Ep. 292 Watching And Waiting: How To Approach Uncertainty Before Election 2024
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Hello, everyone, and welcome to another session of the Investing with IBD podcast. It's Justin Nielsen here, your host, and we're coming to you live on Wednesday, October 23rd, 2024. It's a happy birthday for my wife, so I can't forget that. So she's off gallivanting with her mom right now, but I'm excited.

I'm here with you guys, and that's nowhere I'd rather be. So we've also got on the show, joining us again is John Kosar. He is our resident CMT, Chief Market Strategist at Asbury Research, who has a lot of different models that he looks at, the SIF model, the Asbury 6, a lot of different ways where he looks at the market and ETFs and its fundamentals.

funny how he approaches things a little bit differently from us, but a lot of times we match almost to the day with a lot of our signals. So welcome back to the show, John. It's great to be here. Thanks for having me. Yeah, and we're going to hope that my internet connection does hold out here. I can see that on YouTube I'm a little slow. I might actually shut my YouTube down just in case to not...

strain my internet. But we've got a lot to talk about here, John. You know, a few of the things last time you were on, it was over the summer and we were talking about how, man, this rotations are just happening so fast. You use the term frenetic. So talk a little bit about the market environment that we've been in. You know, it seemed like it was getting better. It seemed like September really saw an inflection point

change as the S&P 500 got to new highs. We were seeing some more breadth, but this week has been a little shaky. It has. The shakiness, at least to some degree, has been because we've been testing some old highs. If you look at the NASDAQ composite index, look at NVIDIA, we're going to look at it a little closer in a little bit. But there's a lot of

really influential stocks or really important indexes that we're testing some all highs, testing some resistance levels. And we're up 20% on the year. And I think we're up 42% since October, November of last year. So we've come a long, long way pretty quick. And got an election coming up here in a couple of weeks with two very different candidates with very different

on how they want to handle the economy. So, I mean, I'm not surprised. Frenetic is the word that I used. Normally our SIF model, um, we built this model years ago. It measures the velocity of money that is moving around the seven, the 11 sector spiders, which if you, um, if you put them together, it's the S and P 500 essentially. Um, normally, um,

So it's measuring the velocity of money in three different timeframes. Normally, there are one or two sectors that are standouts, that are seeing more flows, and those flows tend to be sustained. They're not sustained like they were 10 years ago where the trend lasts a couple of quarters, but they'll last six or eight weeks and see if it gets on those trends pretty quick. What's happened this year is...

The rotation is every other week. You know, we had utilities was one of the top sectors perceived really since September. There was a couple of weeks in there where it went from number one or two to down to number 10 or 11. And then the next week it was right back. So I think there's a lot of consternation might not,

The uncertainty is probably better as we're going into the election. Nobody wants to make a big bet because of the different outcomes there could be. So I think you're seeing a lot of frenetic movement from place to place. Everyone is kind of trying to hedge their bets here going into the election. That's what it looks like to me.

Yeah. And so how do you how do you kind of deal with that from a from a high level perspective when it's look, if you're a trend follower, that's kind of a disaster when there's no trend. So do you just kind of sit out or do you just go with the broader indexes and kind of hope for the best?

Well, we stick with the model for a part of our portfolio. We've got four different model portfolios that are on our website that we've taken all of our models and we've mixed them up in different increments. We've added some fixed income and done some other things with those to produce different risk reward profiles, let's call them. As far as I'm concerned,

So most people, when they invest, they might have a portion of their portfolio that they keep in the market, right? That's their buy and hold part. It might be 40%, it might be 20, it might be 60. It all depends on who they are and their appetite for risk and their aversion to risk. But for us, the SIF model is...

It's a dynamic version of that part of your portfolio that is buying whole, but instead of buying the S&P 500 and taking whatever...

you know, the broad market gives you, we're taking the top three sectors, according to SIF, the ones that are have the fastest velocity of money that is going into those. So we don't do anything different when the sector rotation speeds up or doesn't show us a hard direction for a few months. You know, we back tested this thing for seven years and it's,

outperformed the S&P 500 significantly with a little less risk according to the things like maximum drawdown and beta and things of that nature. So we don't get shook out of a good idea just because we're in a period that the sector rotation isn't as aggressive as it normally is. Yeah. You kind of trust the system.

