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Speaker 3If we don't see that rebound that the oversold metrics would suggest, then I think that's probably a message from the market that we have breakdowns being confirmed.
Speaker 4Welcome to Thoughtful Money. I'm the Thoughtful Money founder and your host, Adam Taggart. Very excited to welcome you here. I'm happy to be here for a very timely discussion with Katie Stockton of Fairlead Strategies. Katie, thanks so much for joining us.
Speaker 3Of course, Adam. Good to be back.
Speaker 4Well, great to have you here, and I very much appreciate you making the time today to speak with us because I'm sure it's a very busy Monday for you after last week's action. Markets sold off at the end of last week, largely over concerns about AI and AI-related companies. At this point, four of the MAG-7s. are now in bear market territory, since their highs earlier this year, that MAG-7 complex is down something like $4 trillion in market cap. And it's not just the AI stocks that have been weakening of late, if you look back at all the other stocks in the S&P 500, I think it's something like well over 60% of the stocks in the S&P are down over 20% from their all-time highs. So, look, I mean, the S&P is still up for the year. This isn't Armageddon. But this weakness is really starting to get people's attention. And I'm starting to hear and see the term "breakdown" in the media here. Is this a breakdown in progress, or is this more likely to be sort of a market slump that's approaching some sort of exhaustion level and then setting up stocks for a rally into the end of the year?
Speaker 3Well, we would hope that it's the latter, but it's just not quite there yet, right, in terms of being overdone, perhaps, on the downside. perhaps on the downside, if indeed we have breakdowns. And that's still sort of in the balance of this week's action. Of course, we have the midterm elections for the market to absorb. We have Apple's earnings for the market to absorb. So there's more to come in terms of potential volatility producing events here.
Speaker 4NVIDIA is still coming up too, right?
Speaker 3Yeah, yeah. So yeah, exactly. And that means also the semis in general will likely still be volatile as we go forward. So it's a matter of whether those breakdowns that we saw on Friday are actually confirmed. So in our work, it's really important to see not just a level that's penetrated, but for price to stay below for either a couple of days, a couple of weeks, depending on the magnitude of the breakdowns. We are somewhat subjective in how we're approaching it, but these levels are based on historical support, typically. And or maybe a moving average. We have something that we use called the cloud model. And these support levels, the initial levels are very much in play right now for the major indices. The S&P is always our primary input. So the SPX, the NASDAQ 100 is a secondary input, and it is below its support level that we had been watching, whereas the S&P 500 has a little bit of room still. So we wouldn't call this a decisive breakdown yet. If we fail to see, a rebound this week, especially by that NASDAQ 100 index, which is so heavy in its exposure to the mega caps, which have been under pressure in addition to technology as a whole, that's going to be a setback, right? We are, of course, seeing them in some of the earnings-driven declines that we've had already, the likes of Intel for one. But it comes at a time for sure when sentiment is pretty fearful. And so, like you said, investors are definitely paying attention to what's going on. They're pretty uneasy, I think, is the way the numbers reflect things in terms of their positioning, because they're worried that the AI trade has lost that momentum. And indeed, it has in some ways. So we want to make sure that these levels are holding. And at least, you know, for the major indices.
Speaker 4Okay. So let's, you know, you're in the business of odds and probabilities, right? I mean, it's nobody knows the future. The best you can do is just look at the data that you have and try to make your best forecasts. Let's assume for a moment that these breakdowns are confirmed over the next week or two. What would your top expectation be in terms of, okay, how much farther would they then fall, right? Is this the kind of thing that if they punch down through these key support levels, is there a sizable air pocket that you estimate to be then lying below that? Or would they just sort of hang out? Are they more likely just to kind of hang out, you know, slightly below these broken levels?
Speaker 3Yeah, I would say that it depends, of course, on the stock that you're evaluating, because some of them do indeed have a bit of a vacuum of potential support, because they had rallied so steeply that they didn't have enough support. And so, you know, I would say that it depends, of course, on the stock that you're evaluating, because some of them do indeed have a bit of a vacuum of potential support, because they had rallied so steeply that they didn't have enough And that means there's no like peaks or troughs we can use. But we can use things like Fibonacci retracement levels when we have to get creative. But we do use support as a gauge of downside risk when you see a breakdown. It doesn't act as a magnet, but it is a likely area for buyers to step in is how we think about it. So it isn't necessarily a price objective, but it does sometimes frame downside risk after a breakdown. And in general, it's a good idea to have a risk objective. And in general, if you look at support levels, I would say I'd put them in on average, maybe seven or 8% below the current levels that are in play. And so that doesn't mean the average stock necessarily is doing exactly that. But it's it's about what we would have in mind as a risk metric going forward. And I think importantly, it would just mean that we have weakened intermediate term momentum, it would not only suggest that the corrective phase or pull back should deepen, but it would also suggest that the corrective phase or pullback should deepen. But also become more prolonged. And, and then it becomes a matter of does that then yield a bigger breakdown, meaning that the cyclical uptrend that still is very much intact is put in jeopardy.
