Episode 43: Navigating Markets with Todd Sohn, CMT
01:15:09 Share

Welcome to Fill the Gap, the official podcast series of the CMT Association, hosted by David Lundgren and Tyler Wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewee's investment philosophy, their process, and decision-making tools.

By learning more about their key mentors, early influences, and their long careers in financial services, Fill the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street who discovered, engineered, and refined the discipline of technical market analysis. ♪

Fill the Gap is brought to you with support from Optima, a professional charting and data analytics platform. Whether you're a professional analyst, portfolio manager, or trader, Optima provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn more at Optima.com. ♪

Hello and welcome to episode 43 of Fill the Gap, the official podcast of CMT Association. My name is Tyler Wood. I'm a CMT charterholder and joining me as always is David Lundgren, CMT CFA. How are you doing, my friend? I'm doing fantastic, Tyler. Great to see you as always. Always. And today we're going to be talking about the CMT Charterholder.

We were joined by Todd Sohn, a fellow CMT charterholder and an incredible technical strategist and ETF strategist for Strategus. Dave, so many highlights to today's call. We talked a little bit about the ETF business growing to more than 10 billion assets, excuse me, yep, 10 trillion assets under management with 800 billion flowing into active ETFs.

lot of information that we can distill from money flows and sentiment. But this conversation with Todd, what really stuck out to you as the big takeaways? Well, one of the things we talk about a lot with the various guests that we have on the podcast is the universal use of technical analysis. If it's

If it trades in a free market environment without restrictions, it will trend according to what the underlying fundamentals are. And that's true of everything, whether it's equities, crypto, commodities, fixed income, currencies, etc. But it's also true of the various...

trading vehicles that we that we use to represent them. And then so I was particularly excited to get somebody like Todd on the podcast to discuss his experience with trading what is now, as you described it, what's over a 10 trillion dollar asset class. Yeah. And how I mean, that's just a it's like another whole entire ecosystem that we now have to analyze. How do you do that? Well, you use something that's highly scalable. Like what?

Technical analysis, here we go again, right? This is the whole, that's the virtue of technical analysis is the ability to, in my work, I track

I don't know, it's 9,500 securities around the globe, 600 of which are ETFs. And there's no way I could do that fundamentally. And so Todd just does a fantastic job of it over at Strategas, working with Chris Verone, who's another great technician. And I think this was just a great discussion around how you can really leverage the tools of technical analysis to guide you through a very rapidly growing diverse asset class.

Rapidly growing, very diverse, changing every day. And we dug into things like concentration and people thinking they've got diversification across multiple ETFs, but the cap weighted holdings of a lot of those can cause some troubles. We talked about just watching product releases and closures as a potential sentiment signal on certain markets. Spoiler alert, we did talk about China.

And for those of you who are really dying to know how you get a break on Wall Street, I'll just hint that it has something to do with your dad's karate dojo. And we'll leave it there. I hope you all enjoy this interview with Todd Sohn, CMT. Welcome to Fill the Gap, the official podcast of the CMT Association. My name is Dave Lundgren, and I am joined, as always, by the executive director of the CMT Association, Mr. Tyler Wood.

This month's guest is a good friend of the CMT Association, Todd Sohn. He is, of course, a CMT charterholder, and he's also the ETF and technical strategist over at Strategas Securities in New York, which is a phenomenal firm. I used to subscribe to all their work when I was back in the day at Wellington, and it's phenomenal work, including, of course, Todd's work. I believe this is our first guest on the podcast, actually, that has such a strong focus on ETFs and, of course,

With that being such a hot spot in the industry these days, I really can't wait to get into this conversation with Todd. So, Todd Sohn, welcome to Fill the Gap.

Hey, guys. Great to be here with you. Thanks very much for having me on. Yeah, of course. Great to have you on. It's been a while. We've been trying to get this together, and you're a busy guy. So thanks for wedging some time out for us. Yeah, Todd is traveling to fantastic places of the world, like Wichita, Kansas. We had to pull him away from the glamour of the road. It was riveting. Luckily, the weather was good. No clouds, but I'm in.

Not much going on in between there. What we can say about that region of the country is great people. Yes, exactly. Some of the best in the country. So we have lots to talk about and really excited about it. But I think, as always, what we really want to do to get things started is to just

Get a better sense of who you are. So maybe tell us a little bit about yourself. I mean, a lot of people know you from CNBC and other financial programs that you're on, and you do a great job with that. You represent the organization really well. You represent technicals really well. So we're really proud of you in that regard. But maybe give our listeners a little bit of a better understanding of who you are.

in what got you over to the realm of technical analysis and then we can hop into your process and things like that? Yeah, I love this question. And I will first say, I mean, I hold a lot of my work and my career to the TMT Association. It has been a fantastic organization to be a part of, especially the connections and friendships that I've made along the way. I will absolutely back that and it's been very important to me. So,

I have been with Strategas for 11 and a half years and wearing a dual hat of analyzing the ETF market and the industry itself because that's becoming more and more important. We can get into that in a little bit, along with being a member of our technical team with my partner in crime, Chris Barone, who you guys have had on the podcast and is another advocate for the technical world. And so I say to rewind things,

In a short form manner, I got interested in markets all the way back in high school. I took an economics class and you had to pick five stocks to track for the semester. And this was early 2000s. If I remember correctly, I had Apple, Home Depot, Apple.

Maybe Yahoo might have been there and then some random pharmaceutical company that my brother-in-law was working for. It's totally, you know, it's a fake money. There's no insider trading here. I don't think that, but I found it really interesting to track it week by week. What was going on? What was the news? Any catalysts? And so that kind of got my wheels turning. I go to college and,

I take all your traditional finance courses and I'm just hitting a wall, you know, learning about corporate finance, valuation, fundamental analysis. I'm like, I don't get any of this. I'm like, what happened to all the fun stuff, tracking stocks going up and down? Somewhere along the way, I was in a Barnes and Noble and I came across a technical analysis book by Michael Kahn, who is a writer. I'm not sure where he's writing for now. He wrote for Barron's for years and now he's at Lowry. Yeah.

Yeah. So I picked up a book by him. Okay. This sounds interesting. It's charts. And it really struck a chord with me. And I think I realized at that point, like I'm a visual kind of guy. And so read through that. And then I came across a CMT designation in college, kind of realizing like, you know, I went to Syracuse. It's a great university. It's fine, but it's not Harvard. It's not Yale, et cetera.

I needed to try and separate myself from the pack. And so then that led me down the CMT path. And the charting world really spoke to me and the visual aspect of this. Now, as we were talking before, along the way, I had a couple of different internships in between. Some big ones.

So I was fortunate enough to spend two summers at what was then called SAC Capital. It's now .72 Advisors. And more in back office roles, accounting, trade operations, because I was just a kid in college. I had no idea what the hell I was doing. You weren't the head of the trading desk? I got to spend time on it, a couple of days, but I had no idea what I was doing. Now, the question then comes up.

