Ep. 315 As Tariff Volatility Surges, Here’s How Experts Model And Track Sector Rotation
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Hello and welcome to another episode of the Investing with IBD podcast. It's Justin Nielsen here, your host, and we've got a very interesting show for you today. It is April 9th, 2025, and of course we had a really strong day here on Wednesday, and we're going to be having to kind of decipher a little bit of what's going on with the tariffs, not getting into the politics of it. There's a lot of unknowns here, but really kind of diving into the market aspects. What can we, you know,

figure out from the market side of things. And to help us do that, we've got John Kosar coming back to the show. He, of course, is a CMT. He is the chief market strategist at Asbury Research and now a portfolio manager. But we've got a little bit more than that. This time around, we are also bringing his son, Jack Kosar, onto the show. He has been working with his dad for a

feet wet, I guess you could say. And he is now the Vice President of Investment Strategy over at Asbury Research. So welcome both of you. Hi, good to be here. And I always seem to pick the interesting days to...

yeah you really do so uh i know that you uh you know you're often on cnbc and uh you know i've seen you on you know different different things where you get pulled uh to kind of give your thoughts especially on days like today um and you know we've we've been kind of going with our lessons first but today is probably important enough that we really kind of have to dive in a little bit um so this this part's going to be a little bit more john um

I'm not ignoring Jack. We're going to get to some of his models because, you know, everything that John has said about Jack is, man, he's got the quantitative side. This is, you know, the quantitative and the numbers and building models is what Jack is good at. But let's kind of get an overview real quick of what's, you know, what's happening in the market. And John, you brought along some charts to that end. And I'm going to throw those up real quick. Oh,

And I start at the wrong spot, but let's start with the volatility, because certainly since the tariffs have been announced, even before that, there was kind of some heightened volatility and that's just kind of gone off the charts. So can you maybe give us an overview of the before you get into like the details? What is it that you're looking for? Why do you look at it and what do you hope it tells you?

Sure. Well, when the panic set in, which was last week, last week, Wednesday after the close was when President Trump was on TV and talked about the tariffs. And that's when that's when the panic set in. And you know that Thursday and Friday, again, this is of last week.

It's pretty scary. I think it scared a lot of folks. And so when you see the market go into panic mode like that, there are...

we try to stay ahead of it, like one step. So the next step is how do we know it's over? And one of the ways that we, I think the best way is there's a set of indicators that we look at to tell us if there's any exhaustion. I actually wrote a piece on Friday morning about an hour after the close, and it was called "Markets Showing Some Signs of Exhaustion." This is one of those. We've got the VIX here on the bottom in blue,

This is a daily chart that goes back to the middle of 2020. And all I did here was identified where is the high threshold

for the VIX. I really just eyeballed it from 33 to 41. And we were well in excess of 41 earlier this week. And then you can see in October of 2024, that was another instance. So it was a bottom. You know what, John? I'm sorry. I didn't realize this earlier. Do you think that might've been August? Or was it August of...

- 2024 when we had the carry trade. - This was August. - Yeah. - Thank you. This was August. - Yeah, I think that was the yen carry trade that things went a little wild there, right? - Yeah, we had to get the magnifying glass out for this one because it's a pretty, you know, the chart has a lot of data kind of smashed in. But then you see September of 2022, you see January of 2022, and then you see October of 2020.

The simple takeaway here is when the market gets freaked out, that's the first step to kind of going through the healing process is get that panic exhaustion. And this is one of several ways that we determine when that is.

And so, you know, a lot of, I think a lot of folks, you know, have looked at the VIX in terms of when the fear, you know, when the fear gets extreme. But I guess there is also, my fear sometimes is you have a situation like we had in 2008, where it got into extremes, but then it just kept getting more extreme. So I guess, you know, how do you know when it's kind of,

Oh, now it's real. Now it's settling down. Do you kind of wait for that reversal? Or do you start looking at some of these levels and saying, okay, I'm just going to be aware of the environment that we're in? Yeah, it's really the latter. The market is getting, it's starting to look like it's exhausting itself on the downside. You made a really good point during COVID.

I actually did this literally an hour before I was with you today. I think there was 14 or 16 trading days where the VIX stayed elevated. So this is not something that you say, hey, you know, the VIX is 42 today or 44. I'm going to go and step in and buy. That's like stepping in front of a truck on the expressway. You need to wait to see it start to retract. And if you look really close on that chart, it's hard to see.

But that chart was printed earlier today and you can see it already started to retract. It looks like we got back down to, you know, maybe the mid 30s, which was, you know, not a huge reversal, but it did kind of pull back some from those highs. Yeah, you know what? I'll go ahead and show a market search chart real quick. I'll flip over there. And yeah, here's...