Speaker 4Okay. And I looked at one of your recent research reports. But it seems like should the S&P break down below the support level that you're concerned about, seven, 8% below that is what we're talking like, 7200 or so on the S&P?
Speaker 3Right, there is the 200 day moving average, there's a Fibonacci retracement level around, I think the 7240 area. So there, it's not like the bottom drops out in terms of the next support level. And there's even additional levels that perhaps maybe aren't as important, but could come into play. I think it's more important that we also reference the technical indicators. So it's not just the levels, but how they're playing with the indicators that we use. And we think about things like the stochastic oscillator, which is a measure of overbought and oversold levels. Well, once we see an oversold condition come into place per those stochastics, it's more likely that you will see a support level hold. Things like that, we can kind of nuance how high or low conviction it would be for the S&P or anything to reach a key level on the chart. And right now we have a short term oversold condition, and that would support that we see stabilization. And perhaps that does preserve the support. But we don't quite have widespread oversold conditions on the weeklies, meaning intermediate term oversold conditions are not in place yet. So that means it could get worse, of course, even if it stabilizes here in the very near term. So these are the types of things that we watch as technicians, we try to put that weight of the evidence in favor of our current bias or positioning.
Speaker 4Okay. And, you know, with technicals, oftentimes when things get oversold, even if momentum still appears to be to the downtrend, you can start to get signals like buy signals that would give you, you know, more confidence to say, hey, this thing might be getting near being played out and whatnot. It does not sound like right now, at least in terms of the main equity indices, that you're seeing any buy signals yet, correct?
Speaker 3That's right. Yeah, I think that's a good point. I think that's a good point. weighted the evidence that we should see it stop going down here for the next few days at a minimum. But we are not seeing the buy signals because the buy signals require a deeper decline. So there are counter trends, some of the triggers that we watch, if you watch the Demark indicators as one, and they will not trigger buy signals until you see more prolonged weakness than we have had. There's certainly some stocks when we do our bottom up work that have had deep declines. We featured recently MGM as one good example of that. I think it had 17 consecutive down weeks, and that was plenty for
Speaker 4it to generate these counter trends.
Speaker 3It doesn't have to be that dramatic, thankfully, but we don't have a lot of buy signals yet, even from a bottom up perspective. But when we see them, we certainly pay attention. Interestingly, there is a signal that just popped up in the price of gold. So gold is testing support of its own. It has been downtrending. It's not acting defensively of late. And that might be an interesting thing for folks to check out. All right.
Speaker 4I actually want to ask you about that. But let me put that aside for a moment just to finish on the equity side here. So obviously, a lot of focus on the AI stocks and the AI complex for a whole bunch of reasons. But I think one of the absolute largest ones, and this is why I spend so much time talking about it, is there's just so much revolving. Both in terms of the market itself, right? AI and A-related stocks. I think their market cap is getting close to like 50% of the S&P. So obviously, there have been a number of sort of value stocks that have actually done pretty well in the past couple of weeks, but it hasn't mattered because these massive market cap AI stocks have been weak, as we've talked about, and that's pulled the overall S&P down. So as those stocks go, that's tend to where the major indices go. But also the economy. You know, so much of our economic growth is being driven right now by capex spending. So, of course, the worry is, is if something derails the AI train, then kind of the wheels go off for everybody, right? And I'm not trying to deliver that message here by any stretch. In fact, the question I sort of want to ask you is, let me make a perhaps not very good analogy, and then I'll ask my question of you. You know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been saying for a good while, as we've been talking, you know, I've been saying for a good while, as we've been into 2026, I said, look, folks, I could see a potential here where the market doesn't perform very well this year. And it actually has. So far, it sort of proved me wrong there. But I said, I could see a situation where the market doesn't perform very well, but economic growth strengthens. And that's because the economy is not the market. They are separate things. We tend to think of them as being extremely correlated, so much correlated that people just assume they're kind of the same thing. Economy up, stocks up. But valuations come into play at some point where they can just be too rich. And you can have a sell-off in the market while the economy continues to power higher. The reason why I mention all this, and you're nodding sort of as I'm saying this, so contradict me verbally if you disagree with me. But we could have a scenario where these stocks, to the extent that there is froth in them, that the froth starts to come out. And yet, the spending in the economy is not going to be as good as it used to be. And yet, the spending in the economy from AI continues. And I say that because I've had a number of people on the channel recently who have their own data sets that they're looking at about the AI megatrend, Jan van Eyck being a good one. And he just looks very closely at the demand for compute. And he says, if you still look at that, demand way outstrips supply. It's still just inexhaustible at this point. And to start calling that this trend is starting to break down, he would want to see some sort of slowdown in that demand for compute. Separately, I interviewed Craig Fuller recently, who's the CEO of FreightWaves, the largest transportation data monitoring firm out there. And he said, when he looks at just transport and shipping data, of shipping all the materials that are building these data centers across the country, he says, there, it's not slowing down at all as well. So I'm reluctant to really entertain calls for, oh, the AI trend is breaking down until we start seeing weaknesses in those things. But that doesn't mean that even if the economic trend is still continuing strong, doesn't mean that the actual prices of these companies could sell off materially. What are your thoughts on that?
