Ep. 295 Overthinking The Market? How To Improve Your Trading Decisions And Stick To The Charts
54:04 Share

How will clean energy drive tomorrow's economy? At Brookfield, we're answering the questions that will define our future. Accelerating the transition to net zero while creating lasting value. Learn more at brookfield.com slash zero compromise.

Hello and welcome to another episode of the Investing with IBD podcast. It's Justin Nielsen here, your host, and it is November 13th, 2024. We've got quite the show for you. First of all, I mean, we're on a new platform, so this is one of the first times that we've gotten to hear that full intro music. So Arusha and I are just jamming in the background. So let's bring on Arusha here. Of course, he is one of the portfolio managers over at O'Neill Global Advisors.

The original host, the OG. OG.

Right, exactly. So he's joining us today. He's also a research analyst over there at O'Neill. And of course, we also have our special guest this week. Coming back to the show, Joe Fahmy. He is also known as Follow Through Fahmy. We have gotten so many follow through days when Joe Fahmy has been on the show. He is managing director over at Zora Capital. And man, I thought it was going to be another one of those days. As we started, I was looking at my account and saying, you know, gosh, thank goodness Joe Fahmy is coming on.

Thanks for having me, guys. Appreciate it. Absolutely. Always a pleasure to have you. So one of the things we were talking about as we were getting ready for this show was, I mean, we had this event. I'm not sure if you guys remember last week, but there was this known event. Everyone knew it was coming. Not...

Not sure what the reaction was going to be. And so Joe's going to talk a little bit about how to make decisions. I mean, he's used to managing a portfolio. You have those known knowns, you have those known unknowns and those unknown unknowns. So Joe, maybe you can share with us a little bit about how you approach an event like that and decide what you're going to do with your portfolio. I've noticed that when there is a big known event on the calendar, it's

a lot of people like to hedge against that. And if the market is acting well and it's in an uptrend and stocks are acting well, I find that it ends up being a non-event or the market doesn't really see much downside because so many people are either hedging their portfolio or, you know, raising a lot of cash or fearing that there's going to be a drop. And I feel like the same thing happened in the 2016 election where, uh,

when Trump won the first time, the futures were down huge. So anyone who bought a put, let's say for a dollar, thought they were going to wake up and it was going to turn into $20 the next morning. And I've always said the market's not designed or there to just give money away. So, and again, the premise though, or the,

caveat is that the market is acting well and still in an uptrend. I think the same thing happened this time where a lot of people were concerned and hedged their portfolio. And then when it was a non-event, meaning the uncertainty of the event was behind us, that's when you not only saw the market take off, but a lot of a chase trade after that.

Yeah. And I don't necessarily disagree with hedging because obviously it was a big event and also the market was running into it. The market was almost anticipating that this was going to be a non-event and it wanted to go regardless. But if you are hedging,

There has to come a point where you have to be very quick to recognize, okay, I need to remove those hedges because this market is really, really strong. Yeah, that's a great point. I agree with you that there's nothing wrong with hedging. I'm by no means making fun of that, whether you, you know, some people use options, some people use inverse ETFs, whatever it is, depending on if they're overweight, a certain sector or something like that. But, uh,

So there's nothing wrong with that, but we always talk about that, how the greats always adapt and are always open-minded with their approach. So to your point, nothing wrong with hedging, but when you realize, okay, the uncertainty is behind us, the election was, you know, the results were announced on Tuesday night. Let's, you know, quickly adapt to cover those hedges or cover those shorts. And I guess one of the questions is that, you know, going into it, I think there was a fear of volatility. You know, there was...

So many different ways it could go. And really, it wasn't so much about who won necessarily, but how long maybe it dragged on. That was a serious question that a lot of people were wondering. And the fear that that uncertainty would have potentially shaken you out of positions, that

So I guess, you know, when you're when you're faced with something like that, what's what's kind of your rule of thumb going into it? Do you raise some cash and kind of go 50 50 or do you just, you know, again, kind of say to yourself, I'm going to react once the reaction is there and I'm not going to shoot until I see the whites of their eyes.

I think the answer depends on someone's timeframe. It depends on someone's risk tolerance and how heavily concentrated you are. I mean, I'm sure, you know, Warren Buffett wasn't really doing much of it because he has a different timeframe than maybe a short or medium term trader. So,

If you like certain positions or ETFs or whatever longer term, then it really shouldn't have mattered. If you are very aggressive and concentrated in your portfolio, then yes, reducing position size or some sort of hedging or, you know, at least a little bit of cash to help buffer in case there is that volatility. But it really just depends on people's time frame.

Yeah.

The election. Talk a little bit about that, because I thought that was that was a really good saying. And there are some times where you have to compartmentalize these things. Right. You have to kind of keep everything in perspective. And that came from a pretty wise guy, if I'm not mistaken. Right. The second Warren Buffett reference. Warren Buffett did say, if you mix your politics with your investing, you're making a big mistake.

At the end of the day, the market mostly moves on two things, earnings and interest rates. Earnings are strong and they've been coming out great. Interest rates with the Fed lowering rates, providing liquidity into the system. That is more important than who is president, in my opinion.