To your point, I mean, we had, you know, day after day with the VIX getting higher. But yeah, today was a very big, dramatic drop back below that 40 level. And then, yeah, as you mentioned, here is the August 5th, 2024 carry trade. The weekly chart here kind of shows your point. But yeah, let me go ahead and go back to your...

your slides. And then in addition to, I guess, the volatility, you know, at a certain point, if you're going to be looking for things to buy, you kind of want to see, is there anything out there setting up or is there strength out there? And so how do you use market breadth when you're kind of making that determination of, you know, is there any strength out there?

This is one of my favorites. There's a lot of different ways to do this, a lot of different ways to measure breadth, but this is the percentage of NYSE stocks trading above their 200-day moving average. And you could see it got down to only about 10% or a little less than that. And again, if you go back through this chart, this chart goes back to '06, so it's a 20-year chart. But you can see we got June of 2022.

March of 2020, which was the COVID low, is right, it's the third one from the right, the third low from the right. Dec 2018, Jan 2016, and so on all the way to October of 2008. So sometimes the, sometimes breath will get down to those extremes and linger.

And sometimes it'll get down there for a minute and jump right out like it did in December of 2018. But the takeaway again, is this is not a tool that tells you to

you go in with guns blazing and start buying stuff, but rather you're waiting for this exhaustion process to play out. And that's what's happening here. And then I also noticed that you have this 73% up there. Is there kind of on the flip side where sometimes you'll use this and say, ah, it's getting a little bit, um, maybe too, uh, too excited in terms of observation. And, uh,

Generally speaking, it's easier to find a market bottom than it is a top because when the market's enthusiastic and it's taken off, like you can see, like, let's just look at.

There was an extended period here around 2010, you know, where it was coming off of the 08 bottom, and it was up well over 73. This is a long-term chart. This is for months and months and months. So this does not have the sensitivity that it does. Well, the market has an inherent...

upward bias. So I think it's a lot more reactionary at market bottoms than it is tops. Yeah, very, very good point to make there. And then on the other side, you have the standard deviation. So how is this different? So you're basically comparing it to a moving average, but instead of whether it's just above or below, you're using a standard deviation. How does that change things for you? Well, it's just another way to look at the same thing.

How exhausted is this? How extreme is this relative to history? Right? Because nobody knows if financial crisis or COVID or whatever we're going to call this with the tariffs, they're all different things. So how do you look at them and find a similar through line for them all? So

One way is volatility. Another way is standard deviation. So this is a percentage of NYSE stocks that are trading one standard deviation above their 40-day moving average. There's less than 5%. So again, if we go across the bottom of the chart, you see we had one, a very short-lived one,

at the end of December of last year, it gave us that new high that we made in February, but this was a topping process here. You know, this whole thing was, in retrospect, we can say that we really didn't know that before, but then you go back to April of 2024, October of 23 was a really important low and so on across the chart. So again, this is another way by a different metric to see when the market's offsides.

Yeah. And also, I guess one of the things that we've been talking about as well is, you know, it's useful to kind of get a sense of what investor sentiment is. Another one where I think it's a little bit better on the bottoms than it is on the tops. But the sentiment just seemed to get so negative so quickly. And, you know, I wanted you to kind of talk about this one a little bit.

Terror does that. Okay. Yeah. Terror, not tariffs. Terror, terror does this. And, you know, this is the investors intelligence data. We're actually one of the inputs for them.

and have been for years. And it's one of my favorite investor sentiment metrics. And again, all I did was here, I went back to 2010 and I showed, I tried to highlight all of the times where it was at this least bullish extreme. There's different iterations of Investors Intelligence. This is a Bulls minus Bears series.

But again, this doesn't tell me to get in the market and start buying. This tells me when the market's getting washed out from a sentiment standpoint, everybody's bearish, everybody hates the market, everyone's afraid. And if you look at it from multiple angles the way that we do, so we're looking at volatility and we're looking at standard deviation and we're looking at breadth and we're looking at sentiment.

when all of these disparate indicators are telling you historically the market's at a really terrified place where you should start looking for reasons to buy or reasons to start to look for a bottom. That's really what this does is it tells you that sometimes it takes a week, sometimes it takes several weeks, but this tells you you're getting in the neighborhood of

an opportunity to buy. So the next thing you do in this next series of charts is going to show you start looking for support levels and really important indexes and some of the big stocks like the apples and the Nvidia's to try to try to make the connection between, you know, the terror of the markets feeling and that

port in the storm that is going to be a support level for people to look at. Right. So Jack, I want to go ahead and get you in here a little bit. And, you know, again, your dad has about 40 years of experience and, you know, you're just kind of starting out. So with

With a little bit kind of newer to this and sometimes looking at historical things, putting it in your models, has anything kind of caught your attention as, wow, this one really stuck out to me? And not just because my dad said it, but because I kind of kicked the tires on it myself. And this one really kind of spoke to me in terms of these indicators.

