Fill The Gap Episode Twenty-Nine, with Craig Johnson, CMT, CFA

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Craig Johnson, CMT, CFA joins Fill the Gap for Episode #29 where we explore the detailed and comprehensive technical process the Piper Sandler technical research team takes every month to produce informed investors.
Craig issued a contrarian bullish call on the S&P 500 going into 2023 based solely on the information provided by the markets. Using classic trend analysis, his team simply highlighted the series of higher highs and higher lows appearing in the equity index. But their process is revealed in the 300+ pages of the “Informed Investor” research report which delivers in-depth analysis of sectors, industry subgroups and a healthy appreciation for relative strength.

Craig has a deep appreciation for the analysts who preceded him at Piper Sandler including Steve Leuthold who sadly passed in March, 2023, and Ed Nikoski who Craig worked with closely before his retirement. There is a strong technical analysis community in Minnesota which now includes Ralph Acampora, CMT. However, he reflects on the advantage of being outside New York where independent thinking and contrarian viewpoint can flourish based solely on the message of the market.

This episode also explores some remarkable alternatives to home heating in the depths of Minnesota’s sub-zero winters! Enjoy this conversation with Chief Technical Strategist and former president of CMT Association, Craig Johnson, CMT, CFA.

Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.

For complete show notes of every episode, visit:


Tyler Wood, CMT 00:13
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 veteran 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 markets. Fill the Gap is brought to you with support from Optima, a professional charting and data analytics platform. Whether you’re a professional analyst, Portfolio Manager, or trader, Optima provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the Hello, and welcome to Fill the Gap episode 29 with our very special guest, Craig Johnson, CMT, CFA. Joining me today is Dave Lungren. How’re you doing my friend?

David Lundgren, CMT, CFA 01:55
As always, Tyler doing well, you know, I’m just slowly watching this AI bubble percolate. Is it a bubble, though? Right, isn’t it too early to call that bubble? Well, we’ll see. I don’t think so, but I think the fact that we’re identifying it as a bubble probably means it’s not a bubble yet.

Tyler Wood, CMT 02:11
That’s right. That’s right. There we go. We recorded with Craig, mid June, on the 12th to be exact, and had just an incredible conversation about his take on global markets, what he’s seeing in the charts and from a technical perspective. Dave, what what stood out to you from our conversation with Craig?

David Lundgren, CMT, CFA 02:30
Well, to be honest, I’ve known Craig for years and I actually forgot about the how far back into the history books of technical analysis, in the CMT Association in particular, that his whole research process reaches I mean, it’s all the way back to Steve Leuthold. And I forgot about that, you know, and I’ve read his book that he sends out every every month, for years. And it’s and I, you know, I’m sitting here reading this book, not realizing that has reaches all the way back decades.

Tyler Wood, CMT 03:03

David Lundgren, CMT, CFA 03:04
You know, into the history of the CMT association. So iit was great to hear, but I’ve always valued Craig judgment and his skill set in technicals. He’s just very, very systematic, very even keeled, and he just does a great job of listening to the market, and the whole process of systematically tracking 1000s of stocks, and then just letting the market speak to him. And he’s just a good interpreter. Yeah, as opposed to a forecaster and he’s just, he’s great at it.

Tyler Wood, CMT 03:36
You know, that really stood out to me that as part of the global macro team at Piper Sandler, there’s not always going to be, you know, full agreement, right? If we all see the chart the exact same way, that’s not what makes a market and Craig had very positive things to say about his colleagues and the fact that they have a different toolkit, and they see things differently, but I think it’s also a testament to to Craig’s personality that he’s not afraid to step out with his own opinion, even if it is not the view of the fundamental side of the of the house at Piper. And so far this year the market has been proving Craig right. So.

David Lundgren, CMT, CFA 04:16
Yeah, he’s had a good contrarian call against a very seasoned, very highly respected macro team. And, you know, whoever ends up being right out of this call, isn’t the point and they’ll be just as respected as they’ve ever been. I mean, I’ve listened to that team, and they’re among my favorite macro strategists on the street. So it’s not an “us against them” thing. It’s just you know, sometimes we’ll be right, sometimes I’ll be right, but this is what Craig does best. This is when he really shines—is when he is willing to put a stake in the ground and— Yeah. —make a call, you know, and I actually have a T shirt in my office. It’s—I think it was S&P 2k, I think it was.

Tyler Wood, CMT 04:59
Yeah, that’s exactly right. And a Homer hanky—

David Lundgren, CMT, CFA 05:02

Tyler Wood, CMT 05:03
—courtesy of the Minnesota twins.

David Lundgren, CMT, CFA 05:04
He made—he had, that’s how convicted he was in his call based on listening to what the market was saying. He made T shirts about it. And it was. He’s, pretty committed in his process. And that’s the way it needs to be, you know?

Tyler Wood, CMT 05:17
Yes, exactly. And when I first joined the MTA as it was back in the day, Craig was a board member, very actively involved, became vice president. I’ve gotten to travel quite extensively with him for CMT conferences and events. And then he became board president, and like you said, not afraid to make a contrarian call now and again, and I think that stewardship and appreciation of the history coming from Steve Leuthold and others at Piper Sandler, he has deep respect for those who came before him, but also, you know, for blazing his own trail. And he certainly brought that to leadership in the organization as well, which is great to see.

David Lundgren, CMT, CFA 05:57
Yeah, and, you know, from Minnesota, we won’t divulge the whole thing here, but from Minnesota, there’s a lot of ways you can heat your house. So you have to heat your house, if you live in Minnesota, and if you listen through the whole interview, you’ll learn about how Mr. Craig Johnson heats his house.

Tyler Wood, CMT 06:15
You know, Dave, he and I graduated from the same high school and I think some of his hobbies might be melting the ice rinks around Minnesota, if he’s not careful. Yeah. Well, just before we get into today’s episode, I want to congratulate all of our global CMT candidates. Here in the month of June, there is an intense, rigorous exam cycle. And for all of you who are listening, job well done, grades will be coming out in early August, but just sitting for the exam taking, taking a chance on yourself, investing in your own education and having the confidence to prove your skills in a very rigorous testing environment is—that’s worthy of praise in and of itself, regardless of your score. And for all of you who missed the chance to further your career and a chance to earn your own CMT designation, don’t worry, registration just opened for our next exam cycle, which will be held November 30 through December 11. So you can head to right after this episode and get registered for your exams. So Dave, without any further ado, let’s dive in to Episode 29 of Fill the Gap, the official podcast of the CMT association with our good friend Craig Johnson, CMT, CFA.

David Lundgren, CMT, CFA 07:35
Welcome to fill the gap, the official podcast of the CMT Association this month, Tyler and I are joined in conversation by Craig Johnson, Chief market technician and member of the macro research team at Piper Sandler. Craig is a longtime CMT charterholders and he also has a CFA charter. And Craig has been a model member of the CMT Association over the years, of course, most importantly, serving as a past president. Now I’ve known Craig for about 20 years, and I followed his work very closely. And he’s never been afraid to have a contrarian call on the market. So I’m really looking forward to catching up with him and getting his latest thoughts on the markets. Craig Johnson, welcome to fill the gap.

Craig Johnson, CMT, CFA 08:15
Thanks, Dave. Thanks, Tyler. It’s great to be on the show.

Tyler Wood, CMT 08:18
Nice to have a hornet with us.

Craig Johnson, CMT, CFA 08:20
It is very nice to have another Hornet here.

David Lundgren, CMT, CFA 08:24
So you’ve been at Piper Sandler for 28 years. It’s quite a run. Maybe for our listeners who don’t know you, there’s probably very few, but let us know how you got into the business and what got you heading down the path of technicals?

