Episode 46: John Kosar, CMT
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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. ♪

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Hello and welcome to episode 46 of Fill the Gap, the official podcast of CMT Association. My name is Tyler Wood and I'm joined as always by my good friend David Lundgren. How are you doing today, Dave?

Doing wonderful. Welcome back home. You had some big travels for the CMT Association, so it's good to see you. You know, it's odd to only take four days to go to the other side of the planet, but that's all I could spare, and we packed it in. It was a very productive week, both on the operations side as well as regulator engagement and conferences and events that we're hosting with bank treasury managers and you name it.

India is such a vibrant community of technicians and the markets are just on fire. So it was great to get back. Yeah. I know they're all- Nice oversold uptrend in India. That's right. And they can't wait to have you back, Dave. I can't wait to go back. I love it over there. This time we'll bring you a little bit better sleeping medication. That was, I think, the only downside was you stayed up 24 hours a day. Yeah.

So today we had the incredible honor and pleasure of chatting with an old friend of both yours and mine, John Kosar, who's the CMT charterholder and the founder of Asbury Research and Asbury Investment Management. So great to catch up after quite a few years. But Dave, what stands out to you about John's incredible trajectory from the floor of the CME to the asset management business?

I mean, he's been in the business for over 40 years and he's been a technician, technically oriented trader investor throughout the entire time. What I find fascinating about that is that through the whole process, he's been a technician, meaning the tools that he used to help him navigate the very short term intraday swings on the floor of the CME are the very same tools, you know, trading futures contracts and

and things like that are the very same tools that he now uses today to advise his clients on ETFs and asset management and things like that. That's the whole point. And you could not have done that with...

with fundamental research coming off the CME floor. You shouldn't be trading fundamentals on the CME floor to begin with, but that's just one of the points we try to make all the time is how fungible the form of analysis is across timeframes, geographies, asset classes, et cetera. Right on down to, or right on up to, I guess today we should say, Bitcoin. I mean, it's fungible across all things. And we say this all the time, but John Kosar's career is a perfect example of

of just that. Yeah. And I think for me, the conversation you're exploring about systematic and quantitative approaches to screening the markets, John details his ASVERY6 model and looking at what are market internals or maybe inflappable forces that you could get a sense of the health or the direction of the market.

And then using some of the classical technical tools, like he talked about, you know, being born and raised on Edwards and McGee as a pit trader. Yeah.

And that that final step is a more discretionary approach, at least on his research ideas and communicating to clients through the research side of his business, that that discretionary component uses much more price and classical technical analysis, but that the start of his process is much more systematic and quantitative.

And I think that might be the first and best answer to the longstanding debate, discretionary versus systematic. I think John's got something that works for him and perhaps for many of our listeners as well. Yeah, no, the reason I wanted to really dive in on that is because that's how I am as well. So I always view like the research process as the map.

and the decisions I make of the car. And so, yes, I'm driving the car, but the map is the map. And if the map is telling me where to go, but I am driving the car. And I think that's probably an analogy that would suit well with John as well. Absolutely. Absolutely. Well, for all of our listeners, I invite you to sit back and relax and enjoy this interview with John Kosar, CMT here on Fill the Gap.

Welcome to Fill the Gap, the official podcast of the CMT Association. My name is Dave Lundgren, and I am joined by my friend, co-host, world traveler, and fellow CMT Charterholder, Tyler Wood. On this episode, we are joined in conversation by CMT Charterholder, John Kosar. John is a veteran of the markets, trading on the floor of the CME as far back as the early 1980s.

You may have seen him on any number of financial news programs, as well as the excellent stockcharts.com. Tyler and I also know John as a former vice president of the board of the C&T Association. In 2005, he started his own company, Asbury Research, recently dipping his toe into the asset management business. So we have much to talk about. John Kosar, welcome to Fill the Gap. Thank you. It's good to see you guys.

Good to see you too, Jim. It's been a while trying to get you on. So a busy man branching off into asset management and converting it into a family business. We've got so much to talk about. Before we really jump into this, why don't you tell our listeners a little bit about yourself, what got you into markets, and what kind of got you to really concentrate on the technical side of things? Well, the markets part was a happy accident. I grew up in a family full of

blue collar guys. My dad was an electrician. And so out of school, I went to college. I spent a short time

time there. And I had no idea why I was there. I kind of went because everybody else was going. I got there and kind of felt like I was wasting my dad's money because I just didn't have a direction. I didn't know at the time that a lot of people go to college to find a direction, but I didn't have one at the time. So I came home. I tried to do what my dad did. And so I worked construction for a

It bored me to death. I hated it. It was torture. So one, and then you were laid off every winter, you know, for the most part. I was a laborer for a concrete company, bricklaying company. I was basically kind of a human donkey for a while. And so what would happen is in the wintertime, it wouldn't work. So I got offered a job in,

health club that I was working out at and they made me the manager in like a month and I was like, hey, this is a hell of a lot more fun than swinging a hammer all day or, you know, or carrying lumber on my back. And through there, I met a guy who I didn't even know his last name. I used to spot him and he'd spot me on the bench. That's awesome.

And one day we were leaving the gym at the same time and I saw him walking across the parking lot and there was no cars around there. And I was like, where's this guy going? Is he walking home? And there was an orange whale tail Porsche Carrera at the very edge of the parking lot.

And I watched him get in there, and I couldn't wait until I saw him at the gym the next day or the next, you know, whenever he showed up. And I said, what do you do for a living? You know, I said, I saw the car. And he said, I'm a live handle broker.