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Speaker 3Right. Well, when I think about it, I agree, of course, as a technician that you can see the market diverge from the economy. And it can happen for sometimes an extended duration. I do believe that there, our market cycles are often related to weaker economic climates, right? So we do have that over history. Sometimes with a lead or lag, that's pretty significant. So it does, you know, remind us of why we are trend followers. You know, we want to make sure that we keep these primary trends on our side. And so as a technician, that takes real importance that we want to identify the prevailing long-term trends. Right now, they still are positive as it's stands. And then we also monitor some economic inputs from a technical perspective. Right now, one of our biggest inputs is credit spreads. So looking sort of across the board on that front, they are elevated to the point where we're really paying attention. We do track some relative to historical resistance levels and whether they're appearing to reverse longer-term secular downtrends. And that, to us, would be a pretty major risk metric for the equity market, because historically, it has been associated with either very significant corrections when you see them widen to a degree, or even bear market cycles that aren't associated with recessions. So we are paying very close attention to the action in credit spreads, even if it's just from a technical perspective. We do think it's a good read in a way on the economy and how it could tie to the economy. Right now, we're looking at the future of the stock market. So that's a big one for us. We believe that the fundamentals drive long-term trends. So that would certainly apply to AI. So if you're bullish on AI build-out and growth, and most people seem to be, well, that should be the driver of a long-term trend. And that long-term uptrend is underway, still has positive long-term momentum. But listen, it's not going to go higher all the time, right? So still within that context, we can have corrective phases. And it's something that, you know, if investors can track valuations, I'm sure there will be times at which they feel that valuations are more compelling, perhaps, than they are right now. So then it can be more on a case-by-case basis. And with corrective phases, it will often differentiate the winners and the losers. So as much as it can be somewhat painful if you have broad exposure, it can show you where that relative performance comes from on the downside and the upside. So it's good to have these, you know, the variety in the market environment. And, you know, there is a guarantee from the market that it won't always go straight up. We know that already. So we've learned that the hard way, I guess. But AI, I think right now, it's just like the NASDAQ 100. If you look at an AI ETF, they're all testing support levels after last week's action. So it'll be really interesting to how they do respond to the election. Is it going to be enough of a rebound, perhaps, to let them reclaim short-term support levels? And that would then suggest that perhaps we're not seeing the beginnings of something more significant in terms of downside. And listen, if we are, well, then think of that as maybe a healthy reset within a secular uptrend, but one that could be a bit painful to your portfolio. And then meantime, and that's simply a great time usually to get ahead and you can do it a top-down hedge, you know, buy some inverse ETF maybe to cover part of that exposure and, you know, be more overweight in defensive or lower correlation areas of the markets. Okay. All right.
Speaker 4So if I took correct enough notes here, it sounds like right now with the data that you're looking at, the uptrend in tech is still intact. We're not even in a correction of it yet, but we're now testing some of the support levels, is why you're looking closely at them. If we do break through, you'll then think that this is still a correction within the uptrend in the last thing to break down even further that approves to you. It's something bigger than that. But right now is best. Your data is telling you that your expectation is still higher over time.
Speaker 3Yeah. And I think, listen, it's almost always the right way to be is to be a secular bull. And it's a matter of whether the longer term indicators that we track, which are still mostly positive, if they deteriorate to a great degree. So it's not even just watching the secondary support levels that have a bit more importance than the current ones, but then also to reference the long-term trend following metrics that we have, things like the monthly MACD indicator. These are slow moving indicators and they have a lag to them, but that lag is by design. It shows you when there's a significant enough shift to do something
Speaker 4about it. It's to smooth out the noise, right?
Speaker 3Yeah. That's right. And we wouldn't treat a correction as noise. We would certainly recommend investors get hedged through something that is a bit more severe than what we've already seen. So that's the takeaway that we're trying to arrive at after this week's action. But the bigger picture, are we entering a bear cycle? We will be referring to those long-term indicators for the major indices. We'll always be looking at things like market breadth and sentiment, and then also credit spreads and some of those sort of macro technical inputs can be information.