So when I did hear and you're right, it was on both sides. I heard mainly three reasons why there was a lot of fear because somebody said if Harris wins, the market's going to crash. Another person says if Trump wins, the market's going to crash. And then another person says if it's uncontested or if it's not decided and the votes drag out for the uncertainty, if it drags out for a week, then it's going to cause a crash or volatility, you know, to Justin's point. And

when, you know, when that, when that happens, you know, it's, it's, I think, I think focusing more on the earnings and the interest rates and the technicals and the more important thing and shutting out some of the news and noise and separating your opinion from that easier said than done. But if you're able to do that, because a lot, because I've always said the news is there to scare us. It's there to promote fear. You

I've used the example in IBD Live about you don't turn on the weather channel when it's 75 and sunny. You turn it on when a hurricane, tornado, or blizzard's coming in. So if you understand the concept that the news is there to promote fear, to keep you tuned in for ratings and so forth, if you're able to take that with a grain of salt and separate that, whether it's the news of the day, geopolitical, election or whatever, if you're able to separate that

from the markets, that's something that I encourage people to do. Absolutely. Maybe we can pull up a chart real quick and let's just kind of look at the current market. One of the things that Nancy is making a comment on, she's watching this live on YouTube, and this is a point that we've been making that the market kind of likes gridlock. So one of the questions we had is, OK, not just about the the

the president, but what happens with Congress? Because usually if you've got blue in one and red in the other, the market likes that because things tend to not get done and the market, you know, can kind of count on things as they are. It's kind of the status quo. So one of the things now is with kind of both the executive and legislative branches going red, what does that say to you about the market? Does that kind of change your change your stance at all?

Not really. And it's a great point because I figured it didn't matter who won because of that gridlock that whoever won the policies would probably, any major policies would not go through. Now that it hasn't come out that way, my interpretation is if it was a big deal, the market would show us that.

So, so far, so good that I just try not to overthink things and try not to speculate on that. Again, going back to keeping it simple, shutting out the news and noise. Notice how news and noise, they're sound the same and they're almost the same. But try to focus back on the fundamentals, the earnings and the interest rate picture.

And it doesn't have to be all or none, too, right, Joe? Like, you didn't have to make – going into the election, you didn't have to make something go in extreme direction, all the cash, or completely on margin and vice versa after the election. You don't have to go to the extreme. Yeah, a lot of people forget that, and that's such a great point because –

If you have 100 shares, just use round numbers and you say, I want to sell some. It's a lot of people just think it's a binary thing where you have to sell the whole hundred or keep the whole hundred where you can reduce exposure. You can sell 25. You can sell 50. Reduce a position. If you have a 5% position, maybe bring it down to three, whatever, you know, whatever you're working with. But.

So even when you are buying a stock, it doesn't have to be I have to buy the full hundred shares. You can scale in and out. And a lot of people forget that they think it has to be one or the other. But partial sells and partial buys. There's nothing wrong with that. Mm hmm.

And looking at the market, and again, we have the NASDAQ composite up for those that are watching the video. If you're listening to audio, we can just kind of describe what's happening. I mean, big jump after, you know, on Wednesday. I mean, it was really kind of a nice supporting action that we got on Tuesday, the day of the election before anything was decided.

Big pop on Wednesday, a nice follow up. And we've just been holding so tight lately. I mean, very tight closes. The Nasdaq has just really kind of digested those gains. So what what does that say to you about the constructive action here that we're seeing? I think this started if, you know, we can even go back a couple of months to early September.

I think that's when the uptrend power trend resumed when we regained that 50-day. It's sort of a lesson. I know we're talking about market overview and you like to bring in some lessons, so let's combine the two. And one of the lessons I use as a basic concept, again, to keep things simple, is if we're above the 50-day moving average on the NASDAQ and S&P, they pretty much correlate. For the most part, the market's healthy. If we're below it,

then get defensive because that's the main area where the institutions support the market. So once we regained that in September, I thought it was a new power trend. And the main reason why is there were so many stocks acting well. It wasn't just the MAG7. It wasn't just a handful of stocks. It's retail. You know, it is some tech. It's some software, some medical products, some biotech and some housing. There were a lot of stocks acting well.

And that's what made me feel that we were starting a power trend where you could use the 21-day as your guide. And for the most part, that's what's been happening since that early September regain of the 50-day. Yeah, Joe, and you bring up a good point here. So it was really around that time in early September, even us on the institutional side, we actually put the market into a correction really right at that low there, right?

And it was a combination of breaking the 50-day, some more volume coming in, and a number of stocks underneath the surface starting to break key support. So we were getting pretty aggressive and just saying, okay, let's just be more cautious here.

But on September 11th, when we had that really strong move, and that was when a number of stocks really started to jump up and started to show some buying. At that time, it was like, wait, this market isn't really acting like it's in a correction. Stocks aren't acting like they're in a correction. And it goes back to the, okay, maybe you have to adjust pretty quickly. And then, of course, as you said, the markets, the NASDAQ got back above its 50. Yeah, it's a very, very important point of the flexibility here.