Craig Johnson, CMT, CFA 08:43
Thanks, Dave. So what got me going in the investment, business and technicals and charts was really back in college I started getting involved with—it used to be the AT&T stock challenge when I went to Drake University. And at that point time, I just thought it was so much fun to be picking stocks for the portfolio. There was also a gentleman there by the name of Dave. Dave, and I’m drawing a blank on his last name, but he’s the one that introduced me while I was in school, grad school and undergraduate at Drake University to the William O’Neal Green Book and Blue Book. We had a great time going through and flipping through those books, looking at stocks, looking at charts. I think I spent just hours and hours of time looking through those books and then started doing some my own trading while I was in undergraduate and graduate school there at Drake and believe it or not Tyler I actually had a quote machine while I was in the fraternity house

Tyler Wood, CMT 09:51
Oh my gosh.

Craig Johnson, CMT, CFA 09:51
One of those little green screen machines where I could just flip the pages on it and I was trading stocks. My roommate Alan Sugar at the time was trading corns, beans, hogs and all those things. And we had big whiteboard up in our, in our dorm, a frat house room and we were trading and also joined the frat house life too.

Tyler Wood, CMT 10:19
Very good.

Craig Johnson, CMT, CFA 10:20
And then I’ll just add to into this Dave is that after I got done going to grad school, I came back to Minneapolis, I knew that I wanted to do something with technical research. I knew there were not many places in Minneapolis to do this. And so I found out that Piper, Jaffray & Hopwood at the time, now Piper Sandler had a technical research department, it was run by the gentleman of Ed Nikoski. And I called up one of the gentlemen on his team pretty much every day for six months, saying, Hey, this is Craig Johnson, I’d love to talk to you about any positions you might have open. And finally, after about six months, he called me back and said, Yep, we’ll give you a shot, why doncha you come on in. And we started working with Ed Nikoski and the technical research team back in 19—the fall of 1995. And I gotta tell you, Dave, my starting salary, I think was a whopping $24,000 for the year. And I told my dad that I’ll probably stick around for six months, get some experience, and well, he reminds me, it’s now been 28 years that I’ve been working here at Piper. Yeah, 28 years and a few pay raises, I assume? Well, a couple along the way. But you know, we have to figure out how to trade and make some of our own income along the way too. So we do that also.

Tyler Wood, CMT 11:42
Craig, I wanted to ask you had a quote machine, you were trading in grad school. Did any professor ever mention technical analysis in any of your courses in business school or grad school?

Craig Johnson, CMT, CFA 11:55
Well, at Drake, the answer is really no, I was not taught technical research at Drake, it’s still a bit of a sore spot with me that they didn’t want to teach technical analysis. And a few of the conversations that I had with the professors, they viewed technical research as really voodoo. There was no reason to learn technical analysis, because it had to all be about fundamentals and those kinds of things. And even when I would pull some of the books, pull some of the material and all these other things, have the conversations of the professor’s they didn’t really want to talk about it at all, unfortunately, so it makes me not a big donor for Drake.

Tyler Wood, CMT 12:33
Vote with your wallet, I like that.

David Lundgren, CMT, CFA 12:35
So a lot of folks aren’t going to be familiar with Ed Nikoski, because he’s most well known on the on the institutional side. And of course, I’ve been following—what’s the name of the book? Is it the war book?

Craig Johnson, CMT, CFA 12:45
Well, we have The Informed Investor publication we put out; we also have the statistical book, which we call the white book that has all the numbers and statistics on the market. Some people have also called it the war plan over the years, Dave.

David Lundgren, CMT, CFA 12:57
The war plan, that’s it. Yeah.

Craig Johnson, CMT, CFA 12:58
Yes. That’s just not been a very popular name for a publication, especially if you’re traveling internationally, you pull this thing out. It’s called the war plan. And it’s all full of numbers. And I’ve had a few experiences going through Heathrow where they go through your bag, and they’re asking you, sir, what is this war plan that you’ve got? All these numbers mean? Is this some sort of code? But no, it’s just the code and DNA of the market and trend in relative strength, yeah.

David Lundgren, CMT, CFA 13:23
To talk a little bit about the book because again, I’m familiar with that book for gosh, 20 years now. So it was started by Ed Nikoski or—?

Craig Johnson, CMT, CFA 13:30
Yeah, so the war plan data and then ultimately, The Informed Investor publication. These all started at Piper, Jaffray & Hopwood back in basically the late 70s and early 1980s. At the time, it was led by a gentleman by the name Steve Leuthold, who is very familiar with everybody here that’s going to be listening to this podcast. And he unfortunately just passed away in March. And then at that time, Ed Nikoski, was working as an associate as my understanding to Steve Leuthold. And they had worked together for years. And then when Steve left to go start his own firm, then Ed McCaskey took over to become the senior of the technical project for years and that is when people this can continue to kept refining the war plan, publication or white book, and then also the informed investor publication. And for those that have been to the library at Baruch College, Tyler, you will find some of the original versions of the informed investor publication. They are in the library. But here in my office in Minneapolis, I think I have every copy or—a copy of every informed investment publication we put out since basically the 1990s So there’s been we’ve done 10 of them a year, every year since then. So it’s been a long standing project. And for me when I took over in 2004 I came into this group took it over as a senior in 2007 just been sort of a labor of love since.

Tyler Wood, CMT 15:04
So for all of our listeners, you might be familiar with a technical research analyst that might put out a weekly note, or you might have read some blog posts. When we talk about The Informed Investor, I’m looking at the May edition, it’s 310 pages, and I am the owner, proud owner of a few copies that Craig has bestowed on me over the years. They make a great third base, Craig, really, you could hold the door open for eons with these books, right? There’s some heft to that.

Craig Johnson, CMT, CFA 15:37
And you know, to that point, Tyler, there’s many times that I stopped in the New York office and I found The Informed Investor use as a doorstop, I quickly pick it up, dust it off, put it back on the shelf, where it should be, and remind them that The Informed Investor is more than a doorstop. It’s a way to make money in the market.

Tyler Wood, CMT 15:57
Yeah, all joking aside, this is perhaps the most thorough and thoughtful and comprehensive technical research, certainly that I’ve seen on the street and to do that 10 times a year, Craig, that’s a that’s a mountain of labor. How big is the technical research team now at Piper Sandler?

Craig Johnson, CMT, CFA 16:14
So Tyler, it’s a labor of love for us to put this book together. But it is also part of the process that we’ve developed over the years, we’ve got The Informed Investor publication, we’ve got our weekly publication, we’ve got our daily notes that we put out, and then there’ll be some quarterly reports and things along the way. But it really forces the team, which is a fairly tight team of individuals. It’s myself, it’s another gentleman by the name of Scott Smith, who’s another fellow CMT, we’ve got two gentlemen, that worked for us in Chennai, India. They’re also CMTs. So we’ve been introducing India to CMTs. And then we also have Daniela Martinez, who works on our team is sort of the administration assistant helping us keep track of marketing schedules, travel, and all these different pieces. And we are very grateful for all her hard work.

