment perspective. And I think that’s the hard part, at least from the advisors, who we talk to a lot of our clients are investment advisors and, and they they’re often too late, not too late, but pretty late after the market bottoms to get back to the exposure that they felt they should have had. Even that COVID corrective low, they found they were shaken out of the market for too long. So we like to have that systematic approach that will identify these long term shifts, and kind of, you know, keep you honest, keep you on the right side of the market.
Tyler Wood 1:18:02
One of our early guests, Walter Demers, said when the time comes to buy, you definitely won’t want to great, great lessons.
Katie Stockton, CMT 1:18:11
You guys had published recently, with Bob Farrell, one of his, I guess, sort of 10. I don’t know what the rules of the market was that bull markets are more fun.
Tyler Wood 1:18:24
Katy, this has been such an honor such a treat. Thank you so much for your generosity of time for all of our listeners, where should they reach out to you and connect with you? Where can they find you, of course, all of our financial media, but where should we direct them?
Katie Stockton, CMT 1:18:38
So well, I mean, it’s easy to find people I guess these days, right? But we have a website fairleadstrategies.com. The TACK ETF has a website fairleadfunds.com. And of course, you can find us on Twitter, or just Google us. LinkedIn, you name it. We’re pretty easy to track down these days.
Tyler Wood 1:18:57
We’ll put all of those links in the show notes and and hopefully the next generation of Katie Stocktons will find you and you’ll be the mentor to the next generation. Yeah, so
Katie Stockton, CMT 1:19:06
Thanks so much, Taylor. Thank you, Dave. I really appreciate that.
David Lundgren, CMT, CFA 1:19:09
Thanks for your time today Katie. It was a great conversation. Really glad to have you on today.
Katie Stockton, CMT 1:19:14
Of course, take care guys.
Tyler Wood 1:19:16
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