This is 2006 and 2007, kind of the peak of their powers, right? There's like a thousand people working there. They were right before the Bear Stearns hedge fund blew up. People always ask me, how did you end up there? Like, you're just like a standard. I'm not anything special, right? I didn't get 800 on the math SATs or anything like that. The reason is because my father is a martial arts teacher. Somewhere along the way, he started teaching Stephen Cohen's wife, right?

No way. Alexandra Cohen. Okay. So she was coming to my father's karate school, which is in Westchester County. And eventually she said, you know, my family's doing a little bit better. Would you mind doing private lessons? And this is late 90s, early 2000s. And so my father was teaching Stephen Cohen's wife. And I want to believe some of the bodyguards there that were involved, too. And he would go to their house every week.

eventually he realizes that I'm interested in finance. He goes to Alex. He says, Hey, you know, my son wants to be in the industry. Could you help him out? So sure. Send me his resume. Next thing I know, I'm in my college dorm room and a Manila, you know, DHL envelope arrives with a contract in it for the summer internship. I didn't have to do anything. Oh my God. So I lucked out because of my father. That's a good trade. You know, that, that,

I feel bad for some people because they're working extremely hard just to get that one internship. And here I am, partying in college, and all of a sudden I get a great internship offer because my dad is a karate teacher teaching one of the most well-known hedge fund traders of all time.

I've always said there's a lot of reasons to study martial arts, and you just highlighted another one for us. Did you study yourself, Todd? I took some classes with him for up to about middle school, and then I got involved in track, and that kind of took up all my extracurricular time. But he's still at it, by the way. Your dad is still teaching karate? Yeah, he's still teaching karate. That's phenomenal.

That'll keep you young. Some fun clients along the way. Yeah. You never know who walks into that school and says, hey, I need to learn some self-defense because of the crazy world that we live in. Yeah. But I mean, and I had the opportunity to visit the Cohen household. I don't want to flaunt this, but wow, it was an amazing, amazing place. Oh, my God. That's incredible. I wouldn't be surprised, Tyler, if there were a lot of martial arts students in the CMT community because it's a similar environment.

Kind of off the beaten path type of a way through life, if you will. And if you remember, Patrick Kent was on and he had just gotten his black belt. Yep. And it requires so much mental discipline to, you know, focus your energy, to calm your mind, to be in control. And those are the exact traits that you want to have if you're going to be running money. Yeah. And the humility and. Yeah. Yeah. Yeah.

it definitely taught me a lot. I mean, my father, he's taught me all sorts of discipline, respect, everything like that. So, um, which I can, I guess you could make the case. It translates over to markets pretty well. It absolutely does. Yeah. The other thing to note, Todd, is that, uh, you got a great leg up. You got in the first door, but the last 20 years you you've had to accomplish a few things. That helped at least made a mark on a resume for an otherwise pretty bland. Yeah.

Yeah. Resume. Yeah. So you read Mike Kahn's book. You do this internship back office at SAC. At that point, are you already committed to technical analysis or are you still kind of exploring all the career paths in finance? I was starting it very committed to there. Okay. And then especially throughout my junior, senior and first year out of college, I was like,

Dive into this, try to learn as much as possible. Paying attention to whoever. This is before Twitter or X. Before the social media movement where I can log on, I can go to Dave's profile and learn about what Dave is writing about or what Tyler is writing about.

So physical books and networking were really important back then. And then along the way, I want to say 2010, I started the path, the journey to the designation. Yep. You know, study for a few months, take level one, level two, level three. And then at that point, really start networking to look for a role that was very much focused in the technical world. And that's kind of how I ended up here at Strategas, just networking.

emailing folks saying, hey, I'm really interested in this. And luckily Chris answered that bell 11 and a half years ago. Amazing. And I've kind of worked through the whole universe since then. Did you have your CMT when you reached out to Chris or are you all kind of together at the same time? I had completed the three levels. Yeah. But I don't think I formally had had it yet. Right. But then eventually that arrived, that piece of paper signed by our friend Dave Keller. Yeah.

And that's somewhere it's hanging up somewhere in my parents' house. Yeah. Mine is, mine is right behind me. Mine's right behind my drum set, but you can't see it. It's all buried in the garbage bag there. But so I, I went full blown technicals. I can still to this day, I can never grasp balance sheets. I understand how everything works, but like, if you said to me, Hey, model of a company and their cash flows and whatnot, could tell you where to start. No idea. Just the visual aspect of markets is,

As John Roach said, that charts is the language of Wall Street, right? That just totally speaks to me. You can go around the world in 30 minutes, get an idea of whatever equity markets, fixed income markets, commodity markets, what they're all doing. It's so efficient. And as long as you're not overloading the chart either, I think that's a really important aspect for anyone coming up in our industry is read books about visual design because you want to keep your stuff clean and very efficient. Do you have any recommendations on that?

So the Tufte books, right? Edward Tufte, Visual Display of Quantitative Information. I think that's the classic. And then I have a few others that escape my mind right now because I've just piled through them. We can put them in the notes after, but that's a really valuable recommendation right there. I like that. That's a great idea. You know, there's just...

I can't, it escapes me totally right now, but it's like speaking through charts, basically, is what it is. Yeah, yeah, yeah. All right. So talk to us about your role at Strategas. What are you up to there? So our clientele are institutions, right, as you're familiar with, Dave. And day in and day out, I'm either A, helping produce our technical research with Chris, along with, and that's going to cover everything.

the big picture macro right the big trend and where's trend where's momentum what's occurring what's the intermarket analysis like and then the other side of that each week i'm producing a note on etfs and that's going to be a lot of what is occurring big picture such as movement to active as well as flows because i think flows are this really interesting data point

I can get every day for every single ETF out there. And they aren't a signal. They're not a buy or sell signal, like, say, if you set up a moving average cross or something like that. But they tell us information about investor sentiment, especially if you're using more sector tactical type products. I'm not talking about the Vanguard stuff of the world where you're going to lose that for long term investing.

But I want to know where our investor allocation is going. Is anything starting to get off sides, especially when you pair it off of, say, with volumes or anecdotal observations? And I could say, okay, there's been a lot of money into tech. Maybe we need to pair back tech exposure now. And so I'll try to tie that together, especially with what everyone else here is saying, whether it's Chris, whether it's Jason Trenner, or my partner Ryan here, who handles our fundamental strategy here.

So that is my kind of my week in and week out. And then also traveling around, going to see our clients, giving our outlook on the markets.

And obviously answering any bespoke requests that we have out there where they want to do some sort of back test or whatnot. Yeah. When you have so much flows just as a sort of like an organic flow coming into the ETF business, just because that's the structure of the industry right now where so much money is moving that way. How do you normalize for that when you're trying to measure flows?