So me being a suburban kid from Chicago and, you know, I didn't know much. I'm thinking, oh, he works at the Stock Exchange. And of course, I probably wasn't paying attention in history class, but Stock Exchange or the vet closed in 1971. So.

So I'm thinking he's a cowboy, you know, he's riding a horse and going Yahoo and driving the cattle into the slaughterhouse or whatever. And it turns out he explains to me about, you know, the pit, you know, and I was, I was lifting a lot of weights then and I was pretty jacked up. So he said, you know, a short stocky guy like you, you know, if you could do math in your head quickly and you could think on your feet, he goes, you may like this.

I'm thinking, well, I'm 23 years old, and I certainly am not going to be as popular being the healthcare manager when I'm 45 and have a gut. I better start thinking about a better way to make a living. I always thought it was cool to be able to use my brain instead of my back. I started at the exchange. I didn't know a thing. I was a runner. I

I think I fell in love with it in about five minutes. It was just, it was 3,000 people all kind of running in different directions. And that's kind of how it began. It was just a happy accident. Yeah, so serendipitous, right? I mean, just incredible. I can't imagine what the CME pits were like in the early 1980s. You said 3,000 people. It must have been deafening in there.

It was, but you got used to it. I mean, you really did. When I got off the floor, I couldn't stand the silence because when you're on the trading floor,

you can hear the emotion in the pit. You know, you could hear, you know, the market, you know, you could hear the people roar and you look and, you know, and you look and see what the, you know, the price is on the wall and you'll hear a roar from foreign exchange and you'll look over there and you'll glance at the board and see what's, what's Frank is doing and Deutsche Mark, whatever. I worked in every one of those pits during that 17 years. And I even worked at the board of trade for a while. So that was a really comprehensive kind of understanding of,

How all that stuff worked. So off the floor, I've got Bloomberg TV on all day. Is it because I love the interesting things that all the salesmen say all day long on TV? No, but that's my floor now, right? That's the buzz. I can hear what they're talking about. And it's not the same, but it's a surrogate. Yep. Yeah.

Yep. What was, just out of curiosity, in terms of the floor and the participants on the floor, Tyler mentioned 3,000 people. So what, in any given year, what's the turnover of the traders on the floor? I mean, how long do people typically last? The non-traders, the turnover was...

Very aggressive. I was lucky. I went down there and I was 24. A lot of those kids that were down there were 18, 19 and 20. And they were there to go to parties and meet girls. So there was a turnover, you know, that happened or maybe they were there for an internship or whatever. So I was older and I already I mean, I already knew what I wanted. So it was a little bit easier for me to kind of hone in on, you know, my target, you

The trader turnover wasn't as aggressive as you think it might be. I saw so many things there. I saw guys that would blow up. They'd have a bad two or three days. And all the guys they trade with and actually compete with in the pit, these guys would stake them again.

Pick up a collection? There was this, well, I mean, a collection of thousands and thousands and tens of thousands of dollars to get these guys back on their feet again. And they would, I don't know if that was widespread, but I've seen it happen. I saw stories of it where somebody would blow up or somebody would be an order filler and they would screw up an order. And, you know, for hundreds...

hundreds of contracts and not find out about it until the bell rang. And then they have to sleep. You know, there was no overnight trading then. So they'd have to twitch until the market opened the next day. And then, you know, they'd have to fix their. So, yeah. So I saw a lot of guys backing each other up. I also saw a lot of guys. Well, not a lot, but I remember seeing guys getting escorted off the floor with the security guard on their elbow because they blew up.

And they had to physically be taken from the floor. Um, I heard stories about people losing their homes. Um, yeah. So a lot of horror stories, it's like fire, right? You know, fire can feed you and fire can kill you. And, uh,

I think I'm still risk averse now. You know, people, oh, yeah, he's on the trading floor. He must be a gunslinger. I'm the opposite. I'm really respectful of risk because I saw the extremes of what they can do when I was on the floor. Did you use as a floor trader, did you use technicals or did you use some other methodology?

Purely technical. Purely technical. Yeah. When I first got down there, again, I was older, and I was trying to figure out who was making the money. And there were no computers on the floor then in the early 1980s. I started...

latter part of 1980. That's incredible to hear you say that. I mean, it's obvious that it's true, but it's just like, it's one of those statements that it's like, oh my goodness, there were no computers on the floor of the CME in the early 1980s. Obviously not, but think about that. Yeah. So we used to have to walk to the Board of Trade. It's about a half a mile away. There was a little shop right adjacent to

to the Board of Trade where you could buy charting paper of all different kinds, right? It was the green lines on the white charting paper. When I was a bachelor, I had like, that's where my chart was, charts were. Anybody who came to my house, you don't eat at the,

Kitchen table. That's all that was. Okay, you don't eat there. You don't look there. You don't touch anything there. Those are my charts. And they were stuck, you know, they were like eight feet long and I used to stick them together. You know, when you're running out of chart paper, you know, you get some scotch tape and you tape it and you go across. And I kept...

a dozen futures markets. But where I was going is I noticed that the guys that seemed to be doing the best, there was this little cult of guys who would have a piece of that chart paper folded up small enough so they can carry it in their left hand and then have a pencil in their right hand. And their heads were always down. They're never watching where they're walking. They were doing point and figure charts.

you know, back in 1980, 81. And these were the guys you'd see them kind of circling the pit, you know, and drawing. And then they go in the pit and they make their trade and they would back out of the pit again. And those guys caught my eye and I was like, what the hell are these guys doing? And they were drawing point and figure charts and they were making tactical moves in and out of the market based on those charts. Yeah. Yeah. Are you a point and figure guy today or? No, I never was. Yeah.