Knowing that you'll have moments of underperformance, you're going to come out okay. Well, I think for me, I mean, I've been doing this 43 years. I spent almost 20 years on the trading floor of the Chicago Mercantile Exchange in the beginning. So my approach to the business is not an academic one, but rather a

A practical one were, you know, I went to work every day and there were different markets and we had to handle those markets. And I think it's very easy to you see this a lot with inexperienced investors.

they'll jump on an idea and as soon as it stops working, they're off the reservation and they're off trying to look for something else. They're grasping at straws but never sticking with anything on a steady basis. For me, everything that we do is numbers.

We don't very, very seldom am I going to make a subjective call. It's based on data. It's based on quantitative backtesting of the data. And we backtest the stuff going back five to seven years, which I think is a really good space to be in. So you're still getting the current data. You're not going too far back, but you're going long enough so you can get a good sample. And we stick with...

We stay calm. We don't do anything emotionally. There's no emotion here. It's just numbers and money. And we follow our models. And that's, I sleep better at night and I've made more money. So, I mean, it's been a double winner for me.

There you go. Let's go ahead and turn over to the NASDAQ and just kind of do a little bit of analysis of where we're currently at. And you kind of brought some charts here, so we can kind of go to, well, before we get there, maybe we can just kind of take that broader step back and you can kind of share that your Asbury 6 right now, which is kind of your market timing model right now is still kind of looking positive.

Yeah, the Asbury 6, I built the Asbury 6 probably eight, seven, eight years ago when everything sped up in the market because of all the algorithmic trading. There's a lot more computerized trading. And thus you get a lot more days where you get the S&P up 50 in the morning and down 50 at lunchtime. There's just all of this.

So it's a lot easier to get shaken out of a really good idea now than it used to be 10 years ago. So what we did is we took all of my favorite tactical tools that I've been using throughout my career. We started to back test them in different sets, sets of three, sets of five to see what

to find a group of them that would work as a team, so to speak. So when the market's up 50 in the morning and down 50 at night, and I'm wondering, should I really be long? Did I miss something? And you start to double clutch. You start to question what you just looked at a couple of days ago. The Asbury 6 are six indicators that are different from each other. But if one or two of them are off their game, the other four will pick it up. So you could see right now the Asbury 6 are

is I'm actually pulling that up now. Five of the six are green. It's positive. Four or more in one direction indicates a directional signal. So the last four or more directional signal was green or positive. That was on September 12th. And the S&P has risen as much as 5% since then. What would turn this when four or more of these

flip to red. All of these numbers in these cells are the dates that each of these individual indicators, you can see investor asset flows and volatility and trading volume and so on. Four or more of these flip to red, that's going to tell us that the market is internally weak. And what does that mean? That means that if you're an investor, if you're a trader,

you start maybe tightening your stops. Maybe that trade that you wanted to put on, maybe you hold back on that and wait for, you know, the market to become internally stronger. So this helps keep me focused.

not getting shaken out of a good idea because we've got two or three days of volatility where the market is up a hundred and down a hundred. That happens way too much. And even a guy like me, that's been doing this all my life, it's really easy to get thrown off your game with that kind of volatility. Right. So let's go ahead and fast forward to the NASDAQ composite and just kind of look at the overall where we're at in the, in the chart. And I mean,

We were right up there near new highs, and then we kind of got a little bit of a shift today. Now, some of the breadth was getting a little weaker prior to that. One of the things we've been noting on IBD Live and on our...

stock market today video is how QQEW was showing a little bit of weakness ahead of that. That's the equal weighted NASDAQ 100. You know, S&P 500, that was looking fine, you know, right there at all time highs. But RSP, the equal weighted S&P 500 was, you know, starting to show a little bit of weakness earlier. But, you know, kind of kind of getting back to the NASDAQ because I

That's where a lot of us like to gravitate towards for growth stocks. Does this look a little bit normal to you or a little bit more cause for concern? - I brought a chart there and there it is. Well, not yet. I've got a chart of the comp there and if we don't have it ready, I can just talk through it and try to go with the chart. There it is, right there. Okay, so here we've got the comp

And it goes back to January. And I tried to simplify kind of where we're at here on days like this. It's very easy to get again, it's easy to get knocked off your game when you've got a really hard down day like this. So I