Yeah, I think the VIX out of the four have been kind of something I've been leaning on quite a bit lately. I tend to throw a 21-day moving average on the VIX. If it's above the 21-day moving average, the market's generally in a sense of fear. And below, things are calm. And really what I'm learning here is through these different market cycles, I guess I've been kind of lucky to see some major extremes, right? I get to...

you know, on a luck side of things, you know, I get to see how these things react. And, you know,

we like to combine them because none of these indicators all work all at the same time. But when we're seeing the same message for four or five of them, we can lean on them a little bit stronger. So we kind of try to use that statistical trick of taking multiple tests on something and if you're getting the same answer over and over again, you're a little bit more likely than to hang our head on any one particular indicator and hope that it's acting rationally when you're looking at it.

And it's interesting that you say the 21 day is kind of one of your reference points. For a while there, I was doing some studies on the, not the 10 day itself, but the extension above the 10 day. And it was kind of like when you get to those extremes, 20% or more above the 10 day, it was like, oh, okay, watch out. You could be close to a bottom. Of course, it can always go more, but...

but it was kind of putting you in that sense. So when you say 21 day, you're really just looking at above or below, or are you also looking at kind of the extremes of extension? - A little bit of both, right? I think we use extremes a little bit more for context where they are historically so that we,

We very rarely predict or try to project out, but we want to know how things are doing relative to how they've done in the past. So looking at those extremes kind of can give us a sense of, hey, is it starting to turn? Or are we in, you know, can it go higher? Can it go lower? And I think when it comes to the 21-day moving average, I'm just more looking for a gauge to combine it with something else. So I might throw in the OEX, which is the S&P 100.

And if I see positive, positive movement in the 100, the big cap stocks are leading us out and fear has dropped below, you know, the VIX has dropped below the 21 day moving average. There might be a little bit more of a confirmation there that we see things internally changing instead of sort of just relying on the VIX to say that things are all clear. Yeah.

Optimism isn't sunshine and rainbows. It's fixing things, changing the way we fix things. It's running the world on smarter energy. Because if optimism never stops, then change can't either. GE Vernova, the energy of change. Very good. So, John, thank you so much for being here.

It's great to kind of know what kind of environment you're in. And I think you painted a really good picture that, as you said, it wasn't just fear. There was a little bit of terror as we got to those extremes. So, John, I guess the next step, though, is you were kind of suggesting this, that you have to start looking at those long-term support levels and

how you're handling yourself at them. So maybe you could walk us through and, you know, as you typically do when you when you send us a chart, you send us a lot of different levels that are are key for you. So maybe maybe walk us through a little bit of the levels that were most important here. This is a long term support level on the S&P 500. You've got an orange, a red and a green. Do the colors mean anything here?

Yeah, the green lines, dashed lines are where the support is, the underlying support, and the red dashed lines are where the resistance is. So we were talking about, okay, the market's afraid. It looks like it's becoming exhausted historically. That's why we go back 10, 15 years on those charts, that last series that we looked at. And then it's like, okay,

where is a likely place for the market to find some stability? And they're kind of ports in a storm, right? So what happened is we fell into this 4819 to 4716 area. It's actually 4750-ish is kind of where it is now. The line keeps moving up

But that suggested to me that if we're truly reaching exhaustion, now you're starting to handicap. Where might it find some support? This was an obvious place. The horizontal green line down at the bottom,

That was the peak that we made in January of 22 at 4819. And then, of course, the March 2020 uptrend, which March 2020 is the COVID low. They're coming up to meet each other. So we didn't have anything tangible yet because other than this is a likely suspect for where we might

be able to find a bottom out of that exhaustion. And just, I'm going to go ahead and paint that picture right here. So as you said, 48, 19, all the way back there. And if we just kind of extend that out, yeah, we're right there. So as you said, coming off the COVID lows, you know, this was the high here. So

Yeah, so that's the S&P 500. If we kind of move forward to... Or unless, did you want to talk about any of the resistance levels as well? Well, I think it probably is worth mentioning...

jack and i were sitting here working and i thought my tv broke right because we were like down 25 in the s p and i think i got up to get a drink of water and came back and then i looked and we were up 200 and i'm like hitting the screen did they skip a decimal time to call best buy um so uh

I looked at an hourly chart. It rallied 8% in one hour. Yeah. I don't know that I've seen that before. I don't think it took a full hour to do that. Uh,