I did it for quite some time. But what I did, I was down the floor a couple of years, and those charts that I built that were on my shrine, which is my kitchen table, used to be able to get free trading cards. Just take them. People used to throw them in the air and juggle them. It was free trading.

trading cards that were there for all the traders. So I would take a stack home, and I started scribbling some support and resistance numbers on those trading cards. I would have a horizontal line in the middle, and then the three resistance up and the three support down, and maybe a couple of little comments, and I started handing them out to the brokers for free.

Just guys I knew or guys that I could catch their eye and say, hey, see if you like this. So I did it for two months. Nobody said a word to me. So I was like, I must really suck at this. Nobody even said anything.

So I stopped doing it. And then before you know it, like five or six guys come around, hey, where's those trading cards? I really missed those. So I started this little business, right? So I used to get $100 and a half a month from all of these individual traders. I had 20 or 30 of them at one point. So I was making a lot more money with my little accidental hand-drawn charting service than I was working for Shearson. You know, it's funny. Yeah.

That's incredible. Side hustle to your main hustle. I love it. It was a side hustle for sure. And it was another accident. I just I just want these guys to tell me if I'm on the right track. And it turned out that was kind of my first entrepreneurial venture down the train floor. Yeah.

So let's fast forward from trading live cattle and multiple futures markets. You obviously got a hint of what being a research analyst might have felt and looked like from those trading cards. What prompted you to leave the floor of the exchange? Well, two things. One was my age, and the other was the condition of open outcry. It was...

So to those of us that were paying attention, and a lot of them weren't, once you got into the late 90s, there was Globex, if you remember Globex. Globex was the, I think Globex was CME, and there was like a Project A, and that was the Board of Trade. Okay, but those were the first companies.

electronic trading platforms. And it was done after the close. And to me, it was obvious at some point the trading floor was going to go away. So and the other thing I was probably in my early 40s. And I was just getting too old to knock heads with those 25-year-olds anymore. I wanted the more

sedate academic part of this is trying to figure markets out. I was already doing that on the trading floor. I would get one of the traders from New York, he'd say, John, I've got 400 S&P contracts to buy between now and Friday to close, and it was Wednesday morning. They would allow me to take a couple days off.

and use my charts, you know, and buy the dips and buy off the support levels and stuff like that. So that's where I wanted to go. So those two things, yeah,

Plus, you know what? I was just sick of the screaming and the chest bumping and the John Wayne... I was in a John Wayne movie for 17 years. It was time for me to get out of there. So, you know, that's what happened. Yeah. Okay, Corral was getting a little bloody, huh? Yeah, I mean, it was like a bar fight. I mean, it was just screaming and yelling. It was a blast, you know, especially when I was young. It was fantastic. But I just...

I knew that, you know, just like I knew that I wasn't going to be a health club manager, you know, 10 or 15 years. It was the same thing. You know, it was time for me to take whatever skills that I had from down there. And that was a tough move, by the way, to try to get off the floor. Really was because the floor. That's why I joined the organization.

the MTA back in the day is because the guys in New York thought all of the guys on the floor, you know, were Italians and their arms are dragging on the ground. They thought we were just a bunch of a bunch of knuckleheads down there. And so I wanted to try to legitimize myself. And, you know, the MTA was a vehicle to get there. Well said. And what year did you move off the floor?

97. 97, yeah. And you got your CMT charter in 99? I'm looking at it as September 29th of 1999. Yeah, right at the peak or near the peak. Yeah, yeah. Went by fast. You already knew a thing or two about risk management before the collapse of the dot-com boom.

So let's talk a little bit about process and tools, John. I'm assuming your research process included more than three resistance levels and three support levels by the time you got to launching your business. Yeah, it went to four and four. No. Okay. But you got to charge extra for that. Yeah, that's right. It was a premium. In terms of your process, what kind of tools are most meaningful to you? What do you look at that helps you drive decision-making?

I've really changed. The first 20, so this is 43 years from me, believe it or not, but the first 20 and the back 20, I made a lot of changes. The first 20 was all Edwards and McGee price patterns, momentum, things of that nature. Price to me, yeah, I mean, this is going to

not come out maybe the way that I want it. Price in some ways to me is now secondary because I think when I was in the pit, as early as when I was in the cattle pit, I would see

four or five of the locals and the locals are the guys that stood in the center of the pit and they would provide the liquidity. They weren't really, I mean, in their minds, they weren't there, you know, to do a good turn for the economy. You know, they were there to put another Jaguar in their driveway. But I mean, those guys that were trading with the order fillers, every once in a while, you'd see them look at each other and they would,

Kind of like five wolves, like getting together, you know, to take down a spring back or whatever, you know, you'd see these guys kind of look at each other and they will all shove the market down. They would be able to control the market for short times because they would have an idea that there was 350 sell stops at a certain price. So they can.

push it down there, and as soon as the price is hit, those stops become a market order. So I watched these guys do that, and they would--