The comp has been in a major uptrend according to the 200-day moving average, and you can see that in orange kind of down at the bottom of the screen, since January of 2023, right? So it's in a major uptrend. The uptrend was tested on August the 5th. So what happened here is we peaked on July the 11th, and then the market started to coil. When the market

a stock or an index starts to coil, usually it means that maybe it got a little bit too far over its skis. Traders and investors are starting to pull back. They're not sure if they want to buy new highs. So it drifts sideways for a while and kind of

absorbs the gains, internalizes the gains that it had. So we broke out of that pattern. It's a simple technical pattern. It's a triangle. So you can see in green that we broke out on September the 19th. If this broke out on September the 19th, we had a reversal pattern.

Today, in my mind, is because we bumped up against the all-time high at 18,671. You see it in red at the upper corner of your screen there. As long as we hold – okay, so we're at some minor support now. 18,233 is the pink number.

21-day moving average. You can see that really since the beginning of September, it's been kind of a moving trend line for comp. As long as the comp stays above 17,768,

And that's the low here that we made in September. The upside target of this breakout is 20,250. It's 20,250. It's about 10%, 11%, 12% from where we are right now. So although today was...

painful to go through. As long as the comp can hold in here somewhere, it targets another 10% to 12% move up to $20,250. So I think looking at the bigger picture takes away some of the anxiety of how you felt today when you're watching the ticker.

Right. And that's why sometimes we say it's better to look at weekly charts and, you know, kind of take out some of the noise that happens with the daily. Of course, one of the things it's hard not to look at the deck without looking at a video.

I mean, you know, the last couple of days, a lot of stocks were coming coming in again, a little bit more on the equal weighted side. But NVIDIA was breaking out. And so it kind of showed the strength in the Nasdaq. So you've got another chart here on NVIDIA that we could pull up. And what is it that you're seeing here with NVIDIA? And I do have to disclose I have a position myself in this one.

Okay, this jumped out at me because NVIDIA is the second largest stock after Apple. Obviously, he has a lot of sway. I wanted to see what the linear correlation was between NVIDIA and Comp.

And as you would suspect, it's almost lockstep. It's almost me in my shadow. So as goes NVIDIA, so goes Comp. NVIDIA also has a tight and stable positive linear correlation to the S&P 500 too. So this stock is a 500-pound gorilla that has a lot of sway in the market. So you can see here on October the 7th, we broke out of a similar trend.

kind of sideways investor indecision pattern. If you're a technician, it's called the triangle. This actually points to a target of 169. 169 is 20% higher than where we are right now.

Does it mean that you go away to the Bahamas and come back in the spring and pick up your check when it hits 169? No, there's a lot of stuff that can happen in between now and then. But it's doing the same thing that comp did. It got up to its old high here from June 20th at 140 spots at 76. And now it's pulled back a little bit. As long as we can stay above 131 spot today,

to six, you can see that's the support from the August 26 high. If you can see that there, I've got it kind of marked off in green. As long as we stay up above there, it targets a move to 169. So again, scary move today, not quite as scary as the one of the comp, but this is a bullish pattern with a bullish trend that has a bullish target that we have not hit yet.

Now, is there a risk when so much of the market is kind of dependent on a single stock? I mean, it's, you know, especially when, you know, you've got, oh, news that can come out. It's, you know, oh, their chip is a little bit delayed or there's some problems with it. And it takes down the whole market. Is there kind of a danger here that NVIDIA holds so much sway? Hasn't that been the case since the beginning of the year?

- Right, absolutely. As long as it goes up, it's fine, right? - Yeah, well, I mean, you know, whenever you look at a chart like this, or whenever I look at a chart like this, I don't get really happy and wide-eyed because we've got some target that's way above where the market is right now. I want to see what the risk reward is. And I think if you're an investor and you're watching us today, I think, you know, the takeaway from this is,

what do I risk for what my upside target might be? Nobody knows what's going to happen tomorrow. So all we can do is look at these patterns or we can quantitatively back test models the way we do here at Asbury. But I'm looking at this and thinking if I buy this here or somewhere around 140 and my risk is 131.26 and my upside target is 169,

it's about three to one in terms of risk reward. So that's how I look at these things. I don't see, you know, so pie in the sky targets and crossing your fingers and hoping it gets there. That's what amateurs do. I think you need to define how much you're risking versus how much you're making. We've got an ETF. One of the components of our service is,

We have a short-term ETF.