I mean, I think it was, you know, maybe just under, you know, like 30, 45 minutes. I don't think it needed the full hour to do that. I mean, I'm an old guy and I've seen a lot of stuff. I don't recall ever seeing that kind of a rally that fast. And of course it was triggered by a tweet and then it was everybody in the pool. It was a stampede is, you know, really what it was. So, and I mean, it's also worth, you know, remembering, I mean, cause again, this, this was, you know, I,

within again, this is a 10 minute chart. So this was within three minutes here on Wednesday that we saw this kind of turn. But on Monday, you know, we had almost a very similar similar thing come out with a 90 day pause. And you saw this huge

huge rip. We were down, I think, 5% on the NASDAQ to start the day on Monday. And then we were up almost 5% within minutes. And then it was like, oh, it got dispelled. I guess the interesting thing in this case, I would have expected when the White House said, oh, this is fake news, this is not true, that we would have come in harder. But we did hold a little bit better

than I thought we would. That's because Monday, that low that you pointed to

that was the first. So that was the touch of the trend line that we drew and the support that we just looked at, that was the touch. And then we traded inside of there for the next two days, you know, through today. But that day, that was the touch of that line. That was people that were looking for a way to take advantage of that scary dip. So that's what that was. 'Cause there was a lot of risk reward down there, right? If you buy at 48.19

and it doesn't hold, you know, you can get out of there for 50 index points. But if you're right, and that's the bottom, you may be able to ride that for 500 index points. So that was risk reward down there. Yeah, absolutely. And basically kind of a lot of the same stuff was happening here. Um,

you know, in terms of these long-term support levels that we're getting, getting touched, you know, so here's the NASDAQ. I like to see corroboration. So it's effectively the same support line. This one was made in November of 2021 in the NDX, which is the 100. This is a weekly chart, the 52 week moving averages there as a kind of a surrogate for the 200 day. And that level was 16,765.

It hit there and you can see what happened. I have it highlighted in green. The major trend, most people, especially when the market is moving this quickly, they might use these broader,

to kind of determine where the trend is. So you've got the 52 week moving average up at 19,920. So I think those that are looking at this from a longer term view might think until we get back up above there, this looks like it might be the first corrective bounce in a,

major downtrend in an emerging major downtrend that started a few weeks ago. It started three or four weeks ago, whenever that was. Right. So so, Jack,

Just, you know, as as as you're watching your dad kind of go through these, you know, support levels and stuff like that. What are you doing on your side? You know, so with your models and so on, are you just like, you know, OK, yeah, that I see the I see the levels. Or does that mean he starts putting you to work on on different things when you, again, get to these extremes?

Yeah, we're running a lot of tests. So, you know, all of our indicators are constantly getting retested, relooked at, kind of looking at it at different angles. Some of our models have circuit breakers. And obviously with the recent volatility and extremes that we've been seeing, you know, we're kind of re...

restress testing of our models. So making sure that our circuit breakers are on track, you know, if the market drops a certain amount in a particular day, you know, at the end of the day, we want to protect our clients and our clients are looking for us to make sure that we understand what's going on in the market. So, you know, like I said earlier, we're not, this isn't political, this is numbers. So we hit new support levels, we hit new, new indicators are kind of hitting extremes and I'm diving into Excel and

Cranking through our various software's to see any insights that I could try to pick up or you know things that we can improve on And so how are you using circuit breakers? Maybe describe that a little bit because I guess you know a lot of times people think of the you know the curbs that went into indexes to kind of slow things down when they get to extremes or You know, sometimes I think of circuit breakers as look when things are really bad just you know for me at least I'm

I think of it as, hey, go to cash because I just, you know, there's too much damage happening and I want to protect myself before things get really ugly. So when you say circuit breaker, what does that mean to you? It's very much the latter. You know, we look, you know, you look at a long-term chart of the S&P 500, inherently it goes up. And our CPM model is really...

built to try to ride that wave up as much as humanly possible. And just real quick, because not everyone knows, but CPM in this case is our protection protection model, right? Correct. Yeah. Thank you. Yeah. So that model, again, attempts to kind of ride the wave up and understanding that there's an inherent upward bias to the market. But there are obviously times of extremes where the market's going to correct itself. And, you know,

We want to put these circuit breakers on so that we're not getting spooked out on just a little bit of intraday movement, but anything that's a little bit more extreme. I think our circuit breaker would have been tripped seven or eight times over the past eight years. We want to keep that number relatively low because we don't want to get faked out. But on these larger day moves, we want to make sure that we're protected. So we're really looking for that.

that intraday craziness to try to avoid get ourselves out and live another day because we could always reenter the market the next day. But you know, once you've lost money, it's hard to kind of get it back. Yeah, harder to dig yourself out of the hole, right? So physically what happened, if I could jump in, physically what happened is on the 3rd, last Thursday, the 3rd, we ended up

getting out of our CPM model, we went to risk off on the opening. And that had to do with the three and a half percent move down that took place in the futures market the night before. So this was kind of an odd one that didn't take place from the opening that day until the close, but rather that other cycle that most people don't see, you know, from the close and trading on the NYSE to what happens overnight in the futures market. So that's how that was. So that's how that was tripped.