From a sentiment perspective and from a recency perspective in terms of what's happening, because there's a wall coming in all the time, it seems like. Yeah. Oh, there's a billion. There's equity ETFs are averaging at least a billion or two a day. Is that right? Yeah. Oh, yeah. There's just money coming in all over the place. So I will try my best to take either sector ETFs or specific corners and

And you can either just you know you can you can do cumulative flows as of the Fed cut or the Fed pause right. Or I can I can take flow data and make a rolling one or three month or six month sum. And then what I can do is I can put two standard deviation Bollinger Bands on that data. You know just to say okay over the last three months inflows into a certain sector are actually hitting two standard deviations above an average over the last year or so. Right that's how you can kind of normalize it. It's not perfect but

but it's at least a way to say things are getting statistically extreme. But importantly, again, it's not a signal, it's just a sentiment data point. And if you start to see some of the breadth metrics, if you start to see trends deteriorate under the surface, then you can make a better bit of a case for what's happening, either the upside or downside for that specific group. And I'm assuming that it's predominantly sentiment data.

Or is there a momentum, like a threat thrust momentum aspect to it as well? Yeah. You know, usually, so we have an election coming up, right? We've heard about this. Yeah. I have nothing to say about it. I don't care. Wrong podcast, Todd. Wrong podcast. Let's ask the questions. What has happened in the last two election cycles?

It's almost these breath thrusts of flows following the event, right? The event clears no matter who wins. You just get the clarity that people are so anxious about. And so, for example, in 2020, 2016, there was a wave of money into industrials, value, financials, for whatever reason. People thought maybe those were the sectors that were going to win. And that helped boost those sectors in the very short term, right? They ran up post the election in both years, right?

Eventually, though, what happens is so much money is piling in and you kind of get a herd mentality and you're saying, all right, this is done. And then the relative strength starts to wear off. And that to me is when flows get way too aggressive in one side.

So that's always interesting. I'm kind of expecting the same thing to happen. There's been so much money into tech, but most other corners have been ignored to some extent. I would not be shocked come November 5th if you're just getting a wave of money into financials and REITs and industrials, small caps for all we know. I'm expecting to see that again, which in the near term, that's okay, but longer term out, it becomes an issue because of that herd mentality.

Yeah. Is there any way to contextualize or distinguish between short-term and long-term signals? Because, you know, in other words, what's the outcome of an extreme and flows into tech? Is that a one-month call, a three-month call? Is it just cool your jets for a bit or does it get short? I like the cool your jets idea because it tells me that positioning is a little bit too aggressive. And you're sort of seeing that with tech right now. Yeah. These aren't huge tops.

But the technology sector has clearly given up the leadership reins so far. And if you hear a bell, that's Jason ringing our 4 p.m. bell, by the way. Tech has clearly given up its leadership that it's had for most of this cycle. But it's not a go short. It's not a ditch the entire sector. It's just growth.

let's take a breather here maybe flows will start to cool off that's kind of the way i'm looking at it now if those say if those names start breaking their moving averages and you're hitting new three month through 52 week lows that tells me you're probably going to start to get outflows and that maybe we actually need to go short or just adjust the game plan yeah minimum yeah

Man, there's a lot of things we can go off on tangents on what you just said there. But I have to circle back to what you said you wouldn't do, which is comment on the election. So do you guys have a game plan for kind of heading into it? I mean, like, is the market kind of sticking to a game plan you expected leading up to it? Or is it kind of doing something you weren't expecting? And, you know, what are you thinking? I don't think...

It's not doing anything I'm not expecting. Now, I actually am looking beyond it and saying, okay, we're going into year three of a bull market if you're using the S&P 500, right? October 22 to 23, 23 to 24. Historically, year three can get a little tricky. You can get some more muted returns. On average, you're up about 1% in that third year. You'll get some pullbacks, corrections along the way. So that doesn't mean it has to happen. And...

You also have the S&P 500 on a year-over-year basis in the top decile of its 12-month price momentum, which momentum, as we all three know, momentum persists, but you can get some mean reversion along the way. So when I pair that off, year three, top decile momentum, it leaves me a little bit weary of a speed bump maybe in the first quarter. So my expectation in a perfect world is, okay, the election clears tomorrow.

for whatever reason, the market rips higher again, I'm going to guess sentiments can get really hot, whether it's flows, survey data, call data, you name it. And that leads to some sort of speed bump in the first quarter of 2025. That's a perfect world scenario for me. Which means it's not going to happen, right? Which means, yeah, that means I'm probably completely wrong. But I'm cognizant that year three is tricky, the top to side momentum. But what is interesting about this, though, is that small caps have not really been on this move at all. Yeah. Right. Year one of the bull market, small caps didn't do anything.

They've been okay this year. And now you're at the point where the Russell 2000 has gone 720 trading days without a new all-time high. That's the third longest in history on the tech bubble and the great GFC. So I think the Russell 2000 is a very flawed benchmark, but I do like the idea of maybe there's a little bit of a catch-up play there, or perhaps you need to just go with an exposure that's not just vanilla small cap and put some sort of tilt on it. Maybe just go small cap momentum.

and quality right you know stuff like that exists out there um but that's an interesting area to me for for next year i mean the the obvious um point of discussion there would be this is either as you described it where the small caps just have a lot of catch-up to do and that's really bullish for next year or it could be the mother of all divergences like 1998 right which you know because the whole market peaked in 98 global financial i mean um long-term capital management

the market seemed to have gone off to new highs into 2000, but it really didn't, where the average stock was actually pretty much left in the dust off the 98 bottom. And we ended up having about an 18-month divergence, very, very eerily similar to what we have right now. So it could also be that. So do you subscribe to that view that it could be one or the other, or are you more like leaning towards one or the other? I think it can be the former. I lean towards the catch-up, right, because I like the optimistic play.

But I am fully aware that we are in this kind of unprecedented level of concentration risk in the major equity indices. You have 10 stocks that are almost 40% of the S&P 500. You have three stocks, Apple, Microsoft, and Nvidia, which are roughly 7% each. And they're roughly 12% each in large cap growth indices. So there's 36% weight there. That is...

I don't have nifty 50 data, but I've been told it's basically the highest since the nifty 50, if not higher. So either a small caps catch up and large caps heavyweight kind of catch down or Dave, to your point, the mega divergence continues. And I'm not sure where that leads, but I guess to answer your question, I do subscribe to the catch up. History would have it that it leads that, you know, if it doesn't resolve to a catch up trade,

Yeah. Then the instances that we've had of a divergence of this magnitude, it's not the first time, but it's pretty rare. We've had them. This is the fifth one since 1974 and not including this one because we don't know what happens after. So of the four that have happened so far, three of them resolve quite bearishly and then one of them resolved extremely bullishly.

Yeah. So it's not a small sample size, but not great odds. No, no. But it's like it is a small sample size. And I'm always very hesitant to talk about things that are small sample size oriented, but it's also tied to first principles. And so that gives it some durability and conversation, I think, because it's like you just you simply can't have an ongoing bull market with a breadth divergence. It's like they just. Yeah. Yeah. Speaking of breadth. So one of the more important charts right now is 20 day highs.