Speaker 4Got it. And just, again, don't let me speak for you, but your short answer to that question is, you know, are we seeing reversal of trend? You would say not yet. Not yet. Yeah. Okay. I want to get to your outlook for 2027, but I'm trying to get there first through equities, then through bonds, and then I'll ask you just directly what you're expecting. But in bonds, you already mentioned that credit spreads are blowing out, which is meaningful for the reasons that you mentioned. But also a big theme of this year is that bond yields have continued going higher and actually got higher faster than I think most people were expecting for this year. You remember from years past the phrase, there is an alternative. You've got to go out on the risk curve because bonds are giving you nothing. Now bonds are giving you something. They're giving you a positive real return. And presumably that will cause some capital to leave equity for debt to say, hey, I don't need to take as much risk. I can get a pretty decent return here for a lot more safety. How is that changing the investing landscape, if at all here? And are these higher yields, if they remain and perhaps even go higher from here, what impact do you expect that to have across asset prices across the board?
Speaker 3I mean, listen, I wouldn't expect anyone to take their equity exposure down to zero and move fully into bonds, right? So the equity market will always hold that importance as a growth-oriented asset. And, you know, it partly relates to not only your risk sort of appetite, but also or tolerance. Your age will matter as to how much you will allocate or be willing to allocate to fixed income versus equities. We as technicians. Are very much attuned to, well, we want to just make money, right? We want to just ride the ones that are in uptrends. So we've not been overweight in our recommendation for a fixed income because, of course, bond prices have gone lower. But we also agree that at a certain point, the yield becomes attractive enough to certainly cause some movement into fixed income and certainly more defensive positioning in general. So it's almost like a dynamic approach. It's almost like a dynamic approach to that relationship is probably appropriate for most people if they're willing to move things around related to their age, their risk tolerance, the current market environment. And we do think that it will happen because we think there's been a secular shift higher in yields. That's obvious now, but we were talking about it for years. And that's because of the indicators having turned. It's because of our longer-term trend following thresholds were cleared. We saw a triangle formation completed. And we're starting to see some of that change. And I think that's something that we're going to see in the future as well. So we're going to see some of that change. So we do think there is some real attractiveness in that takeaway. So we have in our own ETF that we manage moved partly. into treasuries after having been mostly equities in our exposure over the course of this year. So we do have a bigger position than we have recently in fixed income. So we think there should be some migration to that as kind of ballast for a portfolio. And maybe I'll create a good segue for you here in terms of gold also being that perhaps as a lesser correlated or even at times negatively correlated. And maybe I'll create a good segue for you here in terms of gold also being that lesser correlated or even at times negatively correlated. asset to consider for that ballast for portfolio.
Speaker 4Okay, so I will take that opportunity to dig more into gold with you here. So technically, gold has looked terrible the past couple of months. I mean, really for much of the year, right? I mean, it's crazy blow off spike and I will pat myself and many other gold analysts who appeared on this channel back in the early 2000s. in January and said, folks, this is time to be at a minimum hedging, if not taking gains, you know, this is clearly looks like a blow off top and of course, it proved to be one. But the weakness has continued pretty much all year long. We're here in November now, and the last week, gold broke down into new lows for the year, and pretty much down, I mean, almost every day for two months, and it's really just kind of just no strength there. If I heard you correctly, it sounds like some of your indicators are now beginning to give you hope that a bottom, at least near term bottom may be in sight here. What specifically if I'm correct, in that statement, what specifically are you looking at that is giving you that impression?
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Speaker 3For gold, and it is a downtrend, as you mentioned, and the indicators have supported that for some time, as you'd guess after that blow off top. But now it's the Demark indicator. It's combined with our other overbought oversold metrics that are suggesting that at least a near term low is probably within reach. And I'm sorry to interrupt, but just
Speaker 4in your answer, could you briefly explain what a Demark indicator is and why it's important?
Speaker 3Of course. So their price based tools are measuring essentially how one week will act relative to a previous week and assigning sequential numbers to to gauge trend exhaustion is the design. So they're really looking. At the price bars relative to history, and if you continually see a security or gold go lower and lower and lower, eventually gets to the point where just based on historical patterns, it gets overstretched to the downside. So we're at this place where for the next few weeks we would expect stabilization based on those indicators that could help preserve the support, which for us is around thirty nine hundred per ounce. There is additional support around thirty six hundred per ounce. If it doesn't hold. But we think there's almost value in just the lower correlation that it offers to other asset classes. We like the idea of having diversification, even if it's a small position at this point, you're getting something that looks different, right? Different than the I trade for one. And so we're comfortable with gold as a hedging instrument for diversification, but the trend is certainly lower and it still has that downside. Momentum. So it's not attractive in the way that we would say when it's an uptrend with a positive catalyst or strong momentum, that that's not the case for gold, of course, right now. But we're comfortable still having small positions.