Well, and I guess, you know, when using circuit breakers, I guess another question is when you're kind of at these, you know, at these support levels, how do you kind of do that? Do that little balancing act of, OK, we're getting close to the support levels, but man, that could be.

we could go right through them. And if we don't get support there, it's like, look out below. So, John, you probably have a lot of experience with that. So how do you kind of do that? I mean, we still look at the support levels and we see them. But what we're trying to do with our models, our CEAF model, our CPM model, our CEAF is our second rotation model, by the way. But what we're trying to do is take the... Take the...

We're making, you know, we want them to be strictly driven by the numbers. We don't want to say, well, this is a signal, but we're pretty close to a,

a resistance level, and this was said in Washington today, or we have a report out tomorrow that as soon as you start doing that and making all these caveats, you don't have a model anymore. So we're very strict and our models can't see where the support and resistance levels are. So we're very strict in trying to adhere to the models. And the reason we use the models is because they may have a high Sharpe ratio

or their maximum drawdown might be 40% less than the S&P 500, which is the case in our CPM model, or they'll have some quality or a group of qualities, lower standard deviation, lower beta. And once we backtest them, and this past seven years has been a really robust period to backtest a model. You know, we went from a zero interest rate environment back to a more normal one. We had a 100-year pandemic.

We had a lot of stuff going on. We had a major downtrend in 2022. So yeah, so what I'm getting at here is we try to let the data-driven nature of these models play out without any interference from us. The only reason we use the circuit breakers is there are sometimes, it's like, you know, what if somebody drops a bomb? You have to have something that's going to protect your clients if that happens. And that was elected, you know, just a few days ago. Hmm.

Yeah. So I'm going to go ahead and go back to our levels just so you can kind of finish that out because you were at the NASDAQ. And of course, just to round out the major indexes, the Dow Jones Industrial Average, kind of the same story. It's a variation on the theme. If I see a big level in one major index, I'd like to see it in two or three. So

The more people that see these levels, the more likely they are to react to them in the market. Investors, traders, money managers, whoever it might be. This is just the Dow. In January of 2021, we had a peak. Benchmark high is what I'd call that at 36,953. We came down to it.

and that also happened to be the uptrend line, intersecting uptrend line from the October 2022 low. So I look at all of those three together, and then there were some other ones that I didn't show you, but there was two or three big name stocks. I think one was Microsoft, one might've been Nvidia or Apple. I don't recall what they were, but they were,

two or three of those top six or seven stocks in market cap that were all testing similar levels. So I felt relatively comfortable that after exhaustion, this was certainly at least a good candidate for maybe some kind of a bottom of the form. Mm-hmm.

You know what? And I also should have mentioned, I didn't get a chance to swap out that chart. It was January 2022 instead of January 2021, like it was stated. So we caught that when we were going over them before the show started. I neglected to swap that out. Sorry about that. So.

But you know what? Let's go ahead. TrueStage companies simplify the complex with 90 years of delivering accessible insurance and innovative financial solutions. Let's work together and build a better tomorrow today. Learn more at truestage.com slash WSJ. TrueStage is the marketing name for TrueStage Financial Group and gets subsidiaries and affiliates. Corporate headquarters is located in Madison, Wisconsin. Shift gears a little bit because you talked about some of your models. And so, Jack, are you the best?

Best one to talk about the Asbury six or is SIF more your, your, your speed?

Steve's definitely more my forte. Okay, so I'll go ahead and have your dad go through the Asbury 6, which again, for those that have seen John on the show before, I've been kind of looking at his newsletter for a while. And what amazes me is how in sync we are. We use different indicators, but we somehow always...

within days, you know, if not the day come to the same conclusion, um, uh, again, using very different indicators. So, um, why don't you just go real quickly, walk us through John, the, the Asbury six and how, how you use this to kind of make decisions for what you're going to be doing in the market. Yeah. Uh, like I said, I've been doing this for a long time. Uh,

I've noticed maybe 10 years ago, more and more computerized trading, you know, more and more algos. It became a lot more difficult to focus on major index like the S&P 500 in volume or some canned indicator like a MACD or something and try to determine

what the condition of the market was because it's up 100 today, it's down 100 tomorrow. It just got, even for somebody that's been around for a long time like I have, it got increasingly difficult to not get pushed off of your strategy because the market has a strong day against you or a day and a half or whatever it might be.