They'd make a ton of money, and then there'd be no locals in the pit. They'd all be at the Cub game in the afternoon because they already made their money. But I think that's going on. It's the same game, but bigger and more stealthy now. All of this stuff that we see during the day, you get up in the morning and the S&P is up 50, and it's down 50 by the close, and then it might be down another 30. It got really difficult for me to

chase the tail of the S&P 500. So what I started paying more attention to is, well, one of the metrics that we use, we call the Asperger's Six. And the Asperger's Six was my, it was internal for years, and it was my attempt to try to keep from chasing the tail of the S&P 500 and look at the underlying

conditions of the market that can't be controlled by powerful forces being able to control the price of the S&P for short periods of time. Stuff like relative performance between different assets, AUM expansion and contraction and SPY, market breadth, volatility, things of that nature. So it's a long

wind up, I guess, you know, excuse me, to answer your question. But now I'm looking at more of this secondary metrics, you might call them, and waiting for them to be right. A lot of the models that Jack and I have built, you know, Jack's my son, you know, and he's my partner right now. A lot of the models that we've built

show you what we think are the important internal market conditions, and then price

comes in after. Price gives us the risk and reward. Make sure we're not buying into a resistance level to make sure maybe there is a chart pattern there that will give us a target so we can manage our upside expectations. But now, before it was price first. Now, it's actually Edwards and McGee and price secondary. And I use these other indicators to let me know

what the real internal condition of the market is and not what fireworks are going on in the S&P 500 this morning. So that's an interesting, I wonder if we both come to the same conclusion ultimately, but I want to see if I can clarify what you're saying. So your research process, does it

Number one, it sounds like it describes the environment. Are you risk on versus risk off? Is that fair to say? Okay. And then beyond that, does your research process also kick out ideas for that environment? Yes. Yes. And then when those ideas kick out, you then visually assess them to make sure that you're not

buying into an all-time high or, you know, right into resistance and things like that. So you have like some sort of preferential treatment at the very tail of the decision-making process. But up until that moment, everything's systematic. That's exactly right. That's absolutely right. So

Two of our oldest models, we've got a model called CPM. It's a risk-on and risk-off model. Basically, going back seven years, it sticks like glue to the S&P 500, but with about 40% less risk, according to standard deviation, beta, maximum drawdown. That tells me if I should be adding exposure or if I should be taking...

exposure away in terms of equities. The other model is called our SIF model. It's a sector asset flows model. And that tells me, it measures the acceleration of assets moving in to or out of the 11 sector spiders. That tells me what I should buy. So the one is telling me if I should be adding or I should be

decreasing exposure to equities and see if it's telling me where the money is going in the sector space. So from there, I can go and take that down a step and see which industry groups inside of those sectors are showing opportunity. And then from there, if you want to, you can go down to the stock level. I don't do a whole lot of stock picking anymore. It's hard to manage that risk.

It's a lot easier to manage that risk with an ETF that's got 25 or 30 names in it. But yes, exactly how you described it. So all I'm doing is, OK, so we do a scan of 60. I think we have 6,500 ETFs in our daily database. So we do a scan. Jack does a scan every morning at 530. So when I'm at my desk at 545, I've got a list of ETFs.

ETF names that meet these various criteria that have to do with trend, relative performance, asset flows, and other stuff. So it's a short list. From that list, I go through those one by one by one and look at them on the charts. Is there a chart pattern? Did we just have a breakout? Are we up against the three-year-old high that I don't want to buy because my risk reward is upside down? So that's the only part of the process that is

subjective where I'm using my experience to try to figure out which one of these I can risk the least to make the most. Yeah. And I'm assuming like based on your experience, hard earned, learned experience from watching things trading on the floor and watching these big swoops come through and just kind of like take stops out and then go higher. I'm assuming you don't use stops. I'm assuming, I mean, you probably use stops, but you don't put them in the market. Is that right?

Yeah, you could have just done this yourself. I could have stayed home. You've got this. Yeah, what I do is I've got one of the components of our research service, PICC-ETFs, trades.

The average winning trade, we're in for 18 trading days. The average losing trade, we're in for eight. So and-

What I do with those is I put in a level that is effectively a stop. But that's another overlay where I'm going to use some subjectivity there. Because I think anybody who does this knows that there's a lot of, let's go get the stops going on.

The obvious places, old lows, a trend line, maybe a big moving average. How many times have you seen a pattern get validated during the day?

only to come and take it away three days later. That's not an accident. Or that afternoon. A friend of mine called it financial jujitsu, and I think that's a really good way to look at those. So, and again, it sounds like conspiracy theorists, but I think it's true. But I think, you know, what happens is a lot of these obvious areas, either if you're breaking a trend line or you're completing a pattern, stuff that is common knowledge to people that

do this, if not for a living, you know, they do it all the time. So the short answer is no, I don't use the hard stops anymore. If a stop is hit, alarm goes off in our office and one of our screens lights up and shows me that chart. Now I've got my eye on it all day. I want to see what happens on the close. How many times have you seen it go down and get a stop and then come back up and close right on the level and three days later,

later you're 4% higher. So I would love this to be automatic so I could set it and forget it and go do something else. Well, I probably wouldn't because I love this too much. But those are the times where I think having experience –

That overlay, I haven't figured out how to do that automatically, systematically. I think there are times in this business where experience still means something. And understanding that a lot of these levels that are readily apparent to anybody, if you're hanging your stops on those levels, you're going to have a lot of really good ideas that are going to be stopped out before they ever have a chance to make any money. Yeah. And the...