Tyler Wood, CMT 17:03

David Lundgren, CMT, CFA 17:04
This book has set the bar for like what’s excellent in research, certainly, technically, over the years. And what I’ve loved about it is that it’s always been so—it doesn’t go off into these rabbit holes of technical analysis. It’s just really pure trend following relative strength, momentum and things like that. Can you talk about a little bit about what the thought process is in terms of what you put into the report? And why do you exclude some things versus what you allow in and—

Craig Johnson, CMT, CFA 17:27
Sure! So Dave, what we always try to do is we try to think about this entire market. And again, when I say market, we’re looking at every single stock above a 25 million market cap and a $2 price. So this can be 5000 stocks that we’re pulling into our database every single night. And Dave, as part of the process of what we go through is we take and again, through this reader process of looking at all the charts, every single day, every single week, every single month, we will develop kind of a picture of what’s happening with the market. Now in terms of the selection of what we put into the book, we can’t show all 406 industry groups that we’ve got, so we narrow it down. How do we do that? Well, we do that by using our trend and our relative strength tools that we call mace, and also technic great. And then Dave, what we do is basically put the entire market into sort of a normal total return relative strength distribution. And we sort of throw out the middle. And every single week we score all of these industry groups, so we got either an overweight, a neutral and underweight. And for the publication for the most part, Dave, I sort of throw out the middle, I want to show the overweights, I want to show the underweights because we know that the place to make money in the institutional world is going to be at the tails of the distribution in terms of the total return relative strength, not necessarily in the hump. And again, if there’s other key parts of the market that may be neutral rated. For instance, right now I look at things like United Healthcare and the HMOs. I’ll show them because they’re negatively rated, I’ll show the semiconductors because they’re neutral rated and then getting stronger. You know, those are the kinds of things we’ll try to do. But we’re trying to find stocks and groups in motion day of the highlight. And that might get narrowed down to about 100 to 120 different sort of industry groups, we call them micro groups. So we’re gonna go around, go out and highlight and then after that, we’re gonna find the most attractive looking chart to put into that or a highlight from that particular group. So it becomes an actionable research report for people. If they’re looking through technology, industrials, healthcare, whatever it is, they’ll find ideas that they’ll find actionable today.

David Lundgren, CMT, CFA 19:39
How would you characterize your approach personally, is it—because I’ve known you over the years is definitely being somebody as you just described somebody that wants to be on the right side of trend, relative performance, follow the strength follow the lead of the market, but I’ve also known you to take some pretty contrarian calls that I would never take because I’m a trend follower so that, you know, it would seem to me like you’re not always a trend follower like you—at times you will go against the trend. And it seems like those really intense sentiment driven moments you’ll go contrary to that, that kind of thing. So maybe you can talk a little bit about that?

Craig Johnson, CMT, CFA 20:08
So Dave, you are correct. But the reason we do that is because when we go through and look at this entire war plan data, what we’ve discovered over the years is with great help from some of our former associates, like Adam Turnquist, who is now over at LPL Financial and does a great job over there now for them—we miss him! But he added a lot of value to the project and left his mark, certainly in a positive way on the project over the years. But the way that we will do that Dave is when we go through, and we look at our 40 week technique where he measured the number of groups above their 40 week moving average, when we start getting to sort of sub 10% readings, in terms of the industry groups and stocks above their 40 week moving average, we know that from history going all the way back to the 1960s. When we get to those sort of capitulation sort of points. This is where we need to start leaning the other direction. And I know that it’s not immediately in sync with trend. But we’re at such an outlier level that we have to play contrarian, Dave at that point in time, and we’ve gone back through time, and we said, hey, the average length of time that we stay sub 10%, could be eight to nine weeks. And we know that this is when he went on and started leaning into the market. We are trend followers first and foremost. But we also know that there’s points in time when you’re at these sort of extremes. And you have to pay attention to started leaning the other direction. And again, it’s worked out well for us over the years. And we continue to really like those spots, because they tend to be pretty well fleshed out to the bottom pretty good washout points. Emotions are running high, as you mentioned, Dave, and it tends to be a strong contrarian call that a lot of people sort of fight you on a little bit. But that fighting that you get from people on this and questioning of it actually is sort of a good sign. That means that nobody’s on board with you and market will eventually come back the other way.

David Lundgren, CMT, CFA 22:04
What are some of the techniques you use to determine let’s say: the markets washed out, everything’s really extreme, thereby meaning everything—most things are in a downtrend. What are some of the techniques you use to determine which stocks to buy if you can’t use trend following as your guide? Because everything’s in a downtrend? What do you lean on?

Craig Johnson, CMT, CFA 22:22
So what I’m gonna lean on is I’m gonna lean back on price. First and foremost, something I’ve learned from Ralph Acampora over the years, right? Price is fact at the end of the day, and if I see stocks that have pulled back to big long term identifiable support on a weekly or monthly basis, these are going to be areas that we’re going to be very interested in picking up some of those ideas. Also be looking through some of the sectors, one of the things that you’ve taught me over the years, too, Dave is: what’s the leadership of the market? and look for those turns that are happening out there. And I’ll be looking for those things that are really starting to bounce the hardest. And the question is, is that bounce, is it sustainable? Is it not sustainable? But that’s what I’ll be looking for in those sort of turning points. And again, coming back to price. So for that big identifiable support.

David Lundgren, CMT, CFA 23:10

Tyler Wood, CMT 23:11
And of course, in The Informed Investor, you’ve got sentiment analysis, you’re looking at the VIX, you’re looking at seasonality and cycles. Are they driving action in terms of your recommendations? Or is that helping give context and more of a narrative to what you’re seeing in the marketplace?

Craig Johnson, CMT, CFA 23:28
So Tyler, seasonality and VIX and other things, it’s: VIX is going to help me with sentiment in the market for sure is where that’s going to help me along with some of the AAII numbers and some of those other pieces. I would also say that as I look through the various studies and other parts that we put into The Informed Investor, that’s where I’m getting context and perspective from history. I’ve often said that history may not repeat, but if it does rhyme, then we know that this is a potential outcome that we could see. And we will do lots of those different kinds of studies. I’ve learned a lot of those studies from poor folks like Sam Stovall, over the years that we stay in touch with thinking about what it means when you’ve got a 20% Advance coming off of major market bottoms. And what’s the probability that that will continue versus fail. All those things sort of blend together for us context with trend that you’re talking about Dave, what the relative strength where we need to ultimately focus, the emotion, the sentiment, with the AAII, the VIX, indicators, all those things come together, we try to shut out a lot of extra outside news and try to just focus on these sets of tools, trend and sentiment, to really help drive us in the right direction of where we need to be. It can be challenging when you’ve got a lot of smart people yelling at you, like, “You’re wrong, you’re wrong, you’re wrong, and the world is gonna fall apart,” and you keep looking at the data and you look at—like we had last October David, you and I talked about this at dinner a few months ago. You had this big sort of momentum wash out. It’s very noteworthy and things you got to pay attention to. And it’s proving out to be correct. And right now, very, very simple things like the trend changes in the major popular averages are quite constructive.

David Lundgren, CMT, CFA 25:17
More recently, you’ve kind of transitioned with with your new role at Piper Sandler. So you’re, you’re still the chief market technician there, but you’re also a member of the macro strategy team. And that must be a pretty stressful conversation or meeting that you guys might have from week to week because most macro strategists are seeing the world pretty grimly, particularly over the next few months with recession and inflation, and God knows what else they’re pointing to. But how does your analysis fit into that team? And how do you manage those conversations that are that can be pretty sensitive?

Craig Johnson, CMT, CFA 25:46
Well, first and foremost, I’m very happy to be part of the macro team here at Piper Sandler. Number one, with Nancy and Michael Kantrowitz coming on board, Danny Kirsch on the options side, Benson, Durham on the policy side of things and others, it’s been great to join this team, they provide a whole nother set of perspectives for me to be thinking about with markets. Yes, we look at different tools. But you know, Nancy and Michael, they’re true professionals, and we can agree to disagree on things. And again, a friendly way have these debates back and forth and have these conversations. The beautiful thing at Piper, all the way down from Chad Abraham down, who runs the firm is, it’s okay to have differing views and perspectives. And in fact, they encourage that there isn’t a single house view. And I think everybody embraces that and brings that to the table. As we have these sort of conversations about the market. How do I handle things, I just come back with statistics and stats and point out charts, I’ll pull up pages in from The Informed Investor and say, “Hey, I hear your negative sentiment on housing. But look at the chart of this. Here’s a long term chart going all the way back to the 1960s. We’re breaking out and making relative strength, new highs, I hear you, but the charts are seeing something different. Where could we potentially be thinking about things differently?” So it becomes Dave, kind of a conversation starter, and sort of an enhancer to be pulling these pages out of the book. It’s almost like you’re just kind of laying the cards out here. And you say, Hey, look at this, look at this on the economy, you think this look at that chart, and we’ll kind of just have this sort of debate back and forth. And again, I’m very happy to work with the team. They’ve taken the readership of the technical product here at Piper over 10 fold what it was before they came.