So Jack and I started to put together my favorite tactical tools throughout my career and start to back test them in sets, sets of four, sets of three. And we wanted a group of these that were disparate enough where I can get different looks, almost like the different looks that we had in the first part of this when we were looking at exhaustion. So we've got the rate of change in the S&P 500, relative performance between stocks and high yield bonds,

Investor Asset Flows, Volatility, Trading Volume, and BREF, they work very good as a team to let me know, because no indicator works all the time. They all have Achilles heels. They all have periods where they don't work. So when four or more of these six, Asbury six metrics are red,

that tells me that the market's internally weak on a very tactical basis. And I should be careful of putting on new longs, or be careful of doing anything that is going to put me in a long position that I'm probably not going to want in two or three days. And when this shifts over to four or more green, that tells me that the internals of the market have

repaired themselves, they've gotten better. So to go back to the lineage of what we're talking of today, now that we've held the support level now, unfortunately, you know, we've rallied 10% in one day. Right. Yeah. You know, but that's generally not the case. This is certainly, uh,

an aberration compared to what normally happens. But the next step after you have the exhaustion and after you recognize the support is when do these internals get strong enough so I'm not buying the rally and getting run over the next day because the internals are still weak and we use this for that tool. And again, this is, you know, really taking the news out of it. You know, all of this is not news related. It's all

This is what's happening with price, volume, and in some ways relative strength is kind of the focus instead of trying to guess at policy or anything like that where it's very easy for opinions to come into the mix there of whether you think there's going to be successful policy results or not. This is just, hey, this is what the market thinks, kind of.

And so, you know, Jack, you kind of said that in the shorter time that you've been doing this, you've probably gotten a condensed lesson because at least I know for myself, I've been told,

that I'm witnessing a once in a lifetime thing, I think four times now in my career. So you probably are kind of in a similar boat. Just in your short time here, you're seeing some very extreme levels. So what does that do for your model when you're kind of testing things and learning this in

very unusual situations. How does that affect your model when you're trying to backtest and go back in time when you're in such a weird period? Do you change the rules to say things are different now? Or do you kind of say, okay, let me look at everything. And how far back do you go when you're doing your backtests? Yeah. So I think we try not to move our roles around too much, right? You know,

It's one of those things where you want to be stubborn with and trust the analysis that you've done, but at the same time be apt to new

you know, new things or new paradigms. And that's kind of part of how we go about our testing. We tend to look back only six or seven years. It's kind of based off of Ray Dalio, short term debt cycles and understanding how the economy is changing all the time. So an indicator that's looking at the way that the economy works now. The economy was different 20 years ago, 30, 40 years ago. So

you know, history rhymes, but doesn't necessarily repeat itself. So we're taking our indicators quarterly. We rerun all of our, you know, we have 21 or 22 indicators that we're constantly looking at. You know, this is a subset of six of them that work really well. And

Really just trying to track to see if they're being consistent. We do a lot of breaking down of the data into individual time periods so that I can remove, you know, for example, next time I'm testing this and I'm looking at this one day aberration, I might try to block out what that one day does and see is the indicator still behaving normally outside of the extreme. And if that's the case, that's okay because I can't

I can't build a model that's going to take into account a tweet for a day or a set of policies out of Washington that are

different from the status quo. So we keep the data as consistent as humanly possible, constantly rechecking. And if an indicator starts to go off the rails, we had, I think, corporate bond spreads when we had a zero interest rate policy. That indicator wasn't working as well because it was fixing one of the legs. So it wasn't behaving the way it had behaved before. So that one goes back on the shelf and it might be worthwhile in six months from now. And

we kind of build a lot of these indicators kind of like a baseball team. So, you know, we're kind of metaphorical type people. So look at it, you know, if I need a faster horse, I'll look for an indicator that's going to help me provide some alpha. If I'm looking for an indicator that's trying to help reduce drawdowns, you know, it's a little bit more defensive in nature. You know, I don't test everything based on just how it,

It's going to produce returns, but I want to look at those ancillary stats. It's sharp, draw down, and really kind of build a holistic approach to our indicators and not just how much return can we bang out of any particular indicator.

And I guess, how do you know when it's time to use your analogy of take someone out of the bullpen or off the bench and put in that indicator versus a different one? How do you know when to do that as opposed to, oh, this is maybe a short-term aberration and you want to be a little bit more stubborn with your model?

I think it's a two-part process. You know, I'm very much numbers driven. So I'm, you know, like I said, I kind of break them up into sections and I'll do compares over time. So, you know, I want to see how the statistics are running for a particular month and then I'll look on a month-by-month basis. And the other thing that's really nice is I have someone that sits shoulder-to-shoulder with me with 40 years of experience.

So a lot of the times when I'm starting to see numbers look a little bit off, my dad at the same time is seeing those same things on the chart. And, you know, sometimes it's almost like we're trying to speak at the same time because I'll see some numbers and he'll see a chart pattern. And I'll be like, hey, this looks off. And, you know, a lot of times it'll change.

trigger a small study that I end up doing. But it's a combination of data results and then experience that allows us to kind of stay on top of these indicators. Yeah.