It sounds like you're very systematic. I draw a distinction between quantitative and systematic. I'm assuming it sounds like you're more systematic in the sense that you necessarily backtest all these things, or is it just you systematically execute the research you believe is going to work? We've backtested them. So that leads me to the next question, which is,

This is something I wrestle with myself. I do a lot of backtesting as well, but I don't really talk about the results of the backtest just because I myself don't believe in them, because I just don't believe the datasets as valid as we all think they are. But my question for you is, if your backtesting models and processes

but then using discretion in the execution of the strategy? How do you justify that distinct difference between how you're executing versus the back tests that you're doing? And how do you communicate that to your clients in terms of the difference between back testing and system discretionary? That's a really good question. And I didn't...

as much as I did. Our pure models, like our CPM model that I talked about, which is the risk-on and risk-off model, or our SIF model, which is a sector rotation model, those are purely systematic. There's no overlays there. The only overlay there is for our SIF model is if there is a systemic event. Like, you remember back in March when that bank on the West Coast went belly up? Right.

I do. Yes. So if there's a systemic event that causes one of our sector rotation picks to lose X amount of relative performance intra-week, then...

We go to cash in that particular one, and then the model is rebalanced on the weekend, and then we reallocate the following Monday on the open. That's the only, and that's really not even subjective because there's a certain, there are hurdles that have to take place in order. It happens once in a blue moon. It happened one time last year, and that was SVB Bank.

But you have to have that in place there. I mean, it's a crazy world and you can't expose yourself to that. But to answer your question, our models and our model portfolios, we built four model portfolios out of these values.

different amounts. It's like stew, right? You're making a stew and one is spicy and one is not. That's kind of how I look at creating these portfolios is you put in all these different inputs and when you blend them together, they have qualities that they might not have individually. For example, when we blend our CPM and our SIF model, it actually

It actually ends up having a 2% smaller maximum drawdown than just the CPM by itself, which is a risk aversion tool. So, yeah.

So the models themselves, there's no overlay. For the ETF picking that I do, it's systematic except for that stop placement. And I get involved in that just because I haven't figured out a way that works yet to be able to put in a purely systematic stop and not

have a outsized number of your trades that are stopped out, and then the market goes right back to where you wanted it to go. So I haven't figured that one out yet. But for the models themselves, purely systematic and everything is backtested. And the way we backtest stuff is--

I think there's a right way to do this, and there's a wrong way to do this. I've seen back tests where you look at a five-year period, and one of the years, you made 50%. And the other four, you were a market performer. Well, that's not annualized. That's not a good model, obviously. So we start building from the defensive side first. I want to see a good Sharpe ratio. I want to see a good Certino ratio. I want to see...

a low maximum drawdown. I want my standard deviation to be smaller than the benchmark, whatever. And once you have those tools, you know, building the model isn't having, obviously it isn't like, you know, having one or two outsized years, but rather that spread in between how much you're risking to how much you're making. And you can see that in a sortino ratio. You can see that in a Sharpe ratio. So we build them to be

rather than Maserati's. We want something that's going to be able to hold up to good drawdowns. Or this past seven years, I think, was a really good time to do bad testing, right? Because we've had a 100-year pandemic. We've had a major downtrend in 22. We've had a crazy Fed-induced rally in 2021. And we went from a zero interest rate environment up to a more normal

interest rate environment. So there was a lot of robustness, if that's a word. There's a lot of stuff in that seven years that makes for, I think, a pretty good road test, if you have an idea. And Joe, you're looking across so many different ETF products. You mentioned thousands in the morning scan.

There are so many ETF vehicles that ostensibly are meant to do the same thing. They're meant to capture the same theme or index closely. But have you noticed there's differentiation even amongst ETF products that are targeting the same kind of outcome? You mean...

I'm not sure if I understand the question. So when you're doing your morning scans, right, you're looking at a thematic ETF or you're looking at a tactical asset allocation ETF. They're not all the same, right? There's a lot of differentiation between products that are trying to capture the same underlying ETFs.

How do you deal with that in the research process? Oh, that's a if I understand your if I understand your question right. Sometimes. So I'll have my list in the morning of what is checking the boxes for the preliminary scan that I need these boxes.

criteria in place before I will consider buying that ETF. Oftentimes, you'll see five or six different ETFs that are all in the base metal space, right? Or they're all in a certain part of the technology market, the technology aspect of the market.

There was one we had the other day, over the past couple of months. And again, I may not be understanding your question correctly, but there's two ETFs that are effectively the same. One is a Spider product, and one is an iShares product. The first one is XSW. It's a software ETF. So I bought the software ETF because it met all the criteria, and the risk-reward was good. So I bought it.

We sat on it for about six or eight weeks, and it came up to an old major high that went back a couple of years. So we pretty aggressively jacked up the stop. I didn't want to give that back. It was stopped out. Three days later, IGV, which is the sister of

It had already broken that same resistance level. So I basically got out of the one. They're both the same. We did a linear correlation on them, and it was like 0.95 or something like that. They were effectively the same, but they were two different families. So...

I think it was XSW. I may be getting the names wrong, but the idea is there, right? So we sold out the XSW because it bumped up against the resistance and I didn't want to give that back. But while it was bumping up against the resistance and XSW, IGV was backing into support. So all I did was I put that position on four days later right on the support level and it went up another 10 or 12%. So sometimes you can get three or four names that are

effectively the same animal. But then when you use just plain old, you know, the technical analysis, we all learned Edwards and McGee and looking and seeing, you know, where's the support? Am I buying off a support? Am I not holding a nice win going into a resistance level that hasn't been tested yet? And just using a little common sense. So, yeah.

I might have three or four choices on the ETF level to do the same thing. And I just see where the risk reward is.