David Lundgren, CMT, CFA 27:36
Oh, fantastic.

Craig Johnson, CMT, CFA 27:38
So it’s been very good for technical analysis has been very good for Piper. And it’s been very good to help us get the technical message out to even more people that perhaps hadn’t been looking at the charts before, that are now doing so. So not only have they been terrific, but the sales folks have been great along the way in terms of selling and redistributing and getting this out in front of people. It’s been a great experience all the way along. And the conversations while it gets competitive at points in time, we’re all competitive people. But at the end of the day, as Ralph Acampora would say, price is fact.

David Lundgren, CMT, CFA 28:14
Yeah, competitive is fine. Respectful is the most important thing. And it’s shared views. And, you know, it’s really interesting to the what you just highlighted in terms of the value of technicals. I mean, there’s there’s many levels to the value of technicals. But for the folks who are not technically oriented, what I’ve always found to be the greatest value of introducing technicals into a conversation in a group that’s not otherwise technically aware, is it sharpens the pencil and sharpens the focus on the disconnect between what the market saying and what everybody else in the room is saying. And as I always like to say the markets, the best fundamental analysts on the planet and in your job is as a technician, is to just listen to the best fundamental analyst on the planet. And if you can highlight those clear and obvious discrepancies between what the conversation is in the room, relative to what the market is trying to tell you. That’s one of the greatest values of so, you know, for any non-technician or -technically oriented investor who might be listening. I mean, that’s just one of the great values of getting CMTs on your team because they literally drive the most critical conversations. It’s the it’s the gap, right, Tyler? It’s the gap—

Tyler Wood, CMT 29:15
It’s the gap.

David Lundgren, CMT, CFA 29:15
—between fundamentals and technicals. And that’s what we’re trying to close that gap and, you know, credit your warrior in that in that effort. So, this is great examples of it.

Tyler Wood, CMT 29:23
So being in Minnesota, incredible agricultural and commodities driven region of the country, do you find yourself influenced at all or paying attention to intermarket relationships? And how does that play out with the macro team? Do you have folks who are specializing in on the currency markets or on some of these inflation driving commodities?

Craig Johnson, CMT, CFA 29:47
Well, Tyler, first and foremost, I think of Minnesota as sort of the the haven of technical sort of research. We’ve got myself here we’ve got Ralph Acampora here, we had Steve Leuthold here, we’ve had a number of great technicians coming out of Minneapolis. So I think what Minneapolis provides us is sort of we’re outside of sort of potentially groupthink that you might get pulled into, you know, in the New York area where everybody’s like, saying, so and so’s done this, so and so it’s done that we’re kind of just one step removed from some of that. So we can sort of just focus a little bit more clearly on the trends and the relative strength. And in terms of being in Minneapolis, being a obviously lots of agriculture here between farming between dairy and all the other pieces, you know, Tyler, we do bring some of that into our work. And we do have sections in our book that’ll have commodities, currencies, foreign markets, we’ll look at all these different things. And it’s fascinating for me right now, hearing about this entire discussion about inflation, and watching corn prices breaking down, and wheat prices breaking down and seeing these things. And it’s often been said to me by some pretty smart people that America runs on two things, cheap food and cheap fuel. And seems like that’s what’s happening at this point in time. So we try to pull all these things together. And then in terms of the intermarket relations, those are very, very important. And I think anybody that hasn’t read John Murphy’s book on inner market analysis, if you haven’t read it, you absolutely need to read it. It is the best book that I’ve ever read on it. And it’s been probably one of the most influential books for myself to think about these relations. And then bringing this back to the team to what your your question was, yes, I have these intermarket discussions with the macro team on a regular basis. And we’ll look at some of the relationships and correlations between these various pieces and point these things out, which I think they find interesting. But again, they’ve got their own tools and processes to help them make decisions. And again, we’ll try to complement what they’re doing point these various pieces out. But at the end of the day, we can have multiple opinions and multiple viewpoints. And that is ultimately a good thing.

Tyler Wood, CMT 32:08
Absolutely. Thanks, Craig.

David Lundgren, CMT, CFA 32:09
Do you know anything about crypto would you hear? Have you ever heard of it? Do you—?

Tyler Wood, CMT 32:15
How do you heat your house Craig?

Craig Johnson, CMT, CFA 32:18
For for everyone, that’s gonna be listening to this podcast. Yes. I’ve been mucking around with cryptocurrencies with my eldest son, probably since about 2016–2017. We’ve been doing that. And, yes, we’ve heated the house over the years using Litecoin miners more recently.

David Lundgren, CMT, CFA 32:37
That’s not a joke. By the way. He means that. He’s heated his house—tell the story about the utility company repair guy who showed up at your door saying what’s wrong with your heat that we’re not getting any bills?

Craig Johnson, CMT, CFA 32:48
Yeah. So that’s a good story. Dave. So years ago, this is probably I think, 2018–2019 timeframe, when we first started getting the servers up and running in the house. Before I even get to that, Dave, let me just say this. When I first fired up our first Bitcoin server back in 2016–2017, this thing started up and I could hear this thing winding up, and I could hear from my wife upstairs. “No, and hell no, are you running those things in the house,” because they are pretty loud when you get them up and running. So needless to say, that went down the road of figuring out how to soundproof part of my utility room. But as we grew over the years, in terms of the number of servers we put in, the electrical bills started going up, the heat started rising inside of the house. And you are right, that we weren’t using any natural gas, and the gas company came knocking on the door one time and they’re like, it’s like 20 below zero and the gas meter isn’t running. Can we come in and see what’s going on? And I said, Yeah, come on, in not a problem. And I showed him what I was doing. And they’re like, Okay, that’s a good idea. Repurpose the heat from these servers, put it back into the cold air return on the furnace and heat the house. Just let the blower motor run. Great utilization. I kind of think I’m green, but perhaps not. But at the end of the day, we’ve had that happen. And then Dave, we’ve also had the sheriff’s department over a few times because we’ve lit up a few screens on their end from heat signatures and other things on the house and probably not really normal to have the windows open. When I was trying to figure out our heat problem in the middle of winter for a few years either never needed to close the windows, you could just leave them open and walk around in shorts in the house. So needless to say my wife has been patient with this sort of hobby my son and I have had.

David Lundgren, CMT, CFA 34:41
I just want to restate it. I’m sure people have picked up on this but we’re talking about Minnesota here. We’re not talking about Florida.

Craig Johnson, CMT, CFA 34:49
We are talking about 20–30 below zero temperatures and sometimes colder and yes, you can use these things to certainly heat the house now. The opposite Dave is a little bit of problem in the summer, because you got to get rid of the heat, you can’t just throw it out of the house. And you can’t just throw all the hot air out of the house. Because what I’ve learned over the time is you put your house into a negative deficit. And when you do that, you can’t like open doors, you can’t do other things when you suck all the air out of the house. So yeah, you got to be cognizant of what you’re doing in terms of pressures in the house too, because that can also lead to mold or lead to other things like that I did not have any issues with those anybody wants to buy my house in the future. But what I will say though, is we did have to put in a separate air conditioning unit just to cool the miners that we have in the house. And one of the funniest, actually coldest days of the year back in 2018, or 2019. I had the air conditioning and heating and cooling, people over a 64,000 BTUs air conditioner. And we’re installing it in February when it’s 20 below zero. And these guys are coming to my house and they’re like, What do you need air conditioning for? It’s 20 below zero just open the windows, I’m like dude, the windows are already open. So needless to say, it’s been a learning experience. And it’s been a great sort of father/son project over the years to that we’ve had a lot of fun with.

David Lundgren, CMT, CFA 36:25

Tyler Wood, CMT 36:26
All the engineering that you don’t think about in cryptocurrency mining.