And John, I wanted to just, of these Asbury 6, you know, I think you pretty much talked a lot about the volatility market breadth. We're going to get into asset flows in a little bit. But the trading volume, how are you using trading volume for the Asbury 6 model? And have you seen that get kind of whacked recently?

Because again, you mentioned algos and everything. By the way, this is a very big internal debate that we have here. Our senior market strategist, Mike Webster, is like, volume is just too dirty now. There's too many things that go into it that will skew it to where you just, how do you back it out? You can't do it in a consistent manner. So how are you using trading volumes?

That's really true. If you look at just raw volume, it's really noisy. It indicates urgency to buy, but it doesn't indicate urgency to hold overnight. It gets really noisy. So we use cumulative volume and cumulative volume helps us to get more of a

a meaningful directional read on volume. Yeah. Well, you know, I want to move forward because this is kind of a Jack's where Jack is coming in strong. So Jack, could you just real quickly, you know, again, some of our folks are familiar with the Asbury research from John's previous appearances, but what does CEEF stand for and how do you use it and why?

It's sector ETF asset flows, and we really use it as a sector rotation model. It's a little bit of a misnomer, but we're tracking the velocity of money through several time periods to figure out where are investors kind of voting with their feet instead of hearing what people are saying on TV. So what we have here is what we call our rainbow charts due to its beautiful colors, and it's

On top what it is is it's tracking the CIF score. What happens is we get a score for each time period. So we add up that score and we get a total net score for the CIF and this is utilities and up top is the CIF score for that time. So in the green it means it's favored. At right now utilities is favored. And then the bottom of that chart is its relative performance versus SPY. So

SIF is more based on relative performance. We want to pick the horses that are running faster than the market. In this case, we've seen...

Around February 7th, utilities has gone into favor. Now it's touched a little bit into neutral, but overall has been in the favored territory. And during that time period, we've had a 12.7% relative outperformance in utilities. So we try to track as we see money flowing in a particular sector, tend to see, you know, increased relative outperformance for that particular sector.

Mm-hmm. And, you know, this is kind of the obvious question here. I mean, when utilities are doing well, that typically says, okay, you know, folks are hiding, they're going to staples, they're going to utilities. And so, I mean, you have a day like today, you know, today on Wednesday, the 9th, where we have the market is up, you know,

a huge amount. The XLK was up 13.4%. XLU was up 3.9%. So a big disconnect between what was very strong having a big day of underperformance today. So do you ever get kind of, I guess, does that worry you when you see

something like XLU doing well to say, oh, should I invest in this? Or if we turn, this is going to be where the money is going to come from.

Utilities has been unique because generally, I think historically it's been more of a defensive sector. This last year due to AI and a lot of the capital expenditures going into technology, it has kind of played both sides of the ledger here. So for the better part of the last year, it's actually been an offensive stock in the understanding that a lot of CapEx expenditures and utilities were needed to supply AI with enough power.

In this case, we were seeing utilities kind of going back to its historical roots, more of a defensive nature. Our model had XLP, consumer staples, XLU utilities, and healthcare, XLV. And it really defensively aligned. It was actually the...

almost the most perfectly defensively aligned model has been. I think I went back and looked. It was April 9th of 2020. We had this exact defensive alignment. The only difference being, and actually if you pull up the heat map, is that we were almost perfectly aligned

anti-offensive stocks. As you can see here, our model had healthcare, utilities, consumer staples in the top three. And at the bottom had communication services, XLY, discretionary technology. And that even during COVID, it wasn't that nicely aligned. What I'll be looking for next week is

I want to see, you know, if this is truly the turn up that we're expecting. We had a big update today. If this is going to resume uptrend, we will want to start to see this heat map. It'll start to flip. Next week, it'll look a little bit like a Picasso painting as the numbers start to realign. And then we will see things like technology, communication services or distribution.

consumer discretionary move up. So we rebalance this once a week to try to keep up with the flows. That's where the trading week comes in. But if this is truly a new leg higher, we'll start to see technology come in from off the bottom and start to move its way up the chart-- move its way up the table.

And I guess, John, to kind of wrap this up, I guess the concern here is, you know, after coming in so sharply, you know, typically I feel like, or just historically, that usually takes time to kind of recover from. COVID was very unusual because, you know, it was COVID and there got to be, you know, even though there was a lot of uncertainty, there was uncertainty

kind of everyone was rowing together on what can we throw at this to solve the problem. And I don't know that we have I don't know we have that level of clarity yet. So I guess the question is how one day certainly does not a trend make, but

What do you expect here in terms of bounce, or is it kind of a little bit of back and forth as we need to tighten up? What's kind of your, not projection, but game plan, I guess, to say, hey, this is real, and we have put in a bottom. That's actionable, and I can make money off of.