So what are you looking for? That's exactly what I... And it's crazy to me that we've sliced and diced the market so many different ways that multiple products trying to achieve the same thing could have that kind of arbitrage between the listed ETF products. Yep. John, you have a unique perspective throughout your career, given that you've been...

on the short-term side of the business, trading on the floor to where you are today, trying to capture swing trends and perhaps longer-term trends. And I'm just curious, being a technician throughout that entire period, it's not like you converted to it later in your career, which Tyler and I have interviewed a number of people who have gotten beaten up in the markets and said, I think I need to give this technical thing a look. You literally started, like I did basically, as a technician. So

Two things that are really what appear to be foundational to your process, these very inputs have changed a lot over time. And I'm curious how you think about these two things and how you've adapted your process to adjust for the change. So the two that I think in your model that you highlight on your site is breadth and volume. And those two things have really, really changed a lot.

And, you know, as technicians in the business, what kind of advice would you have for folks who are trying to follow these very important concepts while at the same time acknowledging that, you know, the world has changed? Yeah, the way that we okay, the way that I build a model or a screen, you know, let's just call it a screen. Right. So there's 6000 ETFs to look at.

I don't want to look at all 6,000 of them. I want to have certain building blocks. The way Jack and I decided we're going to put this together is I was going to make a list

this isn't going right at your question, but I think it's going to get there in a little better way. So we made, so I made a list of what I thought the best tactical tools were, you know, throughout my career. And those might not be the best for everybody, but they're the best for me, right? Because you find indicators that you may like and other people may not. It's just kind of, it's like tools, right? You know, how does this, how does this tool fit in my hand? You know, if you're,

a tradesman you know you might like a craftsman tools you might like another kind of tools i kind of look at it that way so you get these tools that fit with you and you understand how they work so i made a list of those and then as we're building models we're pulling these different tools off of the shelf and we're blending them into models so um

So your question was about specifically breath and volume. Those are two of maybe 20 of those tools that we keep on the shelf, and we backtest them in various sets. That's where the Asperger's 6 came from. I wanted six. That's kind of what I was referring to. Yeah. So I wanted six tools that were disparate because nothing works all the time. How many times –

Dave, have you been asked in your career, what's your favorite indicator? About a million? And there is not one. I don't have a favorite one. They all have an Achilles heel. So that's kind of where the iceberg six came from, six disparate ones where if one of those indicators fails in a certain environment in the market, the other four are going to come

pick it up, right? So you have less chance of getting fooled on one of those, during one of those periods. For volume, I use cumulative volume.

Because it's a lot easier for me to understand, you know, cumulative volume than looking at the raw volume. I can't make heads or tails out of raw volume. So, so when did, when did, so first of all, if you could take a second to describe what you mean by cumulative volume and then when did you transition away from traditional volume to cumulative? Years ago. Yeah.

decades ago. I probably on the trading floor, it was raw volume. And off the trading floor, I started to transition to cumulative. And can you define that again? Define cumulative volume? Cumulative volume is basically adding the volume on an up day, subtracting the volume on a down day. I use TC...

Remember the old warden brothers? It's still a workhorse. I mean, it's still a really good – I think we probably use four different services here, you know, four different. But there is a – within the TC2000, it's called CVI.

And that's what I use. I don't have the formula in my head. I don't think anybody does anymore, right? We find an indicator we like, and we hit these three buttons on our keyboard, and it comes up, right? Is it the same thing as on balance volume? Is that the same idea? It's effectively on balance volume, yes. All right. Interesting. That's an interesting workaround. I guess you're focused entirely on ETFs.

And when you're talking about breadth, are you talking about the breadth within an ETF or are you talking about the breadth of participation across the 6,400 ETFs you follow?

When I look at breadth, I'm actually looking NYSE breadth, AD line, NYSE. So it's simplified. It's more generic. So the breadth is more generic to the market rather than ETF specific, right? So some of the metrics that I use are more generic, like a NYSE AD line or a CVI line.

volume indicator. And some of the metrics I use might be specific to that ETF. So it's kind of a blend of everything. Every metric that I look at isn't specific to ETFs. Some are just specific to the market, to the broad market. Yeah.

Are you tracking the new Bitcoin ETFs? And are they something that you invest in as well? Or is that you just kind of like? Man, I'm going, but I'm kicking and screaming. Hold your nose and just buy some more. It's been tough. We just built another screen. Jack and I built another screen. And it basically looks at a broad swath of

different types of assets. And we've been going back and like, you know, the dollar's in there. Gold is in there. Uh, DBA, which is a commodity ETF is in there. Um,

TLT is in there. EEM is in there. There's a couple of US indexes in there. And we've been going back and forth whether we should put crypto in there. And crypto is in there now. Regardless of what an old dog like me might think of crypto, there's a lot of people out there that are interested in this. And our job is to provide tools for people to use to trade these things. So we're actually working on a--

a model now, a crypto model that is trying to capture most of the upside in these huge volatile moves in crypto and take away some of the downside. And we actually just finished our first run at that now. But so yes, am I going to be trading crypto anytime soon? No, but especially with what's going on

It looks like with the incoming administration, crypto is going to become a lot more mainstream. Gary Gensler quit because he would have been fired on day one. And the incoming SEC chair is going to be a lot more mainstream.

NICK KOKONAS: Accommodative. Yeah. MIKE GREEN: Thank you. A lot more accommodative. And I'm hearing stuff that they're talking about eventually being able to make crypto interchangeable with the dollar, and there's just all of these speculative things going on. So as a businessman, it doesn't matter what I think of it. It matters

What's going on in the world? What's going on in the world is crypto from everything that I can ascertain up to this point is going to be a lot more mainstream, if I can use that. I don't know if that's the exact right word that I want to use, but it's going to be a lot more prominent, I think, over the next four years is a good way to say that.