Craig Johnson, CMT, CFA 36:32
Yeah! You got to think about that. And then you also have to think about taxes, you have to think about trading, you have to think about position management and all these other things and how you’re going to depreciate your servers and all the other stuff that a lot of people don’t think about. But if you put it all together, is it profitable? It is profitable. You just need to put all the pieces together and it’s not going to be just a quick plug it in, set it up, let it run and you’re done. There’s more a lot more to it than that. But it’s been a good learning experience and certainly a lot of fun over the years.

Tyler Wood, CMT 37:07

David Lundgren, CMT, CFA 37:08
So let’s maybe transition a bit to your, your view on the markets here. I know you have had a, what’s no longer, well I guess it could still be a contrarian call because still a lot of people particularly in the macro space, don’t don’t believe in the bull market. But we spoke several months ago, you were pretty bullish on the market. Based on all those contrarian things that you had highlighted at the time thing seemed to be kind of turning the corner kind of coming to your view. Maybe give us an update. What do you like about the market, anything that worries you concerns you etc?

Craig Johnson, CMT, CFA 37:38
Yeah, so I guess from the kind of big picture perspective, and I’ll kind of drill into this. It seems to me that the momentum low was made in October. And since then, we’ve been making on a very simple perspective, a sort of series of higher highs and higher lows is what we’ve been starting to make. You can see that with the S&P 500. And the evidence, has just been sort of building is what we’ve been observing. We first started seeing multiple pushes up to the downtrend resistance line, Dave, off of the January 22 highs. And then we finally got through that. And we started reversing down trends on the S&P, the Dow, the NASDAQ, the Russell all those pieces started reversing, then we started seeing golden crossovers a 50 day moving average back above 200 day moving averages. And again, people are still continuing to fight that the trend has changed and reverse from a downtrend to an uptrend in the broader market sentiment along the way has remained predominantly negative. And then as of this week, we’ve now got sort of the start of potentially a bull market, your definition has been a 20% Advance off of a low is considered to be a bull market, you were up over 30 for the NASDAQ at this point in time, and there’s still tons of people that are like “this market can’t work, it’s going to crash,” and yet the trends have changed. And people just are ignoring the fact that price and trend has changed. And from my perspective, one of the more interesting pieces that I’d put out just in the last couple of weeks, in the big old informed investor book that you’ve got there, Tyler, is we went back and we looked at how often do we see the NASDAQ Composite out pace the Dow by at least 10% in any given quarter. And when we went back and did that analysis, we found that since the 1970s. You know, there’s only been about half a dozen, excuse me about a dozen times that you’ve seen the NASDAQ Composite outpaced the dow by at least 10%. And what’s fascinating to me is if I look at all those periods where that has happened, it’s happened after at least a 10 to 20% decline in the market. But we’ve also started to see the S&P moved back above its simple 40 week moving average. And we’ve seen that happen pretty much in each one of those instances. And the other interesting thing about that, too, is—and I didn’t realize this until after I got done with this analysis—I was on my Bloomberg, and I just said, How does this align with recessions? So I flipped on the little recession tool. And I was like, wow, this really only happens at the very end of recessions. And pretty much five out of the last five recessions, we’ve seen that the very end, the NASDAQ has outperformed the Dow by at least 10%, in five of the last five, and the recession windows. And then, Dave, I took it one step further, which we like to do is look at forward returns. And when I look at forward returns six months later, from having that performance, the NASDAQ outpacing the Dow by at least 10%, you’re higher on average, 7.03%, and your MIDI or your positivity rate is 69%. So you got pretty good odds that this is going to continue to play out in here. And I love taking all these sort of studies and pieces and putting it together. And it’s laying out for us the path. And for us, the path of least resistance continues to be higher for this market. And then one other thing if I could throw out there, I think it’s great to look at positioning data. So the commitment that traders report and look where people are positioned. And in the commitment that traders report, we are at in May, we were at some of the most negative positions on the S&P 500 E Minis that we’ve been at since periods like June of 2020, October of 2015, October of 2011. These are all periods where you had huge negative net positions with the E Mini futures. And I would just point out six months later, after that, you’re higher seven and a half percent of the time with a 75% probability. So again, putting all these things together, you start building that mosaic and framework telling us that this market is going to continue to keep working. And that’s sort of what we’ve been talking about. And then we’ve also had other studies we’ve done where you, in the first quarter of a new year, you don’t trade back below the December, prior December low, when that has happened. You’ve got really nice probabilities and setups for the four year return. So again, all these things together just continue to keep building be more evidence of a building on top of the mosaic of the evidence of why this market is going to go up combined with trend combined with relative strength and combined together with what you’re seeing with some of the dollar interest rates and all the other pieces. It’s all coming together nicely. Sentiment. Nobody believes.

David Lundgren, CMT, CFA 42:51
And it strikes me given everything you just said that your number one sector is probably technology.

Craig Johnson, CMT, CFA 42:57
Yes. With our tools. Again, we talked about earlier in this podcast that we put everything into a normal distribution. We do the same thing with our ratings too. And that’s a great question. So right now we’re overweight technology. We’re overweight industrials, and we’re overweight healthcare. And we’ve been underweight staples, underweight utilities, and we continue to think that the remaining sector to be underweight would be energy at this point in time, it started the rollover, we had played the energy trade for 82 weeks. And just recently, we downgraded in May as we’re starting to see energy beginning to really rollover. So again, if we play that sort of barbell Dave, as you’ve seen us talk about and Tyler, you’ve seen us talk about for years, if you can get two out of the three sector calls, right in a given year, you know that you’re going to outperform, or the differential between you’re underweight and you’re overweight, excuse me, is somewhere between 20 and 30% in any given year, that is the helpful and usefulness of total return relative strength at a sector level that can give you an advantage where other investors that are trying to just look at the individual equities are going to be missing, we want to get that sector call, right? We then want to get the industry group call right? And then we’ll think about the individual stock from there.

David Lundgren, CMT, CFA 44:18
How do you consider sector calls when like energy pretty much every energy stock trades the same? So it’s easy to say the energy sectors and underweight but when you get into consumer, industrials Tech, I mean there are so many different things going on in each side of those inside of each of those sectors that it’s not really a like when Tech was really bad. Not too long ago, semiconductors were on fire. So if you if you were underweight tech, what you should have done is basically overweight semis and underweight everything else until just recently with software, software’s catching a bit as well. So how do you differentiate between those two things?

Craig Johnson, CMT, CFA 44:51
I differentiate them by by doing this first and foremost, I got to stick to the discipline of the three overweights and three underweights Dave, so there’ll be some sector changes that we’ll make along the way. But again, we’ve got 406 industry groups inside of these 12 sectors. So I can then drill down into saying, yeah, maybe technology is a neutral at this point in time. But I can see from the total return relative strength work that semiconductors are standing out, just like IOD seeing that in energy, that it was kind of the large cap names that were sort of holding up there toward the end. And now they’ve started to sort of roll over too. So again, by having all these detailed groups, Dave, I can then drill down from the sector level, down to those industry groups to differentiate but still maintain what the overall sector rating ultimately is. And to that point, when we do construct our book, I take that into consideration. If I’m overweight a sector, it’s really easy for me to find multiple industry groups to call out that are positive. But if I’m neutral, a particular sector, I’m calling that out, if I do do that, I will then have a balanced approach inside of that group with maybe four positives, four negatives, and I’ll keep that sort of balanced approach. Because I do believe there’s always something to buy somewhere. And that’s the beautiful part about the total return relative strength work that we do do. And again, that’s how we find it ultimately helpful and useful for institutions.

Tyler Wood, CMT 46:20
So historically, we’ve often seen the leadership during the bear market follow through as the new leadership and the next bull phase. Were you surprised to see kind of the darlings of the COVID, crash, Raging Bull come back as leadership again, mega cap, tech names. And I guess the corollary to that is, the one piece of evidence that, you know, was was really damning to having an early bullish call was just the narrow leadership. We’re obviously starting to see breadth improvements now. But did that give you pause to see technology names and large cap growth, take the lead again, in this new emerging bull?