Stanley Druckenmiller, one of the best hedge fund managers, money managers in the history of the markets. He says his greatest asset over the past 30 years is his ability to change his mind. So there's nothing wrong with, because I agree, I'd raise some cash and reduced exposure. You break the 50-day, stocks are breaking down. And then things turn quickly. News changes rapidly.

Facts change. And when it does, you have to be able to be flexible and adapt because if you stay stubborn, then, you know, then that's probably it's probably not going to help you in the long run. And of course, one of the kind of canaries in the coal mine for that September 11th day was was app loving APP. I do have a small position in this that I just I couldn't stand it watching it go up all the time without me. It was.

I just bought it recently. Yes, exactly. I just bought it recently as it started tightening up here. But certainly when you start seeing a lot of these stocks, and again, on September 11th, this one looked so good. It's hard to see it. It's so far down there now. Well, actually, you know what? I'm going to do a change date and go back so you can see. Because it was a very powerful. Yeah, it was a nice sort of double bottom with handle right around that area.

Exactly. Around that 85, if so, 85, 90-ish. And it was pulled back nicely. And when the market pulled back in early September, it held in pretty well, showed great relative strength. And then, you know, pretty beyond impressive move since then. Exactly. But there were a lot of stocks like that that either held in or just had one of those shakeout, quick, you know, recovery patterns. And that's when...

You know, starting in early September, I was basically saying, you know, use the 21 days your guide. Just keep it simple. Stick to strong stocks for people who like to be in growth stocks. You know, stick with the best. And and then, of course, manage your trades going back to that time frame statement. Just manage your trades as best as you can based on your time frame.

Well, one of the other things that we had to contend with, it wasn't just the election, but you mentioned that, you know, earnings and interest rates are two other important things that were happening. We had a lot of earnings reports, you know, leading up to the election and, you know,

the last few days to some really big movers both ways. And we also had the Fed meeting. It kind of seemed like, you know, for as much as these Fed meetings and CPI reports were so watched. And so I think you did a Twitter spaces at one point and was like the most important CPI report ever. Every month. Exactly. One of our

Yes, exactly. So maybe maybe talk about that a little bit. I mean, you mentioned, you know, interest rates. If we take a look at zero TNX, which is the 10 year treasury yield, you know,

Even though the Fed has been lowering rates and that's been good for the short term side, the long term yields, those have kind of really, really jolted up there a bit. So maybe talk about that and how I mean, it's better for the yield curve, right? Everyone was concerned so much about that inverted yield curve and what it portends. But what's your kind of take on interest rates, the CPI, the Fed? Do any of these things matter anymore?

Yeah, I think the macro, I mean, I always like to joke around and make fun of the macro, but I think it matters when we are in a bear market, when the Fed is raising rates. Of course, that matters back in 2022. But since we've come out of that, and I do believe, you know, besides the October 22 bottom, you know, when March, excuse me, May of 23, when I believe the real bull market started with the true leader NVIDIA breaking out there.

the macro didn't matter anymore because it was the market pricing in that, um, you know, inflation was coming down and the fed was going to stop their interest rate hiking cycle. Now the, the difference right now though, is the fed is lowering rates and providing liquidity and pumping liquidity into the system. But the 10 year is not really, uh,

coming down because the Fed controls the short end of the curve. So my interpretation, again, rather than overthinking things, if it's a concern, if it's a problem, it would show up in the markets. And it certainly hasn't been yet. Um, you know, while we're on the topic again, interest in earnings, um, maybe talk about some of the earnings reports that have been out because there have been, uh, some stunners. I mean, 20% gains, uh, seem like, Oh, I'll,

almost a little ho-hum. And then of course, there's not just the reaction, but sometimes it's whether or not it holds or does it give up a lot of that. Kava, for instance, today, I do have a position in that. And I mean, it was a little, you know, was up a little bit in after hours, then really kind of picked up speed and then lost a lot of that ground.

Yeah, I mean, I think for the most part, the earnings have come in. They've come in pretty good, especially in the tech, AI sector and so forth. Palantir's CEO mentioned that they eviscerated earnings and the demand is just something he's never seen before in his career. I mean, usually CEOs are conservative. You've seen a lot of them. They just can't hold back. I remember back in the days when I was...

you know, getting involved in the markets in the mid-90s, Jack Welch, the CEO of GE, you know, when Bill Gates and Steve Jobs, it was always beating by a little bit and super, super conservative guidance. The fact that you're seeing CEOs, they're not holding back. They usually tend to temper their, you know, expectations and enthusiasm, but they've been talking about how things are strong. Now, the reactions have been mixed, but, you know, some have

been buy the rumors, sell the news. Some have been, you know, gap up and continue to run. I mean, it's just sort of been mixed, but overall, some of these reactions have been very, very impressive. Yeah, I mean, I feel like it's been a while since we've seen such powerful moves. Yeah.

And it's been in a short amount of time, and obviously the earnings reactions have helped. But some of these impound tiers, kind of the poster child for that, is they're just straight up. They're the ones that resisted that downtrend the best. And then on September 11th, and I want to say this gap right here,

It was around that time. This was September 9th. Yeah, that's when it got added to the S&P 500, or the announcement that got added. Perfect, yeah. But before that, too, the relative strength line was really high. It held up so well. And then just once that pressure left, right, it just took off. And we've seen tons of them. I want to see that there's probably like 10 or 15 of stocks that have just kind of gone this vertical to the moon type of action right now.