You know, one of the reasons that Bill Kelleher and I have frequently asked you to come speak at CMT conferences, not just the symposiums in New York, but anytime we have chapter meetings and regional events, is your research process.

always maintained a tactical focus, which is to say not only did you have a specific timeframe in mind, a few weeks to a few months, but also target prices and what you were looking at to know whether you were right or wrong.

And the practicality of taking a tactical approach as an active manager means whatever the long-term view, whatever the macro backdrop is, if we go through a period of de-dollarization across multiple global fronts and we see commodities prices change dramatically, or in the case of crypto, maybe that becomes a store of value or a backstop to some of those asset classes.

Over the long haul, your guess is as good as anybody's, right? The narrative of what might play out is going to require a number of steps and milestones along the way. So having a tactical mindset means you can participate if it's working, and you'll also have some risk levels to get away from it if it doesn't work out in that way. And I think

For all of our listeners who appreciate technical analysis, there's a certain practicality to participating when the party is still going and knowing when to get out before the cops arrive. What I've learned early in my career, especially being in Chicago, right, and being on the trading floor and trying to escape from the stereotype guy on the trading floor, is

You know, I was trying to get...

Trying to get into the, you know, get a quote in the Wall Street Journal. And then it was to try to get on CNBC. John Murphy actually was the first guy that, you know, asked me to be on TV. He had a FNN show. If I go all the way back to FNN. And he flew me out to New York. And I was I did his show for 30 minutes. I was terrified, you know, to be on TV. But, you know, but I was. But.

First 20 years of my career, have a decent suit and have a crazy target forecast. And that's how you get on. Now, the second half of my career, when I moved out of the commodity space, it instantly got easier for me because the stock market has an inherent upward bias. Commodities don't. So the game is not...

Where is it going? You know, I can say, well, you know, the S&P 500 is, you know, my forecast is it's going to be 8000. And if I live long enough, eventually I'm going to be right. Yeah. So the game isn't making those crazy calls. Those will get you on CNBC.

But the game is not where's it going, but what kind of downside can I avoid while we're getting there? So my drawdowns are smaller. And if you can, the fastest way to have a great year is to get out of the market when it's going down, reallocate those funds somewhere underneath there. And bam, you know, you've won. You know, you've won. I mean, if all you do is

during the year, as you avoid a 10% move down in the S&P 500 and reallocate those funds lower, you're outperforming by 10%, right? So it's not a bad year. I mean, if you just quit then, you're good. So I mean, that's the game, as I see it, is try to take the volatility out, try to avoid some of the moves down. And then when the market's going up, try to be in the right places.

And, you know, and, you know, we've built some models to try to do that, you know, the SEIF models. So that's the game, avoiding the big downdraft. And when the market's going up, if you can pick up a little bit of relative performance by being in the right places, that's the game. Simplified. Yeah. And John, one of the things that we find in the markets is that the younger you are, the more

you accept crypto and things like that. So you, you have your son, Jack working with you. Is he, is he pushing you to embrace these things or he's, what is he 30? Yeah. Push maybe a notch. Um, it wasn't so much of a push, but, um, I, um,

Here's the thing. One of the greatest things about my career is that I'm in my 60s now and I get to work with my son every day and I get to teach him whatever I've learned and I get to leave this business to him after I'm gone. The worst thing to me.

would be to, I mean, I love this. Don't tell my customers, but I do this for free. This is just a fun way to spend your life for your job, for your career. It's great. It's a jigsaw puzzle that you never finish, right? Because all of the pieces are always changing. But

I also wonder, I don't know if it's the same for you, Dave, but most of my customers are like me. They're of my generation. They might be 10 years younger, 10 years older, but they're similar to my demographic. Well, that...

demographic is going to have to shift over to Jack at some point, Jack finished the CMT one, you know, he's getting a series 65. And at some point I'm going to be the old guy that they roll out. And, uh, you know, I'll take a bow, try not to fall out of my wheelchair and Jackson, if you run on the show. Yes. So, yeah, I'm really cognizant of, um,

whatever he tells me, I listened to, I mean, you know, he went to business school, he's got his master's degree. Um, you know, he's been looking at charts over my shoulder since he was 10 years old. So he's not a babe in the woods, but yeah, I think, uh, I, uh, in order for him to attract his demographic, if you have for his go at this, we may have to do things that I'm not perfectly comfortable with. And as long as it's not, um,

ethically a bad thing to do, I think you need to be open-minded. And if we just take the crypto label off the chart, when you see something move parabolic, you know, over 150% in just a couple of months, are you attracted to that? Do you want to participate in something? I'm attracted to ringing the cash register as fast as I can if I want. Yeah, exactly. So, you know, like I said, we've done some early

attempts at trying to build something like CPM for crypto. And if we can find something, we have a few ideas. Because it's like the S&P 500 on steroids, right? If somebody asks me what crypto is, it just seems to be a raw measure of risk appetite,

It's just so, you know, if you can capture those moves and reduce some of that risk, I mean, that would be, you know, for me, that would be nirvana. At some point, you know, the bubble's going to break on this thing, and it's not going to be pretty on the way down. Yeah, yeah, exactly.

So as we come to kind of the end of today's interview, are there places in the market that you're really excited about going into 2025? And I guess overall, what are your models telling you about the stage in the cycle and where we're at, at least for US equities? Well, I'm looking at, and again, I...