Craig Johnson, CMT, CFA 47:04
One of the best known technical rules out there is the rule of alternation that Louise Yamada has talked about. And I had a great time having this conversation with her at the CMT symposium that just took place in New York. And thank you Tyler for helping put that on. But it gave me an opportunity to sort of take some of these questions that I had for Louise, have the discussion with her. And sort of what I’ve realized is, if I draw the uptrend support line off of the right shoulder low of the 0809 bottom, we really never violated that. So if you’re going to have a true change of trend, you would then definitely say the rule of alternation would come into play. But we never broke that uptrend. So can we say that the bull market, really the secular bull market really ended? Probably not from that from that vantage point. And then in terms of the narrow leadership in this market, that is where I got to the question of “Why is the NASDAQ so outperforming the Dow?” And that’s where that narrow leadership sort of came into play. But as I’ve explained to a lot of institutions, we’re looking around as technicians to say, “What is the new leadership of this market?” And when you start observing what’s working, what’s not working, it just sort of told us that we’re having a resurrection of the fang stocks again. And that’s exactly what we, we started to see happen. And now, because we have the war plan, because we have all 5000 stocks that we’re looking at, we’re starting to see the breadth of this market improving new highs are beginning to expand, the number of groups that are trending in uptrend is improving, and the number of groups back above the 40 week. Was I surprised by the narrow leadership? It kind of just is what it is. We as technicians are humble observers of the market. And, again, I wouldn’t draw conclusions too quickly, like some have that because the market leadership is narrow that this is going to roll over, let’s examine what that narrow leadership was. And in fact, we called out in our publication, the fact that Microsoft, Apple, Nvidia, Meta, and Amazon represented about 40% of the weight to the triple Q’s. And if you looked at those charts individually, you’d say none of those are broken. You come to the very basic conclusion that the path of least resistance on a relative and absolute basis for those stocks is higher. And that’s a big part of the market. So you sort of got to give it the benefit of the doubt and be like, “{Yeah, this is going to work its way higher,” and then, Tyler, pair that thought together with ratio charts, looking at large versus small, growth versus value, and you can start to see some of the inflection points of the change back towards small mid cap stocks. And that is indeed starting to play out.

Tyler Wood, CMT 49:58
Particularly in those small cap growth names.

Craig Johnson, CMT, CFA 50:01
Absolutely. And so the question I get from everybody right now, Dave, is: What’s going to lead for the remainder part of the year? And can these large cap stocks continue to keep working? I wouldn’t be surprised if these large cap stocks just sort of went sideways, consolidated here for a while, because again, from the conversations that I have with a lot of institutions, they’re like, “We love Nvidia. But I’m at my mandate waiting, I can’t own any more of this.” So they’re writing calls against it. And so money’s coming out of that particular stock because they can’t own any more of it. By definition, the market has to broaden out. And I think that’s exactly what you’re starting to see happen at this point in time, but money coming out. And then again, you can see the confirmation of it on the ratio charts, or a base 100 chart, looking at the small bid and large s&p,

David Lundgren, CMT, CFA 50:52
So I know you you’d like to take contrarian perspectives, particularly when you know, bear markets are underway and things are getting extreme. Are you also willing, once the bull market has started? Are you also willing to take contrarian bets there and say, like, for instance, banks have been really pounded, we’re in a bull market, I’m gonna buy banks? or do you, once the bull markets are underway, you just go with what the leadership is,?

Craig Johnson, CMT, CFA 51:11
I just want to kind of go with what the leadership is, once the bull market’s kind of gotten started, Dave, and, you know, if there’s something that does worry me, it’s the banks have not participated, I got, you know, memories going back to 2007, where we started seeing the financials not engaged with the rest of the market. And so that’s been sort of one of the worrisome points, I would say, the fundamental folks haven’t brought this up enough, it does remain as a concern for me that they’re not participating. But I do recognize that this is, this is different than what we had in 2007, and ’08. That was a credit problem back then. And I could see when I go through and look at the beatable a spreads and those kinds of things. They’re not widening out the way that you did back in 2007, ’08 period of time, right now, this is a liquidity problem. And the liquidity problem kind of got quickly resolved by the Fed, they kind of broke the toy, they kind of fixed the toy, from my perspective, saying, hey, we’ll take in all the paper that you need to sell dollar for dollar. And we’ll put that facility in place for the next year. And it basically sort of fixed the toy pretty quickly from a liquidity perspective, that was starting to become a cascading problem. So to answer your question, Dave, I’m going to try to let the trends play their way out. I do think your financials are going to play some catch up. I’m starting to look at things like the KRE and some of these bank stocks. They’re trying to turn, they’re trying to move up. But would I rather buy that or what I’d rather buy a HubSpot that’s already already working and trending in a much better and stronger way? The answer is for the model portfolio that we run, which now does have a structured note behind it SOTOPUS S-O-T-O-P-U-S I have to have something in every single sector, Dave. So I will have exposure out there with a little bit of financials, again, a market weights, I’ll be market weight to that, but I’ll have more technology exposure.

Tyler Wood, CMT 53:10
So when you’re looking at financials, which is neutral rating, in this month’s Informed Investor, do you do the same relative strength work within those industry subgroups? Like would you be overweight? The insurance brokerage side and underweight some of the regional banks, at least right now based on relative strength leadership?

Craig Johnson, CMT, CFA 53:31
Yeah, absolutely, Tyler. And that’s exactly what we’ll do. It’s the exact same process, we’ll rinse and repeat. So we don’t own a lot of banks. We haven’t owned a lot of banks in a while. We’ve owned things like credit cards, we’ve owned some of the insurance companies, we’ve owned some of the investment banks, like Goldman, we stayed up cap, take that into consideration. And we’ve also own things like market makers and electronic traders like Tradeweb. And those kinds of names. So yeah, we’ll, absolutely. Even though we may be neutral to the sector, our goal is always trying to make money. So we’ll definitely be skewing toward the best relative performing and trending groups in a sector that may be neutral rated. Just like the same will do the same for underweight rating sectors. So they’re just, again, fewer options, and will be underweight. Yeah, that particular sector itself, too.

Tyler Wood, CMT 54:24
So then just to step back, one second to the index level, because we’re getting deeper into the composition 4625 sort of the year end target, everybody would like us to go in a straight line to that number and not have any bumps along the way. When you issue sort of a longer dated price target. There’s always going to be some chop. And I think in some earlier publications you were looking for, perhaps a drop, seasonally speaking or a 5% retracement on on this bull market. What are you seeing right now in terms of that breath expansion and some rotation that might, might maybe change your opinion to something more range bound and sideways rather than a sharper correction.

Craig Johnson, CMT, CFA 55:08
Yeah, I mean, you’re right. All investors want a straight line, sort of move in the market. And we all know, and everybody on the podcast here knows that the world does not work that way. What we laid out originally, Tyler, for the for the full year of 2023, is a little play on Dr. Seuss. We talked about a hop, a drop, and a pop. And with that sort of scenario, again, people look at me like, Craig, and you know, Dave, you said this to me before over the years, okay, we’re supposed to observe what’s happening today, don’t forecast looking going forward. But in the institutional world, and on the sell side, they want a prediction from us as what they ultimately want. And so what I’ll do is I’ll step back. And when I put together the hop, a drop and a pop for 2023, what I was looking at was a.) what does my year end price objective look like based upon my point and figure price target model that I’ve got, and then what events are coming up into the year that could sort of fluctuate and lead to that volatility. And so, from my perspective, I thought the hop would have probably ended in March. And it continues to keep hopping at this point in time, shall we say, I did adjust my drop scenario from what was originally something along at 10%, sort of dropped scenario, to one that’s now about 5%. In the most recent May Informed Investor publication, and I also sort of titled it more of a drop/chop phase, because I do think that this market is going to move up maybe could have to consolidate before you go on higher. But I do think that the pop phase is still playing out. And what I think will ultimately happen is if the Fed does pause, or when the Fed is ultimately done, we know that from your last hike to your first cut, from the Federal Reserve, that if you plot those charts out, which again, I love, charting out anything I can ultimately chart out, we know that you’re 12.93%, higher on average. And again, the beautiful part about the CMT Association, is you meet a lot of great people. This wasn’t my original idea that I put in here. I happen to get to know, have gotten to know, Sam Stovall over the years. And this was a idea he and I have talked about on a regular basis. And it ties together very nicely with all these other pieces. So the association is great for networking and meeting people. And I’ve met a lot of great people that are very thankful that I’ve met over the years.