Yeah, no, there's a lot that have been acting well. And it was another point I wanted to make if you go back to the Nasdaq, because right ahead of the election, you know, it's sort of another lesson that I've noticed is we were holding. So since early September, we're holding the 21 day. And then right before the election, October 31st, we had a close below the 21 day and a couple of closes there. Yep.

I'm never complacent because when you study the best traders and money managers throughout history, their top three rules are defense, defense, defense. So I'm never, ever complacent. But I didn't think it was that big of a deal because as we were coming down, the volume was lighter and lighter and lighter. So that was showing me there wasn't heavy distribution. We were still above the 10-week mark.

before the election. We're in starting to head into November, December, two of the seasonally strong months. And then most important, I thought about this when you mentioned Palantir, there were a lot of stocks that were just holding their, you know, their key support levels around there. So another thing I've noticed is sometimes before the market takes off, sometimes before a stock takes off, the market never makes it easy for people.

It has to create doubt. It has to create fear. It has to shake out some weak hands. But ahead of the election, there were a lot of stocks acting well. And as long as it was holding that 50-day...

Again, I didn't see any reason to, you know, nothing wrong with hedging a little bit, but any reason to really be concerned about major downside because the market was holding up. AI is coming to your industry if it isn't already here. But AI needs lots of speed and computing power. So how do you compete without costs spiraling? Upgrade to Oracle Cloud Infrastructure or OCI.

OCI is the blazing fast and secure platform for your infrastructure, database, application development, and AI workloads. Right now, Oracle is offering to cut your current cloud bill in half if you move to OCI. For new U.S. customers with minimum financial commitment, offer ends 12-31-24. See if your company qualifies at oracle.com slash wallstreet. Wow. Mm-hmm.

Let's go ahead and maybe shift our attention a little bit. The NASDAQ and the S&P 500 have pretty much been going in the same direction, really highly correlated. But the small cap index, this is one that seemed like for a lot of the year –

It seemed ready to go and, you know, it would start and it would be like, oh, maybe not yet. And then, of course, you know, we had this, you know, huge move, you know, last week. It's been pulling back a little bit more than the other indexes. Is this another fake out in your mind or should we still be really kind of paying attention to the small cap index? I've been I mean, a lot of people are paying attention to it. I look at the weekly chart.

where it is just barely taken out the late 2021 highs. And it's as far as, you know, relative strength works on short, medium and longer term timeframes. But that one's barely taken out those highs. If you look at MDY, the S&P mid cap 400 ETF, that already has taken out that high. So I tend to gravitate. And then, of course, if you look at

The larger cap S&P and NASDAQ and the Q's and so forth, they're well above those late 2021 highs. So it's nice. You want to see everything participate, but I'm still gravitating towards the better relative strength to stuff that's really working in the mega caps. And at the most, I'd go down to small to mid caps, but the small caps are still struggling to get to that late 2021 high.

And do you do that necessarily just consciously just by looking at some of these ETFs and say, I have to focus on large cap? Or are you just doing kind of a bottoms-up approach and just having the stocks that are coming up through your screens? You're like, you know, I'm going to focus on these. Yeah. No, whatever is showing up on my screens, there are – and I don't even know with so many companies now exceeding half a trillion to close to $3 trillion. I don't even know. Small caps used to be under $2 billion, and now I don't even know if those are micro caps now. Right.

I don't even know what the definition is. Is it two to 10? Is it up to two? Is it 20? I don't even know what small caps are, but if I mean, heck SMCI, SMCI was in the small cap index for a long time, Russell 2000. And it was like huge. So before the, the, before the destruction. Yeah. I just, if I don't, you know, have any, you know, I,

I'm not going to discriminate if I see a small cap name that's setting up and say, I don't want to trade small caps. Of course, I'm just noticing a lot of the true liquid growth leaders are coming from large and mega caps. But I have traded some small and some mid caps because if they show up, I'll trade them. So it doesn't – I don't like have any – I'm just not –

trading the IWM. What about different sectors? Because again, I think a lot of people were trying to project and get ahead of it. Like, okay, if Trump wins, then these are the stocks that are going to do well, or these are the sectors that are going to do well. And if Kamala wins, then these are the sectors that are going to do well. So now that, you know, again, we have results now. Are there any particular sectors that you're paying attention to? Or is it again, coming back down to the charts?

It's coming down to the charts. I try not to chase the sector rotation because I can't keep up with the machines. But I noticed IGV over the past month. I screen every night. I look at, you know, 500 to 800 stocks because I have no life, basically. But when I was screening, IGV was coming out of that 89 level out of the big base on IGV. So I noticed a lot of software names showing up.

Clearly, if Trump won, Bitcoin was, you know, and a lot of the Bitcoin-related stocks were going to do well. But again, it's so clear in hindsight. But I was just sticking to what the charts were telling me. And what's interesting is that, so IGV obviously has been doing really well and was starting to break out. But this whole time you had the semiconductors falling.

Besides NVIDIA. It looks like everyone else is struggling. And look at the socks. It's unbelievable how much lagging it is. When the SMH did really well earlier this year, IGV was stuck in the mud between 80 and 89.