Speaker 4OK, so it sounds like don't let me say this incorrectly, but your your indicators to Mark and otherwise are showing that the the rubber band is stretched so much it's not likely to stretch much longer, at least here in the near term to to get. Let's say positive on gold's future price direction. What would you need to see? Would you need to see a sharp snapback above a certain price level or. could it just be consolidation for some period of time it
Speaker 3could just be consolidation it could be i guess one or the other as long as it impacts our indicators so we don't try to buy necessarily into the downdraft right but rather
Speaker 4when it gets the falling knife yeah yeah
Speaker 3yeah there's always risk to that so we'd like to see stabilization and that stabilization serves to sometimes confirm the signals that we're seeing. It will also show support discovery, right, that buyers are actually stepping in. You don't necessarily need to be the first one. And then also if a resistance level, something maybe even very short term, like a 20-day moving average or 50-day moving average, whatever is your comfort level, if something is cleared or you see a minor breakout from the consolidation, those would all be indications that at least an intermediate term low is being established by gold because it certainly is oversold. It's actually almost oversold also from a long-term perspective. And that would be another reason that, okay, even if it's a downtrend, well, maybe the downside risk is limited. And then you're still getting some value in the fact that it won't get you into trouble necessarily in a weaker equity market.
Speaker 4Right. Okay. All right. I'm very close to asking you straight up about your 2027 outlook. Real quickly beforehand, we've got the midterm elections tomorrow. What impact do you expect them to have, if any, on the markets here? And I know you don't know which way the election is going to go, but I guess the question is, do election results play a big factor or not in your short-term outlook here? And then on a related note, how much, if at all, does your. Your modeling and outlook take into account what's going on with the two major wars going on right now in the world and how they may go from here?
Speaker 3Yeah. I mean, we can't get any takeaways about what the outcomes will be for any of it, right? There's no way to know. But for us, we think about, okay, well, coming into these types of events, elections or big earnings reports or Fed announcements, we like to look at whether the market has run up strongly or is more oversold. Because that can set the tone. It's easier in a way for a positive reaction to unfold if we do have a tape that's more oversold. That's just our experience with the market. So it's better that we actually haven't seen like a steep run-up into the election, because that would be a harder environment to elicit a positive reaction. The other thing I would say about it is that any relief of uncertainty. Is often welcomed by the market participants, even if the outcome isn't necessarily a commonly positive market outcome, right? So I would say anything goes, of course, but if anything, the oversold readings on a short-term basis are more likely to be supportive of a positive reaction. And we do care about the reaction, I mean, because that'll determine whether we see last week's breakdowns. Locked in by the end of this week, or if we see them reclaim support levels, which, of course, would be the best case scenario. So we watch those things. We watch how gaps are on the charts. So if we saw, as an example, the QQQ ETF gap down on Friday, well, we saw it inch back into the gap today. And that's usually a more positive development for the coming days as well. So little nuances like that will come into our short-term views. In terms of the wars, I mean, listen, we care about price action. So if the headlines are impacting price action in a way that is more than just noise, that it translates into the indicators, then that will certainly matter to us. And I think it already has happened in a way. I mean, we do have an environment that has had weak intermediate-term momentum, but still positive longer-term momentum. So that could be related to a lot of things. But the headlines, of course, are. Are very impactful on market sentiment. And then we're trying to read how, you know, that sentiment is flowing into the market action.
Speaker 4Okay. Now, you're a big technical analyst there at Fairlead. And technical analysis, I liken it to the headlights on a car, which is your confidence in what you can see is higher the closer the object is to you, right? So doing a full-year projection is a little tough. But I am curious, you know, what is Fairlead's initial assumptions for 2007 going from here, knowing that you're going to tweak them as you get more and more data coming into your headlines?
Speaker 3We actually don't make projections like that. So we don't make one-year projections, nor even six months. We do feel like we have opinions based on what would be likely based on the current data. But really, the current data. The current data has information that is limited in a way, because if we see an uptrend and it's reversed, well, we need to react to that. And we can't predict at all when that reversal will happen. But coming in to the year-end, of course, there is still a bull market underway. We know that much. We know that the breakdowns are creating a potential rougher finish to the year. And so that's something that we're watching here in the near term. We do also know that if credit breaks out and they're pretty close, uncomfortably close, I would say, well, that probably means the first half of 2027 will be difficult for the equity market. And I think there's enough of those types of concerns out there, including a momentum shift that's subtle but is affecting the VIX, which is a read on market sentiment. Things of that nature would make us certainly respectful of risk metrics like support level. Like credit spreads, whatever it is, just to be respectful of those types of things in a way that perhaps in a different environment, you could shrug off some of it. So we're in that kind of risk management mode in a way. And our own ETF has shifted with a bigger risk-off stance than it's had for the year. So it's saying, okay, well, let's pay attention here, is the heads up from our systematic models. So that's the mode we are in as we come into the year. So we're in the first half of 2027, but it's not lost on us that the seasonal influences in Q4 are really quite strong. And that especially goes for November. We're already seeing as much as we're hyper-focused on technology. Strong to the upside, correct? Yeah. Yes, that's right. Technology and the AI trade, of course, has been under pressure, but the breadth has improved. I mean, look at the retail sector, not to say that it has a big footprint, but it's a big footprint. And I think that's a big footprint. As tech and some names are penetrating support, while retailers are starting to penetrate resistance. So if you look under the surface, there's some better action that I think we're being distracted from. So I wouldn't rule out a stronger finish to the year, even if some of these risk metrics end up becoming a bit more decisive.