Tyler Wood, CMT 57:47
Awesome. Well said.

David Lundgren, CMT, CFA 57:48
One of the conversations I’ve had what, particularly if you’re if you’re bullish when the market is “expensive” over the years that I’ve had with institutional colleagues, as I’m trying to convey to them a bullish stance, is that they just really push back hard on on valuation. So I’d be curious to know how you handle that situation? How do you coach institutional investors through this conversation about valuation?

Craig Johnson, CMT, CFA 58:12
In terms of trying to go through the valuation conversation with them, it’s a harder conversation to ultimately have because they will end up sort of talking themselves out of the market, when they should probably stay in the market. And so what I tried to coach him is, yeah, you can be concerned about valuation, but this market may continue to keep going higher, whether we like it or not. So we’re better off putting a trendline below this, or we’re better off putting some moving averages into the discussion here. And let the let the stock work until you break one of these trend lines or break one of these, you know, moving averages, ultimately is how I tried to coach him through it. Even using tools like RSI, I would say, don’t get too overly carried away, because some of your best momentum and some of your best moves happen when your RSI is north of 70. And it’s not until you break back below that 70 level that you would ultimately want to sort of take some of the money off the table. So I think that’s how I would coach him and I have coached him over the years on these kinds of things, Dave, and also, it doesn’t hurt to take some profits if you’re super nervous on it. If its position size is getting to be uncomfortably large. There’s more factors than just trend that come into play with these institutions. And again, like I said earlier with Nvidia, if they’re out there mandate, they can add anymore. You might as well trim some if you’re uncomfortable within redeployed elsewhere. So price will come into play, but also the positioning and portfolio positioning has got to be a part of the discussion too, Dave.

David Lundgren, CMT, CFA 59:46
Yeah. I’m curious if you have any view or if you’ve been asked or you’ve had conversations about whether or not AI is a bubble, what you’re finding in that space technically, is that something you’d be overweight and then just can you couch that conversation in the view of whether or not you think it’s a bubble or not?

Craig Johnson, CMT, CFA 1:00:01
Sure. I mean, I’ll be straightforward. I don’t think that AI is a bubble—yet, AI has the potential to become a bubble, just like the Internet became a bubble. And if you think back why this became a bubble. So just a quick step back in history, when I started at Piper in 1995, I was like the coolest guy in research because they let me have a dial up modem at work. Okay. This is like a 28 baud dial up modem. And I’m showing him like, look at all these things you can do on the internet. And they thought that I was crazy. And at one point in time, I had a sunglass store on the internet with my brother called EJ sunglasses, which he closed last year, after I gave it to him, because I didn’t think he was doing things the right way. But that’s another discussion for another day. But, but at the end of the day, what I will say is, I think that what drove the bubble for the dot com was, there was a huge demand for internet related things to happen, the bankers brought a ton of product to market, and it came all too quickly, we haven’t even started to see any IPOs related to AI at this point in time, there’s a ton of venture capital, where there’s tons of projects, and those things will eventually need to come public. But it’s gonna take, Dave, I think, higher interest rates before it becomes from a capital perspective, better to go public than it is to borrow money from the banks. And I think that cycle is still yet to come in front of us. So I don’t think the ingredients are the same as a bubble at this point in time, some people have been calling Nvidia a bubble at this point in time. And it’s time to take money off the table. And I’m kinda like, they’re kind of like the picks, the axes, and the shovels of what you need to do a lot of this AI stuff. And I’ll just make the observation that there’s only been 30 times since Nvidia came public where you had greater than a single day return greater than 15%. And if you look back six months later, to a year later, you’re higher, basically 90% of the time with a return close to 48%. So you’re not there yet, calling Nvidia, a bubble. And for the entire group, you’re not there. I have seen a bubble and the bubble was the internet. And this is not even close to where that is. It’s got the potential to be a bubble. But it’s also got the potential to significantly drive productivity in the economy. For those listening on the podcast, I have started to do some Python programming using an API in the chatGBT. And I could tell you my code development of writing Python has been sped up tremendously by using chatGBT, it’s an AI, those things are absolutely terrific. But the bubble is not here yet. It’s a long way to go.

David Lundgren, CMT, CFA 1:02:53
One of the things I point to when people ask me if it’s a bubble is you know what, when you have a bubble, it’s basically an acceleration of returns over a six to 12 month period, into meaningful new record high territory. And if you look at an example of an AI ETF would be BOTZ B-O-T-Z and siphon at a 52 week high yet? Yeah, that’s not a bubble.

Craig Johnson, CMT, CFA 1:03:12
It’s not it’s not a bubble. And I also look at what they have inside of some of these ETFs. And I’m kinda like, yeah, there’s really not enough product here yet at this point in time, not enough companies. True companies doing AI have come public yet. But I think that is on the common I think what we should all be watching for anybody listening to the podcast is keep track of just how many of these AI related companies come public in the coming months and coming quarters, because I think it’s going to be quite a few.

David Lundgren, CMT, CFA 1:03:41

Craig Johnson, CMT, CFA 1:03:42
I wonder what the correlation is between those calling for a bubble in AI and those who got burned on their SPAC investments? Couple years ago, right? Some recency bias at play with a lot of these naysayers. I would also just point out that a lot of the macro people that are negative on the market are also calling out AI as a speculative bubble too. Very similar. But I agree with you, Tyler can be some of the SPACs along the way, too.

Tyler Wood, CMT 1:04:09
So in the gold rush to AI, we’ve got to think about Nvidia and others as the picks, axes, and shovels that help people get there.

Craig Johnson, CMT, CFA 1:04:18
And that, again that, this—let me add one more thing, Tyler if I could, that is exactly what happened back in the internet days, is you needed the infrastructure built so that you had all of the on ramps onto the internet, you had the backbone put in place, you had the storage, you had all the other things. If you think about AI, you need a ton of processing power, you need a ton of memory, you need very low latency networks. You need all those pieces that come into play. And it’s just further driving that picks, axes, and shovels sort of phenomena again, but those are the early stages of ultimately a change. And then if I could add one other thing people keep saying that AI is potentially going to be dangerous, it’s going to be a problem. It’s going to be these kinds of things. I think it’s just an evolution of how productive we can ultimately be. I think it’s definitely going to drive higher productivity. And I think some of the jobs are going to be impacted right away. I mean, no question coding, programming, all these things. I mean, I can literally go into chatGBT and say, Hey, I need a Python script to copy files from location A to location B, write that for me. And it’ll basically spit it out for you in a couple of minutes. And you can tweak it, you’re done. service jobs, clearly. I’ve had one gentleman in Geneva, Switzerland, say to me that I’m a dinosaur. And technical analysis is going to be replaced by AI. And I just kind of pulled out for him the the top guideline that, that may be true Mav, but not today. That’s kind of how I think about the world of technical analysis in AI.