And then now that SMH is basing or stock or stalling, IGV is taken off. That's why you just kind of do the screens and pay attention to what's, you know, I noticed Salesforce was acting a little bit better. Some other software names with ServiceNow and Oracle and everything.

they were acting so much better while a lot of the chip names weren't, but that's why that's, what's keeping this market afloat is that's actually, isn't that a sign of a grateful market when there's constant sector rotation, that's fueling and keeping things propped up. Yeah. Um, so any, any particular areas of, uh, other areas of interest besides, you know, software you mentioned, um, I mean, X, L, Y, you know, with the combo of, uh,

Amazon and Tesla. That's one that we had on Swing Trader. But any other areas? I mean, financials, that certainly seemed like it had a really big reaction initially. Whether you're looking at XLF, KRE, which is the regional banks, KBE, they all really popped. I mean, it was so odd to see like,

Morgan Stanley, Goldman Sachs, JP Morgan, all up 10% in a day. And they haven't really followed up as much as some of the software names, I mean, like ServiceNow that you mentioned. But what's kind of your take on the financial or other areas that you're kind of taking interest in? Yeah, I don't really trade many of the financials. They probably are benefiting from the

Whatever you want to call it, the impression, illusion, or maybe the interpretation that less regulation might be one of the reasons. I know there are a lot of names in there that hold Bitcoin where that helped. I mean, someone joked and said if you put $10,000 in Bitcoin a minute ago, it would be worth like $12 million a minute later. Right.

I mean, I know there's a lot of financials that are, you know, hold Bitcoin or related to that that are in some of those indices. So I don't really trade them, but I'm sure it was a combination of that that was helpful. This podcast is brought to you by Eaton Vance ETFs. Does your ETF simply track an index? Get to know actively managed EVLN, the symbol of senior loan expertise.

at EatonVance.com slash symbols. Fueling some of these names. Mm-hmm.

Well, maybe we can shift gears a little bit and talk about some of the stocks that you have on your radar. We actually didn't get a chance to talk about this in the pre-show. We were like too busy. We're all going to find out together. Yeah, we're all going to find out together. We were talking about other things like drums and heavy metal bands and stuff. That was a good drum intro on the music. Yes. So what do you got on your radar right now that's of particular interest? I guess the hardest part is everything seems so extended. Yeah.

Are there still opportunities out there for you? Yeah. I mean, I wanted to sort of, it's not a disclaimer or anything, but a lot of things, you know, I love doing this and you can't time when we're going to be in bases and when we're going to be maybe in a roaring bull market or a bear market. So clearly this is like, I hope it's not too obvious of a statement that,

Things have run so much already. It's really hard to give stocks that are, you know, viable or I feel comfortable right now giving. You know, I wanted to give Rocket Lab a few days ago.

And I put it publicly on my blog a month ago as the high-type flag right around 950, 970. And that took off. So, I mean, it's a challenge because so many things have taken off. But the three stocks I do like, and this is more longer term, that I'm okay with on pullbacks. I mean, the first one I'm sticking with NVIDIA.

I'm sticking with Nvidia. We've done the podcast, you know, and I'm grateful you guys invite me on. We've been talking about this for the last couple of years.

I'm not going to take Michael Jordan out of the game. I'm going to stick with the leader. I still think this is a bull market powered by the growth in AI. I still think there's more upside. But I want to stress that I've been in this for a long time, trimming a little bit along the way, but it's still, full disclosure, my largest position. And I still like it over the next, let's say, six to 12 months because I still think there's more upside.

I do have a position in this as well. And, you know, yeah. So one of the things, I guess, when you say that you're trimming, is that is that more, you know, just to kind of lock in some profits or is it a little bit too? OK, this is becoming maybe larger, a larger size in my portfolio because of the capital appreciation. And I got to bring it back down to a level where I'm not worried about every last wiggle because it's so heavy, you know.

Yeah, it's both. It's both. I was talking about this 200 split adjusted now $20 before it broke out in May of 2023. I was talking about it. So, you know, it's also keep in mind, there's a huge difference trading for yourself versus trading and managing money for clients because it's just prudent as a position gets big to, I mean, do I want to sell some? Do I still think it's going higher? Sometimes when I'm selling it, I'm like, I'm selling it.

pretty confident knowing it's going higher, but nothing wrong if a, you know, round number is a 5% position grows into, you know, eight, nine, 10, reducing it back down to six, five or six, just, just to keep it. So it's not too heavily concentrated.

Yeah, absolutely. And, you know, while we're talking about AI, I mean, you were there at the Founders Club, you know, in Vegas that we have, you know, you got to sit there and I think you tweeted out, you know, something that Jim Ropel had in terms of his AI presentation. And, you know, how, you know, look, the way that

Oh.

I still think it's early on. I still think this is, you know, one lesson we've talked about is moves in the market tend to go on much longer than we can ever imagine, both to the upside and to the downside. Just when you think things can't go higher, they go higher in a bear market. When you think things can't go lower, they go lower.