They've been on the S&P 500, by the way. They've been okay. There was a little pop last week to like the high 30s. The longer that goes without hitting, say, 50% to 60%, because that's usually indicative of a little momentum thrust, the more returns are going to decay as we head into 2025. So I am cognizant of that. As much as you're seeing some of these equal weight indices start to break out of two and a half to three year ranges, which I think is really important structurally, I

Momentum is kind of coming out of the market for now. Yeah. That could change within a week. Back to that divergence point. Our friend David Cox, a fellow CMT, put up a chart of the three-year rate of change on small caps next to the S&P 500 going back to 2010. And at each major peak in the S&P, you also saw...

peak in the momentum on small caps. And where we're sitting right now, despite this huge divergence, small caps are in oversold territory, right? They've got negative momentum. So we're not lining up with what has historically happened just in the last 15 years in terms of peaks on the S&P 500, where you've seen that momentum rollover on the small caps.

I'm in your camp, Todd. Maybe I just had a happy childhood, but... Yeah, that plays into it. Yeah, I do think the 0%, we had 0% rates for such a long time, and then we went to 5.5% very quickly, I think. I think that revealed a lot of flaws with the Russell 2000. Those companies struggled to adjust to that environment. Regional banks, boom and bust biotech. And so you need to get more granular with, if you are playing small caps, either go active

an active manager or buy very, very high quality type small cap stuff that's out there. And you've probably fared a little bit better. Yeah.

Actually, before we get too much, because I want to continue with the market discussion, but I really want to get so that our listeners can appreciate how it is that you're coming to your conclusions and what you're saying about markets and things. It might be helpful for them to get a better sense for how you, what tools do you use? Do you favor swing trading or are you a trend follower, momentum, mean reversion, that kind of thing? So what's your toolkit look like? I would describe it as more trend following. Every day we're looking at

the most impactful exercise that Chris and I do, and I think every listener out there should do, is get the list of S&P 500 stocks and just do a playlist and look at every single one of them. And you're not going to remember all the tickers and whatnot, but when you look through 500 stocks or 1,000 stocks, however many it is, and all the groups too, you start to see themes. Oh, three out of four stocks are going up and to the right. They're breaking out. Three out of four are breaking down.

And you can write down, you can keep a statistical list if you want of good and bad names, but you really get a sense of feel for the market. And then, so I call that the eye test. And then what we'll do is put some statistics behind it. How many stocks are above their 200 day? How many stocks are above their 50 day, right? It's just stuff like this to gauge a sense of trend and momentum.

how they will boil it down to each sector how many such stocks each sector are both to today how much are out performing because that's where we can find the relative leadership- so we try to keep it very simple in terms of of trend and momentum.

It's hard enough. I would not describe myself as a swing trader. I don't think that it's hard enough for most folks to do that unless you're a real pro. Especially institutions. Yeah, especially these big mammoth institutions who are moving a lot of cash. They can't be as nimble. And so we try to find, yeah, you may miss the bottom. You may miss the top. We want to get the meat of that trend and identify turning points there.

using that breath data that will help knowing where the new highs are knowing where the relative strength is and thinking in big picture you know the more structural trend to what we'll try to involve a lot of intermarket analysis there to do it discretion versus staples industrials versus the market. Thanks for gold stuff like that all these little breadcrumbs of evidence and when you start to add them up you can get a sense of okay what's the big picture trend and then get it down to each sector where how you want to how you want to skew your exposure. Right.

Yeah, I guess it sounds like when you do that exercise, you know, watching that play real and going through the S&P 500 and the indices and breadth and everything else, based on what you said about you're leaning more bullishly, I'm assuming it's not just that you're an optimistic nice guy. It's also based on the evidence. Yeah, yeah. Yeah, there's plenty of, I can find plenty of names that look good. Maybe they're a little bit stretched in the near term. You know, there's definitely some names that have run up in the last month or two.

And so, okay, that's great for the big picture, but it also says, all right, we're overbought. Maybe look for some sort of dip here in the next six weeks. And I know seasonals are at least helpful in the fourth quarter, but sometimes that gets thrown out if there's a shock event that's out there. Or not a shock event, but like September is the month that's got the most odds of being down and it was up. Yeah, exactly. When there's anomalies, it starts to make me wonder if I should be thinking the other way.

Yeah. Yeah. Okay. Yeah. And so not to get back to the election again, but it is kind of important. So what kinds of things are you...

Are you sort of leaning on today to help clients navigate this window? Because it's a it's a I get I get emails constantly from clients. Oh, yeah. Because it's all so it's so emotionally charged and democracies on, you know, on the ballot and, you know, corruption, this and corruption, that and deficit, this and deficit that people are freaked out.

So how are you helping them with your technical toolkit? How are you helping them navigate this? So I think what is interesting, A, you have credit spreads at new lows. Credit's part of our toolkit. High yield spreads, investment grade spreads, all pushing new heights. And some of the pushback I get is, okay, well, maybe...

Its private credit is making those artificially depressed. I don't have much of a call on that, but I think it's what it is on the surface. We have credit spreads are actually pretty calm. Yeah, the VIX has climbed up a bit. But curiously, going back to the 2016 playbook, you are starting to see some of the more favored corners back then perk up. Regional banks, small caps to an extent, certain industrials. So I wonder if that's the market trying to say who they think will win.

a Republican Trump win, and then trying to position for that win. And it's happening even as yields have jumped up. The 10-year yields jumped up from 4 to 4.20. Those names are still holding in there despite that acceleration from yields. Usually that puts pressure on these groups. Yeah, that was interesting. The Fed cuts rates in the 10-year. It takes off. Yeah, so I think that

Are these little crumbs that that's how the market's positioning itself and then moving away from some of the semiconductor type areas, some of the big cap tech areas. Now, I know they had a good day today, but seemingly looking beyond the top 10, beyond the magnificent seven and going for the 493 now. That's our...

Kind of what we're communicating. And then Dan Clifton, who you know, he does all our policy work. He likes to lean on what performance is in the three months up to the election. Now, this is the tricky part. Usually, if the S&P is up from, I think, August or first week of August to the first week of November, the election week, it means the incumbent is going to win. Problem is, there's no incumbent.

That's a great point. Yeah. So he has all these great statistics on historical election data and the market being up and the VIX being down and if certain sectors are outperforming. But the problem is we are in such a unique election cycle that I almost wonder if you have to just kind of

move it aside yeah yeah that's a really we're in such a bizarre episode here that's that's a good um distinction between uh what because once again that's that's another very small data set it's not like we have yeah 100 elections and we also don't have you know the window of time and that you are up from august to november we have very few of those to really put concrete evidence in and so therefore to your point todd i don't put a lot of weight in that kind of a observation um but

primarily because it's not a first principle. Like it's not one of those things that must be true. Right. So I can, if it's, if it must be true, I can have to, I can have a sample size of one. I don't care. It has to be true. So it's doesn't have to be, it doesn't matter if it's one or a thousand, but that's one of the ones where it's kind of like, we just let the market figure it out for us. Right. Yeah. Yeah. Like the market is still an uptrend. Yeah. Yeah.