Speaker 5So I wouldn't rule out a stronger
Speaker 2finish to the year, even if some of these risk metrics end up becoming more decisive.
Speaker 4Okay. All right. So again, Fairlead, given the most recent action in stocks, you're not hair on fire. You're watching things closely, but you think we're still in an uptrend that's unbroken unless things worsen from here, and you think it's more likely than not the end of the year will probably end relatively strongly, again, as long as things don't break down swiftly from here. That's right. Let me ask you this about next year. This isn't really a technical or strategic question. It's more of a statistical question. The markets have returned double-digit returns, positive returns now, for four years straight. And most of those returns have been up near 20%. And I don't know where we are right now in terms of the S&P for the year, but maybe like 13%, up 13%, maybe something in that territory. And if we end up having a strong finish to the year, that's only going to be higher. That's four back-to-back-to-back-to-back years of attractive double-digit returns. What's the likelihood of getting a fifth, statistically?
Speaker 3Yeah. I mean, I don't have an exact figure for you on that because we haven't done that study, but I agree that it's something to be aware of because of, you know, the so-called four-year cycles. It's not something that we rely upon in our work. We're sort of informed by cycles and we're informed by seasonal influences, but we would never make a call based on just that because there's more important things in our work like price momentum that we care more about. But certainly, you know, it is a mature uptrend at this point, just mature in how many years it's been, you know, with us. It's also a fairly concentrated bull market in terms of where the leadership has come from, of course, tech-related. So there are things like that that would suggest that going forward, the returns, just like they are this year in a way, are going to maybe be more muted. So I think that's the assumption. And then we just continue to stick to our discipline of watching those longer-term momentum indicators. And really stick to our process and try to add value that way rather than speculate on, well, this has been going on a long time. Maybe that means that it's maturing or ending. Could be, but we'll watch our indicators to confirm that or otherwise.
Speaker 4Yeah. And I wouldn't expect to be doing anything different. I was just wondering if it kind of makes you just nervous. It's sort of like, you know, flipping a coin and you get five heads in a row. You know the odds for the next flip or 50-50, but you're worried because, you know, statistically to get six in a row is really, really rare, right?
Speaker 3Yeah. I mean, it's a different environment. It's a different macro environment. It's a different environment politically and for fundamentals. So it's just a matter of how that's all going to impact market sentiment. And when we look at our sentiment metrics, because we like to measure that through not only, you know, how things feel or how people are discussing the markets, but rather also how they're positioning, right? Are they driving up the price of gold? Are they, you know, a junk bond demand? Is it showing up there? You know, looking at new highs and new lows, things of that sort of nature can inform whether sentiment is too bullish. And by no means is it too bullish based on our reading. So at least sentiment.
Speaker 4You were saying in your term, it's kind of fearful right now, right?
Speaker 3It is. Yeah. So the fear and greed index is one metric that we track is around 25, which is in that sort of. Extreme fear territory. So that would be more of a contrarian positive for the market. The loss of breath, maybe you could say, well, that's a bit of a negative or, you know, detractor from that. So there's some countering influences there. But a breath recovery, look at small caps, they're recovering. So that helps the market a bit. So these things won't necessarily matter once we get into 2027. But for right now, they are, I think, influencing the way we think.
Speaker 4Okay. So in the here and now, right, we've got the election tomorrow, we've got the rest of the year coming up a little less than two months from now. What is all your research favoring right now or disfavoring in terms of assets? So, you know, from what you've told me, I would imagine it's not saying sell your growth stocks yet. It sounds like it's saying, think about adding some gold here. I don't know. What credit spreads would be making you decide at this point in time, given where they are, but what do you like and what don't you like, given what you have confidence in what you can see right now, technically?
Speaker 3Yeah, I think we like the idea of being diversified and having a bit more defensive sector exposure in part, sort of building on, you know, areas of the market that aren't super high beta, right? So more than just growth or value or, you know, more about how volatile is this segment of the market and making sure that your portfolio has some lower volatility exposure. Lower correlated assets.
Speaker 4You're going almost for correlation versus just diversity. That's right. Yeah.