So over the past 18 months, we're about 65% of our trades are profitable. Our winners are almost twice as big as our losers. That's not because we're lucky. That's because whenever we look at a chart, that's how we're looking at it. How much can I make on this and what's my risk? And you keep doing that process over and over and over again. Don't take any big losses because you're protected on the downside by your stock.

And yeah, you know, so the bottom line is, can one stock do a big about face or a group of stocks and turn the market around? Yes. But if you've got your proper protections in place, you know, it's it's as good as it gets. Your business deploys AI pilots everywhere. But are they going anywhere or are they stuck in silos, exhausting resources, unable to scale?

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And let's go ahead and end this segment with a look at the S&P 500. Now, the S&P 500 seemed like for a while there, it was actually outperforming the NASDAQ to a degree. Again, when there were more, there was a little bit more breadth, more participation from other industries. So if we go back to, we can stay on your charts here.

and just go to the next slide, which is the S&P 500, the one after Nvidia. And you can kind of talk about the levels that you've written here. And there's a lot of levels that you have. So maybe describe a little bit about what you're looking at for the S&P 500. Sure. Before I do, you made a really good point.

What we typically look at, we want to see three things. We want to see the stock or the index that we're buying or the ETF that we're buying. We want to see it in a major uptrend. You know, the price trend has to be positive. The second thing is I want to see asset expansion. Right. So if we're looking at buying the Q's.

I want to see the AUM in Q's expanding on a monthly basis. That's another component of ours. The third part of it is I want to see that ETF or that index or whatever we're buying, I want to see it outperforming the S&P 500.

The missing ingredient in technology for the past several months in those three has been the relative performance part. We haven't really been able to, the queues, the comp, we have, those indexes have not been able to outperform the S&P. It's been my experience that

and there is no absolute in markets, right? There's always exceptions, but generally speaking, technology should be outperforming the S&P 500 if you're in a healthy bull market. That hasn't been the case here. So ideally, if the comp holds in here, if tech holds in here,

Stocks like Nvidia hold in here. The next thing that we should see is we should see all of them start outperforming SPY, or start outperforming the S&P 500. That will give me a level of comfort that that third leg of the stool, so to speak, that I just mentioned, is starting to engage, gives you a much better likelihood that that's a healthy trend that's going to continue. Now let's look at this.

Initial underlying support is at 57.67. That's off of this minor trend line that started on August the 5th. You can see it kind of in the bottom line.

quartile of the chart if you split up in four pieces. And it's also the minor high that we made on September the 26th. We came down, touched that today. You know, we held the support level in the comp today. There's a lot of minor support levels today that were tested and held. We'll see what tomorrow and the rest of the week breaks.

What I would call primary tactical support is at 5670, let's call it. You've got a lot going on here. You've got the old highs from July and August.

And then you've got this blue line here, which is a 50-day moving average. It's a minor trend proxy. I don't think you can turn on CNBC for more than 15 minutes and not hear somebody talk about the 50-day moving average. People generally look at that as a minor trend proxy. As long as we hold that, anything that happens to the downside over the next week or two, to me, that's just a pullback in...

bull market in an uptrend. If we break this 56.70 area, that's different. Now we go into a correction, especially if the Asbury 6 turns red. If we go below 56.70 and the Asbury 6 turns red, which tells me not only is it weak from what I can see in the price chart, but the market internals are not supporting any further strength. That's when we change our tack here and we start to play defense. We might buy different ETFs. We may

start to pull back on our equity exposure. Yeah. And just to kind of, you know, go a little bit deeper into some of the

I guess some of the reasons again behind the freneticness and some of the unusualness. I mean, of course we do have an election coming up and as, as you mentioned you know, different policy ideas of course, you know, we don't know who's going to be elected. We don't know if they're going to be able to, you know, push their agenda successfully. So there, there's a lot of, there's a lot of unknowns there, but