Largely everything is in an uptrend, except for there's some like Japan I'm a little bit worried about right now. It's looking a little dicey. I think the one sure thing in a highly contested election like this is that media and advertising, the communications sector, has found some real tailwinds on the basis of all the spending around the election. Trade desk, right?

Great.

Similarly, the last few earning cycles, we've seen companies beat analyst expectations and drop 30%. So in your world, Chris, do your clients rely on you to guide them with a technical read, even when it is totally flying in the face of the narrative or what we all think is supposed to happen, right? Yeah, yeah, absolutely. They look to us to help either confirm or...

say something's false about a narrative, an idea, a dataset and whatnot.

They may think something should happen. We'll try to say, well, hey, data actually shows this. And this kind of goes back to the S&P being in the top decile of 12-month momentum. The market's gone up too much. We're up 40% year over year. Well, historically, you can actually get still pretty decent returns from here. Just be mindful of the music does stop. And one of our favorite studies is when the S&P gets 10% to 12% above a 200-day moving average, just the distance between the S&P and the moving average.

Oh, the market's overbought. I can't get in. Well, it's entirely possible it stays like that for a good year or so. It just keeps running. So we try to help our clients stay just because you heard it somewhere or you think something's overbought over. So it doesn't mean it can't persist, especially based on history. Using historical evidence.

I guess you want to call them backpacks, which can be a dangerous word, is a helpful tool to understand what has happened and can happen again. Yeah, very good. Do you have any thoughts on the sneakily elevated VIX? Do you think that's just election related? I think it is election related. Yeah.

A buddy of mine was trying to just tell me that that is some sort of positioning in the futures curve. I can't say I am a professional at that. I think it's more election related than anything. But I do know that anytime you get a major VIX spike, like we had back in August, when the VIX, when I think it closed at 38, more often than not, the probability that the S&P 500 is up in the next six to 12 months is very high. Now you can get

2008 type scenarios where it's a high VIX the whole time and the market's kicking out of its own way. But probabilistically speaking, which is what we're trying to aim for here, a big spike in the VIX. When the VIX gets above a drinking age of 21, you typically want to be thinking about buying stocks, especially when you get a middle-aged VIX, anything like that. That's really the value I get in the VIX. Other than that, when people say, oh, the VIX is at 11, I should be scared. That can persist for quite some time.

Yeah, maybe you can buy, you know, have some puts exposure if you need it or buy some defensive protection just in case. But a low VIX is really very bullish for equity markets. And so I'm a little confused by what's going on with it right now. But if I do see it spike to the 30s, then I'm more confident buying stocks. Yeah. Yeah, I think that's one of the I think it's one of the biggest misconceptions of volatility in general and even sentiment, just broad sentiment gauges is that it's

We can argue that over certain time frames it's predictive, but what it really is, it's just descriptive. It's just telling you that people are happy. And if it's a bull market, they're supposed to be happy. So it's just describing that, okay, this is a normal market. Or it's VIX at 40. It's telling you that people are freaking out. It's like, well, yeah, I know that. If you get a VIX at 40 with a spike in put calls and a spike of inverse ETF volume, I would think about stepping in.

and buying. Exactly. And you know, it's like all the other indicators, you need to take it in the context of the ongoing trend. So, you know, a VIX at 40 when the 200-day moving average is rising is different than a VIX at 40 when you're below a falling 200-day average. Obviously, they're two different things, right? Yeah. And that's a huge proponent of our toolkit, right? The slope of a moving average is

can help describe how you should view a stock. Overbought in downtrend, not a great place to be. Oversold in an uptrend, which could be the case in two weeks from now, past the election, is usually a great time to buy equities or whatever the asset class is. Yeah. Let's say you're meeting with a client for the first time who's

I wouldn't say is anti-technical, but it's curious about it and it doesn't use it, but it wants to introduce it to the process if explained to them properly. How do you pitch them? What do you tell them about the value of technicals and how it can help them? We try to explain to them that we want to get you on the right side of the trend. We want to use historical data to get the highest probability result for you. We'll try to give you some provocative charts

to help with that. But ultimately, the idea is to get you on the right side of the biggest, best risk-reward trends that are out there. And we'll never use some of the fun jargon that we're all known for. We try to do things more in a statistical manner, I think, so that way they can at least understand how things work, if that makes sense. It does, yeah. And I'm assuming, like it's always been

The case for me as well is that most of the people who I've either worked with or get my research are fundamental. And very few of them are technical. And the ones that are technical are more like friends having a coffee as opposed to actually helping them navigate the day. So is that the case for you as well? Most of your clients are fundamental? Yeah, our clientele is institutional and a large portion of them are fundamental. And so we'll try to help them out by saying,

They may come to us with the name of stock and say, well, I like the story here because the fundamental backdrop is improving. How does the chart look? And we'll tell them, like, you know, we'll try to give them some risk reward levels. It's still on a downtrend. There's nothing there. Avoid it for now. Revisit it six months. Or you have just gone through a major decline and now you're in the throes of a bear to bull turn. And, you know, look for the, you know, I never loved the word confirmation, but you would look for a confirmation breakout above some certain level.

We try to be very descriptive as opposed to using some of the funky indicator names that are out there. But so they will come to us as how does the chart look? And then we also keep in mind, and this goes back to doing the eye test for all the names that are out there. Does one name look like it's starting to break out or is it the whole group? Because if it's the whole group, that lets create some more evidence that something major is about to happen for some sort of space that's out there.

If it's one name and a bunch of names in a downtrend, maybe it's a standout or maybe it's an early tell, but that makes things more difficult to have a lot of conviction on that specific stock or asset. Yeah.

I have to say you are, you've been the most interesting guy at any CMT cocktail party for at least a decade, Todd, because when you come into the conversation, it's always deep cuts, right? Like everybody knows the meme stocks or the, the mag seven and you're coming in with guys. Did you see the chart of palladium futures?

are you guys paying attention to what's going on in these like dusty corners of the market and uh you seem to be the one to sniff them out it must be that playlist going through thousands of oh yeah well the best is you know you could we can look we try to look at everything because we have very diverse sort of clients yeah and it also can be a part of the puzzle right so like palladium is perking up okay what does that mean for the rest of the industrial metal space and

What does that mean for, you know, we'll go and look up what stocks might be correlated to palladium. Yeah. I don't know palladium equities that, I don't know what stocks are big in the palladium business that might benefit from it. I'm sure we could find a couple. Yeah. But let's do, let's run a correlation of 10-year data, monthly or weekly, about which names have the most influence towards palladium or gold or China, whatever it might be. Yeah. To at least...

Give some sense of a statistical backdrop that makes sense. Yeah. And we can do that through ETFs. We can do that through futures, anything that's out there. I mean, there's a price for everything. Yeah. Along those lines, can you explain to me why gold stocks are not performing when gold is performing so well? There's only one answer for this, Todd.

Central banks? No, I have no idea. I frankly have no idea. My best guess is that gold is being – my smart guess, right, if I'm in a room of 100 people, my smart guess is that you have a central bank overseas, probably China, buying gold. And they're just driving up the price. That's my best fancy guess. That's your tinfoil hat guess. My tinfoil macro hat guess. Yeah.