Going back to CEOs usually being conservative, in a recent interview about a month ago with the new Blackwell chipset that's coming out, Jensen Wong, the CEO of NVIDIA, said demand is insane. He said it in more than one interview. And again, CEOs tend to be conservative, but...

between, you know, trying to put as many factors as possible to help increase our probabilities of success. You've had great technicals with the stock, great earnings, the greatest growth story, I think, in the history of the markets. I think during COVID, Zoom was one of the greatest, you know, at the time, you know, whatever went from 100 million to 2 billion, like that was an insane growth story. But this is the biggest growth story on such a large amount of

of revenues where they're going from 10, 20 billion to possibly upwards of 250 or 300 billion in the next few years.

Between that and, you know, I like to follow unusual options activity. There was a whole bunch that came in for March of next year, which would give them two quarters of that Blackwell chipset to ship. I still think it has more upside over the next six months. So when you say there are a bunch of orders coming in for March, it's a bunch of...

calls out of the money or in the money? Yeah, when the stock was about $130 or so, there was between $100 and $150 million worth of calls that came in in the $160 to $170 range. So that's not your grandmother buying calls. That's a huge institution. And my interpretation is

You know, again, I still think there's more upside. And again, I'm not going to get overly bullish, but that's why I'm saying with a lot of these stocks, I'm okay. Just be, you know, please, if anyone is going to act on anything, please, like it's not just a disclaimer, just get better entry points because I'm in this from a lower level that, of course, the obvious question is earnings are coming out next week. What do you think? It's not because my timeframe, it's not a concern for me because I have such a cushion on.

it. Yeah. So if anyone's going to enter it, just make sure, you know, to get good entry points, don't chase things that are extended. And that might also mean it's a different way in which you handle it. If you have a entry that, you know, was at the 140 range, you're going to be handling it differently because you're going to have to cut your loss possibly. Or, you know, again, there's a lot of ways in which you might be handling it different than someone who's got it in the 20s. What other stocks you have on your radar?

Sticking with the AI theme, I like Vertiv VRT. I like Vertiv. This was going way back, a high-type flag at 20-something, 27, and it ran up like crazy, and then now it's put in VRT.

I'd like to, again, technical analysis is subject to interpretation. I think of it as on the daily chart as a cup with a high handle where it broke through that hundred range and then formed that sort of range or that handle above that old high from earlier in the year. So I think that's a powerful formation when you have

a cup with a high handle. Same thing the CEO said on the earnings when they beat earnings, profit margin expansion and all that. He said, let's take a step back here. He said this on the earnings call. You can go back and look at the transcript again because I'm a loser and that's what I do. But, you know, he said, let's not forget this secular bull market and AI that's going on. And you combine that again, strong technicals,

fundamentals, expanding profit margins. There's been longer dated, um, not just for January, but going out till I believe April, uh, some, some longer dated call activity and put writing, which my interpretation would be, uh,

that, you know, it's going to continue higher with normal pullbacks along the way. Same thing though. I wouldn't buy it here. I'm in it from a lower level. I wouldn't buy it here. This is more of, if you get a nice pullback in the market over the next, you know, whatever, you know, few weeks, something like that, something maybe on the 21 day or on a support level that you could, you know, look to, uh, get into, but I want to make it perfectly clear. Like I,

it's hard to give stocks when everything just ran and we literally had the best week of the year last week. And the Russell had its best week in four years last week. So it's really hard to give safe entry points right now. Yeah.

And you mentioned the, you know, like a pullback to the 21 day moving average line. I wanted to just kind of drill down on that a little bit because, you know, for the longest time, it was kind of like the pullbacks of the 50 day or the 10 week moving average line. But it seems like a lot of these stocks are so strong. They're not even coming down to the 10 week line or the 50 day moving average line. You're almost lucky if they come down to the 21 day moving average line. They're so strong. So are you adjusting because of that? And like, OK, you

you know, I'm not going to wait for a pullback all the way to the 50. I'm going to take it if it's if it's at the 21. With so many of these that have run, I mean, either if I'm in some, I'm in from a lower level. If I'm not in some that have run, there's something called, you know, discipline. There's something called not chasing these names and not having FOMO, fear of missing out. And FOMO is cured when you're disciplined. So I

look at this as longevity. I'm not in this for the week of an election. I'm not in this for from now till the end of the year. I look at it as if I missed something. It's OK. It's not the first or last time I'm going to miss something. And just be patient because eventually they're going to come in. I think that, yeah, and that that's really the big thing, Joe. A lot of times I've found over the years for myself is some of these stocks, they'll just take off.

And I'll miss them and I'm like, oh, I can't wait for that pullback. But that pullback might happen like three, four weeks later and I've forgotten about those stocks, that stock that I want to get into or the stocks that I've had, I've gotten hit in. And so now I'm starting to raise cash and it's just hard to sometimes

get in sync at that point? I mean, how do you kind of approach that? Because we know that that pullback is going to come. You've always harped on that 21-day, try to buy stocks on 21-day. But sometimes the best stocks will only come back to the 21-day or even the 50-day when the markets get really scary.