A few of the things that we can look at, if we look at the 10-year treasury yield, maybe we could talk about that a little bit because it seemed like for a while there, we had the 10-year treasury yield moving in a sharp direction and

it wasn't really affecting the market that much until, until it did. So, um, yeah, we can go ahead and take a look at, uh, this is a zero TNX on, um, our market surge charts. And maybe you can kind of walk us through, uh, this 10 year treasury yield and the effect that we're seeing in kind of this rotation. Well, um, first of all, there hasn't been a consistent, uh,

correlation, either positive or negative, between the yield of the 10-year and the S&P 500 for some time, right? So there's not that direct statistical link

in between the two. But obviously, rates in the Fed have an enormous kind of at least a knee jerk effect sometimes on or the expectations of what the Fed might do. So you and I were talking a little bit offline that the yield, there was a big support level in the yield of the 10 year around 375, around 370. So we touched that.

At the end, about the middle of September, the TNX got to as low as 360. At the time, it looked like yields were going to break down even further. But then they did an about face. And now we had a high yield today intraday on TNX at 426.

There was a resistance level on that chart around 419. So what does that mean? It means the next level that we need to pay attention to, according to our charts, is about 450. 450 is a trend line down from the yield high that we made around 5%. If you recall, around October of 2023, we had a high 10-year yield trendline.

of about 5%. There's a trend line that is drawn down from that high. And we also had a kind of a minor high about 448 ish in June of this year. So above 419, it points to 450. So again, there's a lot of Fed expectations all year. I mean, just the amount, the changes in,

Fed fund futures this year have been, you need a cervical collar, you know, to keep up with this stuff. It's been, it's been really wild. And that's a couple of years. I mean, it seems like, you know, they, Oh, the expectations were cuts are going to happen at the end of what was it? The end of 2022 or, you know, then it was like, Oh, 2023, it kept on getting pushed back. And so then when we finally got it, it was a 50 basis point cut. You know,

And even lately it was, oh, for a while there it was, we need another 50. And then it was like, oh, we might, for a while there it was, we might need a hike again. So all over the place. Yeah. I'm certainly not smart enough to be able to look at these Fed fund changes and the opinion of the market and make any kind of a tangible statement

training strategy out of them or an investment strategy. It's all over the place. That's why we, you know, we're just looking at data in terms of what the market's doing. You know, what's outperforming what? Where are the asset flows going? Historically, what happens, you know, during these conditions? It keeps it cleaner for us. It's very, you know,

the changes in the market expectations for interest rates underscores

a lot of the anxiety that we've seen this year. And I think that anxiety can be seen again in sector rotation where nothing is really outperformed by any large degree, but the rotation has been fast and furious where our CIF model is earlier this year, you know, my son, Jack and I, you know, Jack, you know, Jack and I work together. He's the one who helps me build the models. We were just kind of watching how fast the,

these sectors go from a lot of money rushing into them to a lot of money rushing out of them. The poster boy for that this year has been technology. You'll see all the money rushing into technology for a couple of weeks. And then the next two weeks, it's one of the lowest ranked. In other words, the money was going out of technology to go somewhere else. Typically this year it's been utilities, but that, you know,

Sometimes the market isn't quite sure of where to be. And when that happens, you see a lot of rotation. That's what we're seeing this year. Well, to that end, do you ever look at the VIX in terms of when you see the VIX?

is there any action there that kind of tells you, oh, okay, you know what? This is more expected that there's going to be maybe some of these faster rotations or, I mean, you know, we had that crazy spike in the VIX on August 5th as, you know, the carry trade, Google antitrust, you know, economic, I mean, there was just like,

a perfect storm of stuff hitting on August 5th that sent the VIX up to 65. Now we're kind of bumping our heads up against 20, that level. Is there anything that you kind of gather from the VIX in terms of as a signal? - Yeah, we use the VIX as a tactical tool.