It is a strange divergence. Importantly, the charts tell us that we want to own bullion, not gold mining companies, right? Yeah, yeah. I think that's always the case. I mean, gold miners have their day. When they move, they sprint. Yeah, it's high beta. But yeah, exactly. I don't love the high beta nature of those. It's not for me. Yeah.

Yeah. When you're talking to fundamental investors, I think earlier in my career, one of the things that I was surprised to learn, it was really eye-opening for me, was how I had to change my conversation depending on whether the manager was a growth manager or a value manager. Yes. So how do you adjust to that today? Well, ideally, my teammates in sales will have the fact sheet on them. If they're doing their job, right?

And you try to, okay, if they're a growth manager, you're going to want to go through all the growth indices and understand what's going on. I always find it fascinating about, okay, well, what if their benchmark is large cap growth? That means they're up against Apple, Microsoft, and NVIDIA. Of course, you want to know what's going on with rates and the dollar, but also what does the breadth and momentum look like for that universe? And that's an easy switch to them to the value side too.

And I'll bring in all the metrics about growth, ETF flows, value ETF flows, what products are coming out, because there's always interesting stuff going on there. But it's just a matter of understanding each of the universes. I think that's probably the simplest way to think about it. Because everything else just kind of plugs in. Lower or higher dollar, lower or higher rates, oil, whatnot. If oil is ripping higher, then I'm probably going to want to favor energy, which is going to be a value component. And does that eventually start to hurt some of the growth companies out there? I'm not sure.

But I feel like you can almost plug and play depending on the manager. If it's small cap, that's entirely a different scenario. Then you got to go for the Russell 2000 and international too. Yeah. The one differentiator for me in conversations over the years has been for value-oriented managers has been to really lean more heavily. And it's always been uncomfortable for me to do this, but to lean more heavily on mean reversion because that dovetails better with valuation. Yeah.

And then growth managers just want trend. And that's one of the great things about technicals is we can cover both bases. Yeah, I totally, that makes sense to me. I mean, we have many of our clients who are value tilted and they've just been, they're at the point where they throw their hands up because the style just doesn't work anymore. It has its mean reverting, fits and starts like you mentioned, but

So they'll come to us to say, all right, what are the best names within this medium-very group? And you try to find stuff that's actually still trending higher. And I guess it's almost the opposite of growth. You said trend, Dave. Don't buy the stocks that are breaking down within the growth space because that tells you there's something wrong with them. Yeah, if you can finally buy it because it's finally cheap, you probably shouldn't buy it. Yeah, exactly. The great example of this was Zoom.

A couple of years ago, Zoom or Teladoc, right? They were skyrocketing during the pandemic days. And, you know, they start to roll over and they start cutting through the moving averages. Do you buy here? Do you buy here? And now, you know, they're almost left done for good. Yeah. Value will come back and have its day in the sun again, right? Like the market moves through those cycles.

But I think for those managers, when their style is out of favor, they can't just change their stripes, right? They still have to be a value manager, which means the job is just a lot harder. And they've got to be much more maybe tactical in how they're managing their positions in a mean reverting space. This is kind of what's happening at small caps. Managers are slowly creeping into mid caps now. They're going from stock selection.

Yeah. So all the good small cap names have run up and they've gone from $2 billion to $12 billion. So now the funds are saying, all right, we'll just dabble a little bit in that lower tier market cap. And it's a real thing, especially because IPOs now, there's no IPOs and the stocks that come public are already large caps. So to your point about

changing styles. You're seeing that in the small cap universe because of how rough it's been there. They're saying, let's just go to the mid cap name instead. I blame Taylor Swift. She was a country star, top singer, now she's like EDM. It worked out well for her, so maybe I'll try the same, right? Yeah, value managers are just the T-Swift of our industry right now. That's what's going on. My view on this, Tyler, and I hate to say this, but value never works. It's never worked.

Okay. And so in value, there's two things. There's value that works and there's value that doesn't work. And the value that doesn't work is what we call value traps. Why are they a value trap? Because the fundamentals don't work, which therefore conveys the idea that the value that does work is because the fundamentals have started to work. Well, if that's true, then they're no longer value stocks, they're growth stocks. So what actually works is growth. And that to me is why small caps haven't worked because they've had no growth.

There are so many companies that are still around today because of all the Fed policy and the easy money that they're like these zombie companies that should have been gone long ago. And that's why the Russell 2000 has, what is it, Todd? Is it 40% of the- I think it's over 40 is unprofitable. 46% or something. It's a record high of unprofitability. And they should be gone. Yeah. They're zombies. And that's why it's such a flawed index now. Yeah.

I like the active idea. Maybe the track records might not agree with that. But if you have a good active manager, they can find the small cap industrials or small cap consumer stocks that have really done well in this environment. Pick out the gems from a pile of trash. Yeah, exactly. It's ripe for outperformance.

So there's 100 other topics that we wanted to ask you about, but specifically from your vantage point, you've picked out a number of thematic shifts in the ETF space, right? $10 trillion of asset center management in ETFs, but the fastest growing segment of ETFs are active ETFs.

Break that down for us, the $800 billion or so that are in active. How is that rate of change moving? How much more active ETF releases are you seeing? And maybe help us define what an active ETF is. This is big. You are finally seeing legacy mutual fund managers launch an ETF wrapper, an ETF vehicle. There were holdouts for years. There were some regulatory changes.

uh occurrences that actually helped make this more efficient and more plausible for active managers to come in but they're realizing you know the mutual fund wrapper is slowly going away it's gonna take a long long time but the number of actively managed equity mutual funds is at a 24-year low now there's still 4 000 of them but that's slowly dipping and so you're seeing those funds those folks launch core type products right active large cap active small cap active mid cap

The other portion of this, though, which makes it what kind of active is very tricky, is the derivative usage now that is coming out. So there was regulation four years ago that allowed much more efficient use of derivatives in ETFs. And so a large part of the active, and I'm using quotations here, funds that are coming out are basically options and derivative leverage-based.

And they're only called active because the issuers have to manage the swaps that are in that product. So it's not traditional stock picking like the old school Peter Lynch or whoever style that we all grew up on or that we all were familiar with. It is now I need to actively manage option contracts, swap contracts,

um within this wrapper uh focused on whatever asset it might be it could be a single stock it could be a group of stocks and that is really exploded um you know whether it's i don't think you're getting you're getting some institutional use of that but it's a lot of retail too um but that's a really really big market for it now uh and whatever do you believe in it i mean those products are not for everybody they come with

a read the instruction label. You have to get the ingredients, right? If you go to the supermarket, you look at what's in whatever you're buying, whatever snack pack you're buying, what kind of stuff they got. You have to do that with these ETFs. But so money goes where it's treated best. And I think that's why you're seeing such massive amount of flows to ETFs, whether it's traditional passive or

traditional active and this new form of active that's using much more derivative-based type products.