Speaker 3And things that have the tendency to do a little bit better in a more difficult tape, we're certainly comfortable with that. But as long as the technology stocks are able to hold on to support levels, we're very much keen on holding them as well, because that is where you get kind of the juice behind a portfolio. So it's a case by case basis right now, but there's still a lot of great looking stocks, right, to own. We're comfortable owning some fixed income, not a whole lot of it. We're comfortable owning some gold, again, not a whole lot of it. And we're also comfortable owning some crypto or Bitcoin, but again, not a whole lot of it relative to the overall portfolio. So we're very comfortable with that diversification. And I think when we see the market, these risk signals get louder than they are right now, then we will recommend just kind of reducing that overall equity exposure and, you know, building more on the defensive asset classes outside of, you know, the U.S. equity market. International, it has a propensity to underperform over the very long term, but we really wholly believe in looking for opportunities. On the country level, because, of course, every country is quite different.
Speaker 4All right. Are you, when you say you're looking, are you actually looking to add, or are you just kind of keeping an eye out in case something great comes along?
Speaker 3I think we're always looking for opportunities. So when we look at charts, we're part of our daily processes to scroll through a whole lot of charts, and we're always looking for positive catalysts. And you find them in surprising places at times. You know, recently in the defense sector, we saw some nice turnarounds. You can see some things in commodities that might not have been on your radar, but from a technical perspective, start to look interesting, different countries, different cryptocurrencies. So that's why we value technicals as a way to, I guess, discover opportunities, right? And then, of course, you need to fit that within your broader process. But it's a great way to see where the momentum is shifting. And our latest idea has been to look at the market as a way to look at the market as a way to look at the market as a way to centered around retail, which has the positive seasonal influences in November. That's quite pronounced, but then also started to gain some momentum. We've been keen more on some of the interest rate sensitives with the short-term time horizon, like homebuilders even, as yields enter this consolidation phase. So we're open to some of these former laggards for a little bit of a better finish to the year.
Speaker 4Okay. And I just dug there on international. It sounds like, hey, if we see something really interesting, yeah, we'll consider adding it. But it's not like right now you've got a bias to say, we want to be adding international sake just for international exposure sake, correct?
Speaker 3That's right. So we would be underweight international relative to the U.S., and that's almost always the case. There are certain environments, perhaps, where you want to be heavier with emerging market exposure because of the tech-heavy countries there, that type of thing. But that's not right now, by the way, the ratios are setting up. But we're very interested in any country-level opportunities if we're to see a breakout. Or Brazil's a great case study, I think, of how we saw a gap that looked pretty vulnerable to being filled. And the charts can inform, I think, a bias when you're dealing with these big breakouts, gaps, higher events, and things like that that can help you navigate that volatility.
Speaker 4Okay, great. And the fixed income, you said you're not adding a lot right now, but what duration are you looking at?
Speaker 3Well, we have in our own ETF, we own one- to three-year treasuries and also long-term treasuries. So we feel to have diversification in terms of duration also is important, but probably the short end is a bit more interesting to us right now if we had to choose, just in terms of the relative strength work that we track. So not from a macro, perspective, but solely from a technical perspective. And we're always looking for those opportunities to rotate. And now we have some great instruments to make it easier on us.
Speaker 4Great. Okay. If it's all right, I'm going to ask you in just a moment about your new book that you've contributed to, which I think is wonderful. But before I do, is there anything else that's burning brightly on Fairlead's radar that you guys are focused on right now that I just haven't been smart enough to ask you about?
Speaker 3Sure. No, I would just say crude oil. I mean, crude oil is obviously topical as it pertains to the Iran war. And it's formed a big triangle pattern, which is a neutral pattern, but it follows a shift in long-term momentum to the upside. So if we were to see a breakout from the triangle, which would happen above $105 per barrel, that could be one of those other risk metrics for equities, because of course the equity market doesn't tend to like that. That's another thing that's on our radar from a technical perspective.
Speaker 4All right. And I'm sorry, let me just make sure I understood that. It's forming a big triangle pattern. And your concern there is it could break out to the upside above $105. Okay. And then high oil prices would weigh on the economy and people's concerns. Okay. All right. And that's when you say $105. Is that Brent? I'm sorry. Is that WTI? I meant WTI. I picked the wrong one. It was in my brain. Okay. Well, we'll watch that. We'll see. that one closely and, you know, who knows what's going to happen. happen, right? But the scuttlebutton, the headline seems to be that once the midterms are behind us, no matter what the result is, it seems like the administration may be looking to dial things back up there kinetically. And that easily could contribute to higher oil prices if it does
Speaker 3happen. And it's good to have these key levels to watch because it takes some of the emotions out of it and helps you navigate those types of headlines as to whether the reaction is just noise or something more.