In fact, it's one of the Asperger's six. So what we do on the VIX is we run a 21 day simple moving average over the VIX. And if the VIX is up above the 21 day moving average, it's...

a negative for the Asperger's six. It means that the monthly trend of fear, I guess if you want to call it that, is starting to elevate. If it's underneath the 21-day moving average, then that would be a green component or a positive component for the Asperger's six. But look how tight it's been. It's been really tight. It's been on either side. And I think

when you see the VIX in this tide of a range, that's another indication of, um, uh, a lack of direction. You know, you're not getting a trend in the VIX. The VIX is kind of staying right there on a monthly basis. Um, so it's, it's telling me basically the same thing that I'm seeing in another and other aspects of the market here is there's, uh, uh,

You know, there's not a you know, you don't have a trend in fear. You don't have a trend in volatility. And that is I think that's part of the, you know, the situation we have in the market right now where there's a lot of indecision. Even though the S&P 500 is up at all time highs, there are signs of indecision if you look underneath the hood of the market. I think this is one of them.

Right. I also wanted to kind of touch, you know, since we're kind of talking about treasury yields, the VIX, one more component that's kind of a little bit of a surprise here is the strength in gold. Usually,

You know, if the market is at new highs, you don't expect gold to be on the leading side of that. You don't expect utilities to be on the leading side of that. So there's a lot of things that are a little bit different about this market. But you shared some charts with us in terms of gold. What is it that gold is telling you?

I put this one out there for two reasons. One, I wanted to show you kind of what we look at and what we think is important. So, you know, as...

a person who manages money, company who manages money and who's been doing this research business for 20 years, I never cease to be amazed on the never ending interest in gold. Everybody always wants to talk about gold. Why aren't we in gold? And one of the main reasons that I'm not in gold very much is in my world, if you're not outperforming the S&P 500,

why be in it right so so we uh so we've got um three panels here the upper panel is the price of gld that's the etf

And gold has been above its 200-day moving average since 2023, October of 2023, I think is what I have here. Yes. Down here in the middle, we've got the total net assets invested in GLD. Also going back, this chart goes back to May.

So you can see right around July 1st, those assets started expanding above their 21-day moving average. That's a monthly trend of expansion. That means there's overnight conviction

that people would rather hold on to gold and hold it overnight and take the overnight risk because they're afraid they're going to have to pay up for it the next day. That's a really important. I look at this the way that I used to look at futures open interest when I was on the floor of the Chicago Mercantile Exchange years ago. It tells you overnight conviction, which is different than volume. Volume tells you urgency. Now, down in the bottom, I've got the relative performance of gold today.

Now, here I've got a 63-day moving average. Why? Because that's Asbury Research's strategic timeframe. That's the trend that we want to catch. So it's been outperforming gold since the latter part of July. And you can see it's kind of held that trend. Why didn't we buy it sooner? We actually put –

a um put a report out on august the 19th to buy gold so why didn't you buy it sooner john because you had all three of these components because there was some resistance i i didn't draw it in but there was some resistance right across here in gold and one thing i never do is buy against the resistance level because

if you want to look bad in front of your clients, you jump the gun and you buy up against your resistance level and it's an instant loser. And a week later, why did you buy the top tick? So we were waiting for price to confirm the strength. I wanted to get over the hump, so to speak. And once it did on August the 19th,

That's when we bought it. It's up by 10%. I think it's out. It's outperformed by 5%, up by 10%. We're starting to break out. Oh, we're also long silver miners, SLVP. That's recently broken out. We bought miners a little bit later. I wanted to wait till we had a nice lead here until we put on,

something else in the metals, you know, the precious metal space, but you're seeing breakouts. I'm seeing a lot of good technical things in, you know,

The entire precious metal space, including a lot of ETFs that cover that space a little bit more broadly. So as long as it keeps outperforming and as long as these assets keep flowing into GLD, I'll stay with this thing until the rapture. It's going to tell me when the trade's over.

Right. And to your point, I mean, you know, in looking at the chart here, I've got our market search charts up. Here's SLVP. Yeah, there were some, you know, clear lines of resistance at 1348, 1377. And, you know, as you said, you know, it started kind of

popping up above that at the end of September for GLD. Um, as you mentioned, uh, that was, that was a lot earlier. It really kind of cleared that on that August, uh, August 16th, uh, area that you were talking about. Um, you know, uh,

A few other things that I want to make sure that we cover with you because you brought up your SIF model at the beginning. And I want to kind of just go back to that and we'll show where that SIF is right now. Financials are kind of top there. Utilities are up there. Real estate, I mean, the home builders were doing very well despite the

all the fears of, you know, commercial real estate being in a, in a real bind for, for, you know, for years and everything like that. Um, as you mentioned, technology has been kind of hit or miss depending on what timeframe you're looking at. Um,