Options plays. I've heard a lot more about these buffered or, you know. Oh, yeah. It's like insurance built into the portfolio. Yeah, but buffered is part of it also, defined outcomes. So these issuers basically took structured products and created for the masses. Either a structured product used to have to be a connection to an institutional desk or go to some sort of advisor out there. And so these buffered products, they're for a certain demographic, right?

If you are in retirement, but you still want equity exposure, you still want the thrill of stocks, you can buy a buffered product that protects you to the downside up to 20%. And a 20% correction is pretty rare for stocks. It doesn't happen that often. And it goes all the way up to 100%. Obviously, the trade-off, though, because nothing is free, is that your upside gets capped. And it depends on...

which buffer you go with. So if you do 100% downside protection, you're only going to get about 7% to 8% upside for stocks, which is, if you know your statistics, a very rare occurrence. Stocks usually go up double digits. So I have a little bit of a problem with that. But that's another form of the active. So you got traditional stock picking, leveraged, inverse type stuff, buffered and structured outcomes, defined outcomes.

And then also covered call strategy, synthetic income is what we kind of call them now. And it's just this one big pot looking for all the money that does not go to passive funds now. Yeah. And how is the industry defining active for those, you know, not the synthetic yield products, but for a stock picking ETF? Does it require a certain frequency of rebalancing or are there any statutory guidelines?

As long, there are volatility guidelines, I believe, that the investor has to manage. But they're literally just called active. But it needs to be more nuanced. The leverage funds that involve a stock, they're called single stock ETFs, which is a little bit of an oxymoron. Because an ETF is supposed to be a basket of stocks, not just one. But so the way they work around the concentrated exposure, the diversification rules, is they're just getting swaps from different counterparties.

So they'll own the actual equity, like a Tesla, and then they'll use futures and swaps to get the rest of the exposure to help lever it up or to pay out income and whatnot. I came across an ETF, just accidentally typed in the wrong ticker, and I think it was NVDS. It's an ETF that's short NVIDIA. That's it. The problem with these is that you're going to run out of tickers.

Because there's multiple issuers now involved in this space. So NVDL, which is the opposite of that, it's 2x long, NVIDIA, the real juice. And it has, I'm looking at the screen right now, $6 billion in assets. Okay? And a lot of that's because the price appreciation has been really good. But $6 billion would make it a top decile ETF in terms of asset under management.

All in one name. Yeah, all in one name, 6 billion. Just to carry that on, I meant to mention this earlier regarding the concentration that we're talking about in these MAG-7 names. We have the G7, and obviously the U.S. is one of those countries. If you took the U.S. out and then in its place you put NVIDIA, NVIDIA is the second largest country in the G7, just NVIDIA alone.

By market cap against the equity market cap of those countries. Yeah. I mean, NVIDIA, Microsoft, and Apple are bigger than energy materials, utilities, real estate. And the problem is, I don't know when this stops. I don't want to stand in front of this. Some of the statistics that we could go on and on about are crazy. Yeah.

I read one of your posts the other day, Todd, and it actually made me cringe because I was talking to my wife's uncle, and his portfolio exactly showcased what you're talking about. His diversification, he really loves NVIDIA, so he's got some of the individual name. And then he's got some XLF and an SPY ETF and the new Vanguard heavyweights. I was just thinking,

Dude, like 65% of your portfolio is in two to three names. Like your entire estate is in these three companies. We got to the point a few weeks ago where the market was pushing these names so deep in the concentration territory that State Street had to adjust the methodology for the XLK, for the Spider ETF, which is a very popular one because...

The tracking error was so bad relative to the underlying index. Because you could cap because of diversification rules. These are 40-act funds that are not allowed to exceed thresholds of ownership. You can't own more than 25% of one name. And you can't own...

of names that are above 5% more than 50% in some, if that makes sense. And that was happening with those three names. So they would have to chop off the exposure for the third largest names. Like Apple would be 23%, Microsoft 23%, and then Nvidia would be four. Nvidia is not a 4% weight in tech. It's like 20. So the tracking area completely diverged between the underlying index and the ETF. And so they had to fix the methodology to make it more balanced.

So the market is literally saying to the SEC and to 40 act funds, 80 years is too long to update the diversification rules. We've got to fix this. Yeah. That would be the, that would be the classic sell signal with the SEC comes in and updates. Right. Diversify. Yeah. That's like when, when they got rid of glass Stiegel and in 2000, right at the peak when they needed it the most. Yeah. So, so here's the other part of that. I always look at what new products are coming out because

Because I find it fascinating. And then most of the time, it's going to be vanilla passive stuff or a new active strategy from a random, you know, here's our large cap core fund. The big thing now is that issuers are leaning into this concentration. So you have the Magnificent 7 ETF, MAGS, that's been out for a little bit. And then this week, iShares came out with a top 20 ETF. Just buys the 20 largest names in the S&P. They also came out with the top 30 NASDAQ 100 ETF.

And then to be fair to balance that, they came out with the X top 30 NASDAQ 100. But Invesco is now coming out with the mega NASDAQ 100 ETF. So it's just going to buy the top 8 to 12 names in the NASDAQ 100. So forget the rest of them. So everyone is saying, you know what? Go big or go home. And whenever I start to see issuers follow each other,

It becomes this, hmm, maybe we should be looking the other direction now, like Dave, you just mentioned with Glass-Steagall. Yeah. Sounds like everybody's on the same side of the boat. So this is what happened with innovation and disruption ETFs four years ago. ARK set the world on fire. Every single issuer falls and says, here's our innovation strategy. And then what do you know? The stocks just completely fall out. Similar scenario. Maybe this time's a different time.

True. Dave, I'm putting you on mute. You're done. You're done for the day. Listen, I had the evidence mounting that there is a major issue here in terms of concentration and the offerings that are out there. But I could be like 75 years old and still talking about this. Magnificent seven is 85 percent of the S&P 500 in one day. It's going to change. Yeah. Yeah.

So, Todd, imagining that there will be some diversification, what is your work pointing you to? Where are you looking for those new green shoots? We talked a little bit about potential election plays and some diversification based on history. What do you like the most right now? Industrials are great, equally weighted. Machinery names are strong. Aerospace and defense has some good pockets there.

The financials, especially the capital market names, have been on fire. I'm not sure what that means. I look at some of those PE, the private equity names, like the Apollos and whatnot. I don't know if I should be worried that they're skyrocketing here. I think real estate got a little extended recently, but it's the best opportunity set for long exposure in REITs in about three years. That was a brutal bear market. That was a good case of sentiment because everyone was worried about commercial real estate, especially here in New York. It went the other way.

And the one I cannot put my finger on, though, is healthcare. And maybe because it's just the wrong environment. But I look at healthcare and I see that there's been a lot of money out of healthcare sector ETFs over the last year, just hefty outflows. And then healthcare's relative performance is so bad over the last five years. And I'm like, maybe it's kind of good. Look for the mean reversion. But it just can't get its act together.