Tyler Wood, CMT 1:06:03
I mean, total opinion piece here, but it does seem like the accounting industry might be more readily disrupted by repetitive tasks that can be easily replicated by AI, rather than the interpretive work that technical analysts need to do. Craig, you just made an offhand comment about a higher interest rate environment that might generate a frothier IPO market, when it becomes more advantageous to go public than to debt finance any of these projects. We haven’t really talked about the major secular inflection on you know, like a quarterly chart of the TNX, we can see that, you know, I basically came into the world at the top of the market, and it’s been, it’s been down for about 41 years until recently. We’ve had this this sideways consolidation since the highs in October last year on something like the TNX. Are you looking for it to break above that downward sloping trend channel? And if so, what what do you think the implications are for the equity markets, but maybe more specifically, what do you think the implications are for the crypto markets?

Craig Johnson, CMT, CFA 1:07:13
Okay, so let’s, let’s address the bonds first, we’ll go to equities, and then we’ll hit up Cryptos. So ultimately, I think that the secular change, and again, secular long term 40 year plus downtrend, reversal and 10 year bond yields is the single most significant chart that any technician is going to see probably in our career. And Dave, I think you got a long career still ahead of you. So I just want to let you know. So.

Tyler Wood, CMT 1:07:38
Tell us how you really feel Craig! The most important chart—

Craig Johnson, CMT, CFA 1:07:42
Long career so—most important chart. And what I would say is, we all know that if you study price action at the market, that once you reverse a long term secular trend, you surge through it. And then you usually spend time backing and filling. And I suspect that you could see through the course of this year, Tyler backing you filling back toward three, three and a quarter from where we are right now. And that would not surprise me at all to see that sort of short term backing and filling. Could there be a point in time where ultimately sort of the 10 year bond yield just goes sideways for a while? I think the answer to that is yes. We saw that coming out of World War Two, when you had the major sort of spinning down or unwinding of the war footing and production and all those kinds of things that took place, you started seeing interest rates moving up. But eventually they got sort of capped and stuck in a range for about 10 years, I would not be surprised to see that happen. Given the fact we’ve got $32–$33 trillion of debt sitting out there. Having rates going up too quickly, would be very negative. And I think everybody in Washington, Republicans and Democrats are well aware of that happening. And hence they got the debt ceiling issues, I think squared away pretty quickly because they do not need to default and have higher interest rates. Now play that into the equity market. I do think that coming off of these zero sort of 10 year bond yields type rates. And by the way, just years and years, it was a couple years ago, you had Austria come out and issue, you know, 100 year bonds. I mean, they’re my heroes, like they absolutely nailed that completely perfectly. And now they put the country in very good financial footing for 100 plus years with how much they issue. I was surprised how much people snap that up, but be that as it is. Now in terms of equities, rates going higher, moving up in here a little bit, I think that will ultimately lead to people changing how they finance things. There’ll be more banking that’s going to come into play. There’ll be more initial and IPO offerings to take place. I think that will ultimately be good for Wall Street across the board. I think that also mean that with some higher inflation out there, I think equities will probably be a pretty decent place ultimately to be, from my perspective, I don’t think inflation is gonna get carried away. I don’t think it’s going to go to some 1970s type level, maybe down the road that could be but right now, I don’t I don’t see that being the case. And then putting that back into the crypto world, you know, slightly higher interest rates in different Cryptos could be a little bit of a negative for Cryptos. I mean, they certainly did very well, in a very, very low interest rate environment. But I think what’s going to ultimately make Cryptos work in a low environment or a higher environment is ultimately going to be rules of the road getting established. This saber rattling between Gary Gensler and Coinbase, at this point in time, I think is terrific. It’s going to clear the path for the rules and regulations. I do not believe this is again, my perspective. But I do not believe that they want to kill the cryptocurrency industry as some people are speculating, because guess what, I’m paying taxes. And anybody else that is out there trading the cryptocurrencies or mining it are paying ordinary income or capital gains taxes on the trading that they’re doing. And the US government with $32–$33 trillion in debt shouldn’t be cutting off any sort of potential revenue stream for them. So I think Cryptos will work. And it will be it will be a viable, I think, alternative in the future. Excellent. And that higher yield higher interest rates, do you see that impacting the longer dated growth equities? I mean, do you think we’ll see a leadership change away from, certainly non-profitable tech, but growth equities as a whole? I think only if you saw interest rates to say move up to 6 or 7%. But that’s not what I’m thinking at this point in time. I’m thinking that 10 year bond yields could get stuck in a range of 3 to 4%. And from that perspective, to stuck at a range of 3 to 4%, I think you can still see those long dated pieces, you know, work okay. Thank you, Craig. Awesome. We’ve had you for about an hour now. So I know you’re extremely busy guy. I know you got a ton of calls today. So absolutely. On behalf of the CMT Association, myself and Tyler, I want to say thank you very much for your time today. Of course, thank you very much for all your service within the CMT Association, it’s—you’ve been a valuable asset of the organization, a big reason for why people join us so they can get to know Craig better. So thank you for that. Tyler, do you have any wrap up questions before we let the man go?

Tyler Wood, CMT 1:12:45
I will just say that one of the projects for the 50th anniversary CMT symposium was to write a history of markets and of this wonderful organization since the late 1960s. And I was tasked with writing a little commentary about the future of the organization, but also about our global expansion. And Craig Johnson, I may have more pictures of you at conferences, seminars, events, chapter meetings, long range planning. It’s been a real pleasure to work with you since I first joined in 2011. And believe at that time, you were you were the secretary of the board quickly moved to Vice President and then became the president at a time that was a real pivot point for technicians. We re-worked the CMT curriculum, you had an incredible supporting role, shouldering a lot of responsibilities through a big change process, as well as the change of the name of the organization, from MTA to the CMT Association. And for all of our listeners, Craig Johnson is probably one of the most open, friendly, ready to mentor, happy-to-answer-your-question, kind of members of this organization. So thank you for being such a staunch advocate and an awesome mentor. It’s been been quite the run.

Craig Johnson, CMT, CFA 1:14:02
Well, Tyler, thank you for the kind words, but I got to tell you, so we’re still on the board of the Technical Analysis Educational Foundation, and there’s still more changed to get done. And even though I’m not present in around the CMT board anymore, I still think we’ve got more things we’d like to get done to help the organization as a whole. So here, you’ll hear from me in the near future on some of these new topics and projects that I would love to get cleaned up and done.

Tyler Wood, CMT 1:14:28
Cannot wait. For all of our listeners, make sure to check the show notes. We’ll have some links in there and and a few charts to help guide this conversation. Craig, as always, pleasure to get your thoughts on the market. Great to see you and hopefully Dave and I will get back to Minnesota one of these days soon. So we can, you know, have one of those green belts that Minnesota is so famous for.

Craig Johnson, CMT, CFA 1:14:52
Happy to do it. Thanks, Tyler. Thanks, Dave. Appreciate it. You got it.

Tyler Wood, CMT 1:15:01
Fill the Gap is brought to you with support from Optima. In addition to candidates study of the official CMT curriculum. Optima provides a full video course on all of the material that candidates need to know for each level of the CMT exams. Each course is broken up into modules ranging from 15 to 45 minutes depending on the complexity and length of the topics being covered, learn more at


Craig Johnson, CMT, CFA

Craig W. Johnson, CMT, CFA

Craig W. Johnson, CMT, CFA is a Managing Director and Senior Technical Research Analyst currently directing Piper Sandler's technical research group. Johnson joined Piper Jaffray in 1995 as an analyst in the firm's private client research department. He offers frequent technical...

Dave Lundgren, CMT, CFA

David Lundgren, CMT, CFA

David Lundgren has more than three decades of investment industry experience, with a focus on technical analysis strategies, particularly momentum and trend following.   He is the former Director of Technical Research at Wellington Management, where he was also a...

Tyler Wood, CMT - 2023

Tyler Wood, CMT

Tyler Wood serves as Managing Director of CMT Association with the aim of elevating investors’ mastery and skill in mitigating market risk and maximizing return in capital markets through a rigorous credentialing process, professional ethics, and continuous education. He...