I don't do a lot of forecasting anymore because it kind of throws me off my game. I think a lot of people make a forecast, and then you feel almost like you have to be committed to it. I said this, and there's this internal thing where we don't want to be wrong. But here's what I'm looking at. Since October of last year, S&P is up close to 50%. We have a brand new

administration coming in in January. There's talk of tariffs. There's a lot of tumult in the world. There's fighting all over the globe. It's a very volatile place to have a new administration. And one thing I've learned a long time ago, politics is

should never get into your investing, right? All I'm doing is looking at numbers and looking and trying to figure out where the vulnerability is. I think if you could get out of the way of the next move down and there's going to be one and you could reallocate that

money 10 15 underneath where you got out that's that's going to be the game next year just trying to figure out when and then at the bottom we're to reallocate um you know if you can get those two things right whenever that happens i think it'll be next year sometime um

That's the game. It could be a spectacular year for tactically oriented investors if they can just get those two things right. Get out.

At the right time. Sooner than the S&P cycles down. Whatever you capture out of there, whether it's 5% or 15% or 25%, whatever you can capture there and capture there by locking it in at the bottom and then using some kind of sector rotation model to make sure that you are where the money is on the way back up, it could be a spectacular year next year.

We held a conference in Mumbai on Thursday with the National Institute of Bank Managers. And one of the quotes from a fellow CMT charterholder was, it's important to act when you can, not when you have to. And I think for technical analysis, that's got to be the greatest quote of our community. And one that I'm writing on my walls here in my office is that, you know,

When those risk signals are going off, it's important to be the first one towards that back door. And that's what these tools provide us with and not when the market is in absolute freefall and you're just capitulating along with the rest of the crowd. You know, that's where CPM came from. In 2008, I got a call from three or four different RIAs that we work with back then that said, we have clients that got it at the bottom.

And then when the market turned, they were during the headlights. They were terrified or they were angry at the market. You got me once, you're not going to get me twice. You know what happened? They got had twice because by the time they got back in the market, they missed a whole lot of opportunity down at the bottom. So can you just build me a model that is risk on and risk off? That's where CPM came from. And-

That's the game. I mean, some people look at this treacherous place that we're in, if that's what you want to call it. We're up 50% in that neighborhood, trailing 12 months. I look at it. I mean, opportunity knocks. I mean, this is, you know, we know that the market is a mean market.

reversion animal. We know that. We don't know when it's going to happen, but the farther the market gets stretched out the way it is more, the more opportunity there is. So I'm looking at my chops. I can't wait till next year. I think it's going to be a blast. Well said from a man who loves his job. Yeah, that's right.

Oh, John, thank you so much for taking the time out of a busy schedule to join us on this podcast. We could talk all sorts of history, not just markets, but also the Market Technicians Association and for your service on the board at perhaps in a very important turn for the organization. But we'll save that for a later episode and can't wait to have Jack on the podcast in the years ahead. I'm thrilled that he passed his...

Or did he just sit in CMT or did he pass from the June exam? He passed one...

He's studying for two and he's studying for a 65 also. So he's, he's a busy guy. We're going to see you both in Tampa, correct? At the midwinter retreat. You sure will. I'm looking forward to it. My son, my son, Gavin, who's been working with me since July. So we have a similar footprint going on. He'll be with me. So hopefully we'll be able to have a beer together. Yeah. Let's introduce those guys. I mean, that is so awesome. You're doing that. I, I think,

Tyler told me that your son was working with you and I slipped my mind. I just didn't remember. You know who else? John...

Bollinger's daughter, Zoe is awesome. Yeah, she's doing great too. So we should start our own club. We should start our own club. Those of us that have our kids in the business. Yeah, she'll do great taking those reigns from John at some point. Yeah, I've met her a couple of times. She's a great kid. Yeah, she sure is. Yeah.

I love it. It's a family business, this technical analysis. It can be. Awesome. Well, thank you very much again, John. Looking forward to seeing you in four weeks' time. Happy holidays to you and the family. Happy holidays to all you guys. And to everybody listening, happy holidays to everybody. Thanks, John. See you soon.

Hey, Dave. What a fantastic interview with John Kosar. I just wanted to mention to all of our candidates all around the world, the thousands of folks who've been working their tails off to sit these rigorous exams. Just wanted to send that message from us here on Fill the Gap that there's a bit of congratulations in order, regardless of what the results are on the exam. I think what folks are learning in the program and what they are experiencing

learning to apply in their future careers is really tremendous. Dave, you had the pleasure of sitting through the entire CMT program twice, did you not? I did indeed. Are we really going to go there right now? Yes, I did. Not through any errors of your own, but because CMT Association lost a lot of records in 2001. But having been through the program... One of those records was my failed Level 3 exam. Yeah.

that I disputed with Ralph and he agreed to, you can actually read about this in this month's Technically Speaking. I did a little article on it, but yeah, so I honestly, I took it twice, but I am incredibly thankful that I did because the content is so invaluable. I mean, it just has crafted who I am as an investor today.

Absolutely. And that's, I think, the main message for all of you to take away is that the new CMT curriculum is coming out for 2025. Our enrollment period will open up on January 15th, and you get your hands on that new digital learning management software with the official body of knowledge beginning January 15th. And we look forward to welcoming everybody who

with an interest and a passion for markets and technical analysis into the CMT program next year. So that's all from us. Very happy holidays to all of our listeners and happy new year. We'll talk to you soon.

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