Although you are starting to see some broadening of participation from anything that's not GLP-1 related. So not Lilly, not Novo. Some of the equipment type areas have also been in a brutal bear market because they lost all their business. People lost weight, didn't lead operations. But I wonder if that's finally starting to change. So those are the most interesting and they score the best in our work too in terms of just outside of healthcare, but trend, momentum and outperformance. Yeah.

Nothing from consumer staples. And it's hard to get defensive unless they catch a bid outside of, say, Costco and Walmart. And then energy is the opportunity cost sector of all time for me right now. It always looks juicy, especially because you get some big bases there. Exxon made a new high a couple weeks ago, and then it just kind of falls apart. You need a real inflationary environment, which...

It's still not out of, you know, Jason Trenner thinks that we could have a second wave here at some point. So maybe that's when you want energy. But for now, it's still opportunity cost. And what about globally outside the U.S.? Do you take a look at all the ETFs of all the other countries? Oh, of course. So it's great. I can go around the world. I get a sense of risk appetite and breath. So the hot topic is China. Uh-huh. And...

And all you want to talk about is Argentina. Oh, it's LATAM. So China is a trading vehicle. It's not an investment. Over the last 32 years, the MSCI China index annualized return is about 1%. That's terrible. The average inter-year correction for China is minus 30%. Just in a calendar year, expect a 30% drawdown. That's not a good sharp ratio. No, it's terrible. It's terrible.

It's double the S&P 500. And so now my analogy is that Chinese equities are a Formula One vehicle. You go from zero to 160 miles per hour in four seconds. And then you crash into the curb. When the crash happens, you hit the curb. It is a crazy highlight that you can watch on repeat. And so if you're going to buy China, you've got to be nimble because you can go. I think China's probably up like 30%.

The last month, I might be wrong about that. I would not be shocked to see it go up another 50. It'd be totally normal. But then you have to get out because I would expect it to give a large chunk of that. You just be back at the highs.

I mean, yeah, I guess so. It's just a big, big range to your point. I mean, you'd literally just get back to the highs. Yeah. China is literally just, it's an oscillating market. Yeah. So that's been a hot conversation given what's happened. The sentiment was terrible, right? You had ETF closures. That's the other side of this where a lot of folks were closing their Chinese ETF products. Yeah. There was all those, the, the, the,

The sector ETFs. I used to follow them all the time and I went to do my weekend update and they were gone. So GlobalX closed. The only one they kept open was discretionary because that's Alibaba. Crane Shares, who's a China dominant issuer, started, I would say, auto-bullying from China. They came out with an AI fund, a Saudi fund, some other stuff that's out there. So they said, all right, we have too much of China exposure. We've got to have different products.

A lot of outflows from Chinese ETFs, and everyone said it was uninvestable, which is still basically correct. But the sentiment was really bad, so this has kind of been a release valve. So that's been interesting to me. If you want to play China, I would just buy France because it's home to all the European luxury names that derive a lot of revenue from there.

Now, they've been beaten down to some extent. So if you are optimistic on whatever's going on in China, then you buy EWQ. That's the France ETF because they have LVMH, Hermes, Dior, a couple of the random things in there. But then the tricky is... Yeah, those are big, influential. Those are like the Mag 7 of Europe, basically. Yeah, yeah, yeah. And you can make the case for the autos too. They've been horrendously beaten down. The hardest market from right now is Japan.

We finally hit the 1989 hive. And my favorite pop culture stat was that the last time Japan had hit a new high, Michael Keaton was Batman. And Michael Keaton played Batman again last year.

in the Flash movie. And he also played Beetlejuice that year, and he played Beetlejuice again this year. That's one of my favorite... That's awesome. I'll never top that. I'll never top that reference. That's amazing. They don't make observations like that on the CFA podcast. No. But it's starting to struggle, and I'm a little bit worried about that because I am very bullish on that market. But I think the autos are going through a pretty big hiccup, and they're an influential weight in Japan. Yeah.

And then some of those industrial names, which were fantastic, I think are just, they're mean reverting now. So I'm a little worried what's going on there. And I don't really know what to make of it for now. Yeah. The big fundamental thing over there is that they're basically, uh,

Much like the U.S. mandated DEI in order to stay in the index or to stay listed on an exchange, they're mandating a certain level of ROE or they're going to throw you off the exchange. And it's like you can manufacture DEI. We saw a lot of companies do it in the U.S., but you can't just – I mean, you can manufacture return on equity, but that just promotes and encourages some pretty nefarious things to hit those benchmarks. And I just –

You know, it's capitalism. You can't just, oh, if it's that easy to manufacture ROE, why haven't they been doing it for the past 20 years? So to kind of put the guns to the managers and say, you know, either get your ROE to a certain level or we're throwing you out of the index, it just seems like it's going to promote some pretty bad behavior. Yeah. I wonder if that's starting to manifest itself now, maybe. Yeah.

But I mean, ESG didn't work out here. The one good thing I like about Japan is that it's not tech heavy. It's consumer heavy and industrial heavy. And it's financials too, right? Yeah, the banks there are pretty decent. So at least if you are going to buy that market, you're not getting 30% tech or even more, depending on how you classify some of those names. Yeah, good stuff. Yep.

It might have taken me six months after the fact to find out that Japan ruled you have a mandated ROE. But the market would sniff that out immediately. And even if we don't know exactly why things got so shaky, smarter folks than us have probably done the homework to find out how much nefarious activity is going into it. I think it's that you have interest rate normalization there.

The yen carry, which I don't really know much about, exploded. And so I think you just had a lot of different factors kind of swirling around there, plus China coming into play. So people probably just rotating around it. Same thing is going on with India. India's mean reverting right now, too. That was one of the best trends on Earth. And there's this tactical rotation of out of India into China for now.

This week. This week, Todd. This week. But I think longer term, India's going to be the one that has the stronger returns, I think. Maybe I'll eat those words in the future. I don't know. You look at a couple of years of the mid-caps chart, and it's like the most stable lower left to upper right line I've ever seen on a chart. Yeah. I mean, it's in the India ETF market here in the US, they've grown their assets hugely. Part of that's price appreciation. Part of it just flows from models and whatnot. Yeah.

All right. So, Todd, all of our listeners have got a lot of nuggets to think about. But where can they find you if they've got more questions, want to learn more about Strategas Securities and all of your incredible work on the ETF space? Let's see. They're more than welcome to email me, T-S-O-H-N at strategasrp.com. I know that's a little bit of a mouthful. We'll put that in the show notes. On LinkedIn, X, all that stuff. Look me up on social, reach out to me.

strategist RP.com is our main website along with strategistasset.com we have an asset management offering

So, honestly, anyone can reach out to me. LinkedIn, X, email, I'm out there. Todd's an incredible follow because you never know what chart he's going to be throwing your way. You've probably never heard of that came up on your screen. I try to keep it in the fairway, but you never know. Sometimes it's the stuff outside the fairway that is the most interesting. You keep that up.

Todd, thank you so much for making time with us here on a Friday evening post-close, late October. Looking forward to seeing you again real soon in the city, in three dimensions. Likewise. Thank you guys very much. Great to see you, Todd. Thanks so much. You too.

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