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Speaker 4All right. All right. Well, what can you tell us about this new book that you've been a part of?
Speaker 3Of course, I'm so grateful to be a part of it. It's called Investment Wisdom for Our Friends and Loved Ones. And it is the like project very, very full of love with Jenny Harrington and Rebecca Patterson having brought together some female friends in finance. And we've all contributed a lot of money to the project. And we've all contributed a lot of that is really just what we think is important and what we would tell our loved ones in terms of investing. So it brings together some really unique perspectives. And I think the outcome is something that really has a lot of value for young people, for family members, just in terms of financial literacy and starting to think about these things that the experts that they brought together have experienced in their own, whether it's personal finance, whether it's financial finance, or acting as a professional. So a very diverse book in terms of its opinions. And I think it's a great read for everyone.
Speaker 4All right. Well, as viewers of this channel know, I am a huge fan of spreading financial literacy. It's the mission of this channel. It's why I founded it. And as folks have heard me rant, our education system does a terrible job of teaching it, which is bananas, because one assumes you go to get educated so that you'll, make more money in life as a result. Well, it should teach us about money and wealth building, but they really don't. So from what you've told me about this book, it sounds very much like a, just a super practical, hear all the things I wish somebody had told me about money when I was growing up and going through life. So kudos to you all for putting that together. Thank you. It sounds like the book is going to be published. It's going to be released quite soon, right? It will be. Where can people go get it?
Speaker 3November 16th, and all of the profits from the book will be donated to the point of financial literacy to the Council for Economic Education, in addition to the Boys and Girls Club. So we're excited to be giving back in that way. And Jenny will be doing a book tour. And so I encourage everybody to pick it up. I think it will be on Amazon probably shortly thereafter, if not already.
Speaker 4Okay. So Amazon and wherever books are sold, people are going to be able to pick this thing up. That's wonderful. And I'll have put the cover up. On the screen while we've been talking here. So folks will know what it looks like and can go get it. And it's wonderful that you guys are donating the proceeds to charity. Very curious. What was your chapter on Katie?
Speaker 3You could probably guess. It is about technical analysis. And I'm challenging the buy and hold approach. So looking for people to try to think out of the book. And I'm going to be a little coy here, but I
Speaker 4am about to release myself a compendium. It's not a of basically books, essential books for the bookshelf of the well-informed retail investor. So I'll give a little bit more insight on who's contributing to that. And the short answer folks is it is a lot of people, all of the names that you all know. And we're going to have Katie's picks, bookshelf picks on that list. And one of those books will definitely be this new one coming out. Well, Katie, I cannot thank you enough. Thank you so much for making the time to come on, especially again on such a busy day. For folks that would like to follow you in your work in between now and your next appearance on this channel, where should they go?
Speaker 3The website is probably the best place to start. So it's fairleadstrategies.com. And from there you can link out and learn more about our ETFs of which we have two now. And you can also sign up for your. A free trial of our research.
Speaker 4Fantastic. And can you just very quickly describe what each ETF focuses on?
Speaker 3Of course. So we have the Fairlead Tactical Sector ETF. It's an equal weight sector-based strategy that uses asset allocation. The ticker is TACK, T-A-C-K. And it's known for being a low volatility way to have exposure to equities. And when equities aren't working, well, we have the opportunity to move into these alternative asset classes like fixed income and gold. And the other ETF is quite different. It's the Amplify Fairlead Tactical Bitcoin ETF. And it's the first active Bitcoin strategy on the market driven by technical analysis. The ticker is BNAV, B-N-A-V. And it's brand new, but it hit the market at the right time. We got to market time that launch for Bitcoin's big move off the low. So we're excited to see that prove itself.
Speaker 4Oh, congratulations. That's great timing. All right, everybody. Well, look, please join me in thanking Katie for sharing so much of her time and expertise with us, especially on such a busy Monday for her after a week where the market's in sort of a semi freak out mode. Please join me in thanking her by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. And in addition to checking out Fairlead's resources and their ETFs, if you would like to get some professional advice or professional guidance from a professional financial advisor on helping you navigate both the opportunities and the potential challenges coming ahead that Katie has talked about here. If you don't already have a good advisor playing that role for you, consider talking to one of the ones that Thoughtful Money endorses. These are the ones you see with me frequently on this channel. To do that, just fill out the very short form at thoughtfulmoney.com. Only takes you a couple of seconds to fill out the form. These consultations are totally free. You'll get customized bespoke advice to your personal financial situation. There's no commitments involved. It's just a service these firms offer to be as helpful to as many regular investors like you as possible. Katie, thanks so much. Always a pleasure. Again, very much appreciate you taking the time out of a very busy day for this and look forward to interviewing you again soon.
Speaker 3Of course. Nice to see you.
Speaker 4All right. Everybody else, thanks so much for watching.
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