Great question and good observation. This is more difficult for me than it was with COVID because the messaging has been so inconsistent. It really can't be gamed out. So I think this is when our approach to investing and using models really becomes valuable. It gives you something tangible to hang

to hang your hat on instead of waiting for the next press release or the next tweet or whatever it might be. And so two answers for you. The first one is asset flows tend to trend and those flowing asset trends are what create the

the price trends that we see on the charts. So looking at that, see, we just were looking at the heat map there, watching that heat map kind of evolve from week to week to week, it shows us where the flows are going. Sometimes the flows move from place to place. They've done that a lot this year because the market really didn't know if it was offensive or defensive this year. Yeah, there's a lot of mixed messaging again.

We had risen by 75% since the October 22 lows in the S&P. There's a lot of angst, but generally speaking, we're big fans of knowing where the money's going. We can't know what's gonna happen tomorrow. We're not forecasting how much inflation

In my view, a lot of that stuff is really unknowable. So I'd rather follow the money and that's kind of the phrase of our company, but we're trying to figure out ways to follow the money. We're trying to discover trends by following strong bursts of money in multiple timeframes and we follow that. Now to answer your second part of the question, how do we know when this is the real deal? Two things need to happen for us. The first thing is the Asbury six that we looked at earlier,

That tells me day to day to day what the condition of the market is. Just like if you went to your doctor for your annual physical and he put you on the bench and he does those six tests, checks your pulse and your reflexes, listens to your heart and lungs. That's what that is for the market to us is that series of baseline tests that tell you how healthy the patient is. We've get four or more of those Asbury six

constituent metrics, we get four of six of those metrics that turn back to green. That's going to tell us that the market is strong enough internally on a day-to-day basis. The patient is strong enough to get himself off the table and go back to work. We're nowhere close to that yet. And then the second thing and the most important thing to us is going to be the CPM because the CPM is built

to be a little bit more of a catch the more sustained and more solid emerging moves in the market. And the CPM would also have to turn to risk on. We don't have that right now. And I think it's going to take a little bit of time for the market to work through this. We had a great day. But look at the ranges over the past week. Yes, it's all over the place. It's 100 up, it's 100 down. So I think it's very easy to get happy. We had a huge day today.

But until I see those internals get better, I bide my time. Yeah. And then Jack, anything that you wanted to add kind of in terms of, again, how this works

There's so much that's different right now. And we were kind of talking about this, John, before saying like, I hate when people say this time it's different, this time it looks different, but this time it does kind of, there's a lot that looks very different. So with all your models, Jack, anything that you have in terms of advice for people that are trying to make sense of all this?

from a numbers guy from a yeah that's that was gonna be my note is uh you know i i tend to when things are going crazy in the market we tend to mute

mute the TV. You know, we'll see where the price levels are and we'll watch the numbers move up and down. But listening to the noise tends to kind of get you off sides. You get overexcited, underexcited. So that's kind of why we dive back into our indicators and really lean on those numbers. And as someone that's still relatively green in this industry, it gives me confidence to be able to say, you know, this isn't Jack's opinion, but

based on what I'm seeing and the numbers and our various indicators, I could be a little bit more solid on my footing. - Yeah, well, hey, thank you so much for showing up here. Jack, for your first time and John, of course, I don't know, this is like your fifth time or more. And then of course, if people want more information, they can go to Asbury Research, right?

esbreresearch.com, go to the contact tab and we'd be happy to give you a two week free trial of our premium research service. So just go to the contact tab there and put down

IBD and the day today and we'll know what you want or just put two week free trial and we will contact you and we'll let you look at some of our stuff real time, how we approach markets, how we build our models. And

Thanks for your time today. I hope this was interesting to everyone. - Absolutely. And it might be a good time to kind of see what those models come up with, because as you said, a lot of times the benefit of using multiple indicators and especially ones that kind of are over time is, look, if you got a bad cholesterol reading, that's not something that can turn around on a dime. You sometimes need multiple indicators saying that you're getting on the right track. - And they also help to filter out the noise.

And that's what Jeff was talking about. The markets are really noisy now and it's very easy to make emotional decisions and emotional decisions have usually cost me money. - Yeah.

absolutely. So, Hey, thanks again. Uh, it was really great having you on. So appreciate it. Thanks. Thanks, Justin. Okay. And, that's going to wrap it up for us this week. Uh, please join us next week because we're going to have, uh, one of our market wizards back on the show. He was featured in, uh, one of, one of the books, uh, about market wizards. It's Tom Basso, uh, someone that I had the pleasure of meeting in person. Uh, he's been on the show before, uh,

known as Mr. Serenity. So we're going to have Tom Basso on, and that might be a good thing to have a little bit of serenity in this market. So hope you join us for that. Thank you so much for joining us today, and we'll see you next time.