Yeah, I mean, it just involves a lot of patience and accepting you can't be in everything. And also, I like to put an alert sometimes because sometimes I'll get stopped out of something but still like the story. And then I'll say, okay, let me put an alert in my quote system and my charting package so that if it comes back around, it'll remind me to take a look at it again. Even if sometimes an alert will go off to your point,

from two months earlier, I said, oh, what's that alert? And I forgot that it built a new base. So that's one way. Or if you missed something and you forget about it because it might go three weeks, four weeks, put in a flat base, just put in some sort of an alert when it comes down to the 21 day to keep it on. So that way it stays on your radar in case you missed something. Because the 21 day is not just

an area to buy, but I like to think of it as if I miss something, just show some discipline and patience and wait for that pullback if you want to get into a new position. Yeah, I mean, that's a good compromise because a lot of times it takes, for the best stocks, it may take months before they come back to the 50-day, but the 21-day, a few weeks a lot of times, even the best stocks will come down to it or the moving average will catch up to that stock going sideways. Yeah.

That's right. Yeah. Okay. Well, Joe, if we're doing three stocks and we did one and two, let's do number three, number three, third one. And again, third one's Tesla. And again, I would not, I would not buy it here. I want to stress this. I can't stress this enough because I genuinely want to like protect people and, and all that. But I liked that again. I'm glad you pulled up the weekly chart. It

It had a huge move, split adjusted, I don't know, 20 to 400. It's built a long base. Now it's starting to build the right side. What I like is that there's a lot of put writing and longer dated call buying as well. So again, I would just be patient with this one. Wait for, you know, the put writing is showing it should find support around 300 to 310. And again, someone might say, well,

It's 3:30 and you know, and have this feeling of, you know, I got to chase, I got to chase, just relax. We're in this for, I mentioned Stanley Druckenmiller earlier. Why is he one of the best? Because of one word and one word only, consistency. So it's consistency over a 30 year career. So when you see something and we all have FOMO and we're all human, I do as well. The longer I've been doing this, I just have less FOMO and I accept I'm not going to be in everything.

So, you know, right now, in full disclosure, I do have a position in this, but I would just wait for a pullback.

Yeah, so Joe, maybe walk through, because I mean, Tesla's been very, very tricky for the last year. And I've tried it a number of times, just small positions and getting shaken out small positions. But finally, able to get some traction over the last month or so in this stock. Maybe walk through how you handled kind of the volatility in Tesla over the last few months.

Yeah, no, I did have a position that I got stopped out of, and then I got back in. You know, what I like on the daily chart is over the past month, a lot of the pullbacks have occurred on super, super light volume. So even after the last earnings date, when it gapped up, it still offered a entry point if you waited for a pullback down near that 50-day before the election, down near that 21-day. So...

In general, the best way I think with stocks, because I know there's a lot of stocks I get tossed around and they're on my do not trade list because they tend to be too volatile. The best way is lighter positions.

And it helps you deal with that volatility because I know a lot of the O'Neill rules, if you buy properly off of a base, you know, 7% roughly stop. If you're newer to trading or let's say you can't watch the market closely, you could double your stop if you want. If you had half the position, it's the same math. You can make it a 14 or 15% stop with half the position. So that's one way to deal with some of these choppier names or more volatile names.

Hopefully, hopefully you can hear me. Hopefully you can hear me. OK, I'm back. So, you know, maybe maybe kind of give some details on that. What what is kind of your target position size for things? And again, I know that can vary sometimes between those that are your A stocks, let's say, and maybe those that are like, oh, OK.

you know, I don't have quite the conviction in there, but what's kind of your range in terms of here's a position size that I'm comfortable with so that I can participate when it really works and, you know, really move the needle on it. But again, kind of keep the, keep the risk to a minimum.

So again, it's a very common question about position size and the direct answer is it depends. And there is no right or wrong answer because big difference managing for yourself and managing for clients. So I can't have, you know, I think some of the Fidelity funds, they don't.

They have restrictions of no more than a 5% position or some of the ARK funds no more than a 10% position because they have to protect their investors. But an individual doesn't have that. My guideline for me is about a 5% position. A starter position can be one and I can, if something is super liquid and a liquid leader, you can go as high as 10. But that's just for me. Some people will say,

Well, if I buy a 2% position, what's that going to do for me? I mean, again, it's a big difference trading for yourself. But then you also have to be careful if you're trading for yourself and some people take super concentrated 20, 30, 40% positions. You got to be careful because, you know, when a correction comes, you can really, really get hit there. So I like to keep it in that sort of 5%, give or take, depending on

How liquid it is and depending on the market cap as well. And how did you, I guess, evolve to that where you kind of fit this to your style? Was there a time like maybe early on in your career where you were using more concentrated positions and then during the correction you got hit and it's like, okay, you know, this is not for me and it took a while to recover and now you've kind of found your sweet spot?

Yeah, a lot of it's when I was trading on my own to start and being super concentrated because you want to make a lot of money. We all do. And you want to just plow into something and it's great when it works out. But then when corrections come or you get stopped out, but this way...

Let's say you have a 5% position and you have a cushion and you're trying to play for a longer move. And let's say over the earnings, it drops 10% or let's even say 20%. A 5% position that drops 20% is only going to hit the portfolio 1%. Or on earnings, if it drops 10%, it's going to hit the portfolio 50 basis points. That's something I can live with.