So just kind of explain a little bit. Again, these are the 11 sector spiders. As you mentioned, this is what makes up the S&P 500. But maybe explain a little bit about your kind of timeframe. So you've got a weekly trading timeframe, a tactical monthly and a strategic quarter. So how do you kind of use these to make your decisions? So the origin of this model

10 years ago, I had a model that was based on trend momentum that was working really well for a lot of years. And then it stopped working. And what I found out is all these trends started to speed up. And again, I think it was more algorithmic trading, a lot more computerized trading, smarter people getting in the game, I think, really, and speeding up the cadence. So

I need to either stop doing sector rotation or figure out a way that I could be a little bit more agile and get on these trades quicker. So what we did is we came up with the methodologies that, that measures the velocity of money that is moving in and

and around these 11 sector spiders. And we did it in three different timeframes. You could see we have trading here, we have tactical and we have strategic and the best and the fastest money moving in is gonna get a ranking of one. So last week for the, I should mention, this is also rebalanced weekly. So we're looking at this in a weekly segment. So last week financials, the fastest money moving in on the trading,

time frame, it was going into financials. It was number two in tactical, which is monthly, and it was number three in strategic. So that gave us a ranking score of six. It was the best score on the board. On the other side of this,

Communication services last week, it was 10. It was a second worse. In other words, the money was coming out of communication services basically to go into financials. So it was 10 on trading, 8 on tactical, and 10 again on strategic for a score of 28. Healthcare was also very weak. Energy's been weak seemingly all year. Look, we have an 11 here in trading. So if you looked at this and said in one sentence, what's going on here?

The money is moving around the sector space coming out of energy, healthcare and XLC. And it's moving into financials and utilities and real estate. So we're always invested in the top three. And when that changes, when you rebalance on the weekend, that is rebalanced the following Monday. So we're always staying in those sectors that are getting the fastest revenue

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

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Yeah, that totally makes sense. Well, let's kind of go through some charts, if you don't mind. And, you know, just as a reminder, if you need to, you know, click and blow up the charts, we'll go through some of these. You mentioned financials, and I'd be remiss to not give a little shout out to insurance. Because again, like utilities, you know, one of these areas that's kind of slow, a little bit, you know, unexciting, but, you know,

This is the KIE that I'm showing right now, which is the Spider S&P Insurance. And this has been doing pretty well. So again, one of those things you don't normally expect when the S&P 500 is hitting highs for this to be doing so well.

Yeah, we've been in and out of this one for most of the year. I'm looking at my own chart here and all of the markings on our chart. And we've been in and out of this a few times. The interesting thing about this chart is relative to the S&P 500, it's been outperforming SPY recently.

on a quarterly basis, which uses 63 day moving average. If you want to pull that up, we could take a look at that on your chart. But it's been outperforming SPY on a 63 day quarterly basis since July the 24th. Hasn't outperformed by a ton, it's outperformed by about 5%. And it's testing that trend of relative outperformance now.

So that tells me that if this trend is still good, somewhere in here we should see KAI, K-I-E, start to find some support. And you could see it's on some support levels here in the upper part of your chart. You've got a green line here. What is that, the 21-day? - The green line is our 21-day moving average line.

The red line is our 50 day moving average line. I did put a 63 moving average line. That's the pink line. But then also our relative strength of KIE versus the S&P 500. You can see that is the green line. And then there's an orange line that I just added there as a 63 day moving average for the relative strength. So when it's above that,

You're outperforming. That's a great chart. So you can see middle of July, the green line that's underneath the bars, it started outperforming. It started going up above the orange line. That's quarterly relative outperformance. Now you can see if you move to the edge of the chart, that quarterly relative outperformance trend is being tested.

At the same time, the chart up above, which is the bar chart of the price of of CHI, it's testing its 21 day moving average. It's got the 50 day right under it. That tells me this is risk reward right here. This is what we look for all day at Asbury. We're looking for because everyone knows inherently the stock market goes up. So to

To me, the game is not determining if something's going to go up or not, but rather where do you buy it to get the best risk reward? And you've got some risk reward here outright as it's testing its 21-day and 50-day moving averages up top. And you've got relative risk reward down at the bottom because it's testing its 63-day trend of relative outperformance. What does that mean? That means I could buy this.

and have relatively low risk with open-ended upside. And especially because the financials have shown up in our SEIF model, and the financials have done quite well, that the parent sector, so to speak, is also doing well. So I would look at this as an idea that's got very favorable risk-reward.