But a 40% position that drops 20%, I don't want to live with an 8% drop in one day. So to your point, it's just more maturing as a trader. I haven't matured yet as a person, but as a trader...

it's just maturing and just sort of going for that slow and steady consistent gains as best as you can and protecting the downside and being more concerned with that than the upside. Yeah, and we've seen some comments, Joe, of you being so calm and collected. The market has made you more mellow. The beatings of the market, I guess, eventually on your sweet spot. So now you're much more mellow.

Yeah, no, it happens. I mean, look, one of the characteristics of successful people is their desire to improve themselves. And I don't care if you're an athlete, an engineer, a trader, and I've made a lot of mistakes, but I love doing this and I'm passionate about it. So in my efforts to want to improve, you got to say, okay, what have I done wrong? Don't beat yourself up. Make those changes.

I still make tons of mistakes. As I always say, I just try to minimize those mistakes and learn from them. And as you do this longer and you want to improve and get better, then, you know, you do have to make those adjustments. And, you know, it's all about being calm and being confident because you'll make better decisions and

you know, coming back full circle to what you mentioned earlier, Justin, about decision making, you're going to make better decisions with clarity when you have a calmer and more confident state of mind. And also on that concentration side, have you found yourself changing a little bit? I mean, look,

And personally, I'm not getting any younger. We all haven't found the fountain of youth like you, Joe. So have you kind of like changed your, I guess, aggressiveness? I mean, sometimes when you look at the runway left, you have to recover, you know, if things don't go your way. It's a little bit shorter runway there. So has that changed kind of your approach?

position sizing and portfolio management rules? Yeah, I mean, full disclosure, I'm 108 years old. So I'm not concerned about retelling. Your buddy Livermore, right? I went to high school with Jesse Livermore, yeah. No, I mean, look, everything depends on all the questions. And you guys do a masterful job on IBD Live. And I've been honored to be a guest there. And I see a lot of questions come in. And all

And all the questions come down to learn how to make a decision. Really, the honest answer of do you hold over earnings, position size, when do you sell, when do you do, like, there is no right or wrong answer. There are guidelines that O'Neill gives in the book and that you guys can guide people through. But at the end of the day, it all comes down to your risk tolerance, your overall plan, and a lot of different factors with your age and your overall investment objectives. So I think...

It's different for everybody. And I encourage people to fine tune that for a plan and a strategy that works for them. And I guess the other part, too, that people have to realize is you can have everything right in terms of your process and, you know, those decisions that you have in place.

But you can still be wrong a lot of times in what happens with your stocks. You can make mistakes. You can have stocks go against you. That is just part of the game. And so it's a matter of making sure that you have kind of those rules in place when things don't work out the way you thought they would, that you can really kind of correct from that.

Yeah, that's when the humility comes in because nothing worse than doing the research and falling in love with a company. You're so certain this is a great story. You love the story. You fall in love with the stock and all that. And then the market proves you wrong. And that's where, you know, I know David Ryan has talked about this, your colleague, about

You know, humility is a very important trait of a great trader because that's where you have to say you have to separate your ego and just say, hey, I got this one wrong or the market's proven me wrong and going back to playing defense and cutting losses. Because that's the other thing. It is a great bull market, but I always say don't assume every trade you're going to take is going to work out. You still have to have a loss-cutting discipline and manage risk.

Absolutely. Well, before we go, I want to make sure that people know that you have your own podcast that you've started doing. So can you tell people a little bit more about that?

Yeah, sure. It's on Spotify and iTunes, Apple Podcasts. I posted it to my YouTube channel. It's called Joe's Happy Hour. It's conversations with – I talk about markets all day, that it's a little bit financial, but it's with some of my friends and talking about music and sports and life and other things. So it's called Joe's Happy Hour, and you can check it out and subscribe. Like and subscribe, people. Yeah, that's right. First up, it was a fantastic show.

Yeah. But, but, but first like, and subscribe this podcast, then go to Joe's. Exactly. Well, Joe, it was really a pleasure having you as always. Thank you to the folks that were also watching us live on YouTube. I did see that Anne-Marie band was in there. So yeah. So hi, Anne-Marie.

But yeah, thank you all for joining us on the live YouTube. And then, of course, if you weren't able to catch the whole thing, we do have this replaying. So if you were hearing the audio and you wanted to see some of the video of some of the charts that we were talking about, you can definitely do that. And then also, Arusha, thank you as well. It was a great time having you as well. So thanks for showing up. And that's going to wrap it up for us this week. We are going to have on the...

podcast next week. We're going to have Scott Bennett coming back to the show. He is the founder of investwithrules.com. So it'll be a pleasure chatting with him again. Thank you so much. And we will see you all next week.

AI is coming to your industry if it isn't already here, but AI needs lots of speed and computing power. So how do you compete without costs spiraling? Upgrade to Oracle Cloud Infrastructure, or OCI. OCI is the blazing fast and secure platform for your infrastructure, database, application development, and AI workloads.

Right now, Oracle is offering to cut your current cloud bill in half if you move to OCI. For new U.S. customers with minimum financial commitment, offer ends 12-31-24. See if your company qualifies at oracle.com slash wallstreet.