Yeah. And I'm showing the XLF right now, as you mentioned. I mean, this kind of broke out above resistance, you know, earlier this month. And certainly that relative strength line, you know, did test that 63 moving average line on relative strength, but is certainly above it now. And I mean, as much as it came down a little bit, it's not even...

close to its 21 day moving average line. It's got a lot of outperformance in terms of the S&P 500 lately. - Yeah, that's really what we look for. You can see, you know, looking at this chart, again, we're outperforming underneath, we're outperforming the S&P 500 on a quarterly basis.

Quarterly is our strategic timeframe. You know, we want to try to catch a move that's going to last one or more quarters in 21 days is, you know, the tactical timeframe that we use to get in and out of that idea. So again, you know, we're clicking on all cylinders here, so to speak, positive trend, positive relative outperformance. And we track the AUM, you know, going into these, you know, various, uh, I don't have that one, uh,

You're right in front of me right now. But if my memory's right, we've got 21-day or monthly asset expansion in XLF. So those are the components we look for. We're trying not to get over our skis and say, what are earnings going to be? Or what do we think the...

interest rates are going to do for this. I just want to watch, is it outperforming? Is it trending? Is there money going into this thing? And if I got those three, then I just have to find the risk reward and I can continue to find different ideas, different ETFs, different sectors that are giving me strong markets where the risk reward is favorable. And we just do that over and over and over again.

Yeah. And certainly a catalyst. And this is worth discussing a little bit is, I mean, we're we're right in the throes of earning season and on the financials. I mean, you had JP Morgan kind of, you know, start things out. And this was a strong earnings reaction that kind of led to the XLF boom.

Goldman Sachs, you had a number of the banks, you know, kind of, you know, right behind that they tend to be early in the earning cycle. So is, does the earnings kind of factor in at all as you're making these decisions? Like, Oh, XLF is looking good, but,

oh, we got bank earnings coming, or do you just say, hey, we're going broad enough to be protected and diversified? Well, I think both of those. I think if you're trading an individual stock and you're going into earnings, I think it would be imprudent just to say, damn the torpedoes and wherever it's going to be up 5% or down 5% tomorrow.

When you're dealing with these ETFs, you've got a little bit of a cushion for that. And again, all we're doing is following the money and we're following the performance. I've resigned myself years ago that the market is way smarter than I'll ever be. So I want to see these things that I look at indicate the potential.

collective wisdom of all people playing the game. And those who don't play the game well, don't play the game for very long. So I'm really committed to following the money. I mean, that's kind of like our little tagline for Asbury Research, but really that's what we do. I did a lot of forecasting my first 20 years. My last 10, I do little to none because I've

I don't know. Nobody else does either. You know, look at LTCM. I mean, there's a lot of really smart people out in the world that make mistakes. I just follow the money and resign myself to letting the data make my decisions for me.

Yeah. And before anyone goes in and puts in the symbol LTCM, that's a reference to long-term capital management that was, again, run by Nobel laureates. So again, Nobel Prize doesn't mean that you're immune to failing in the market. And they failed spectacularly. So a great story to read about from that 1998 timeframe. A few other areas I wanted to kind of chat with you about.

you know, a lot of has been made of, certainly in 2023, it was all about the, the magnificent seven. And, and,

you know, that still is kind of something that's important to watch. This is FNGS, which has 10 in there, not exactly the seven, but, you know, a few extras. They've been wildly different. I mean, Microsoft has been looking a little bit sick. I mean, getting supported, it's 200-day moving average line, but relative performance really down in the doldrums. Alphabet, you know,

not much better. It's been really in a downtrend for a while. Very different look for those stocks versus Nvidia, which we looked at earlier, or let's say Meta platforms that looks much, much different than those. So

Do you kind of dissect to that level of like, OK, the Magnificent Seven was so important in 2023 in terms of creating the thrust for the indexes? Are you still looking at that and, you know, gathering anything from it and especially that divergence between the members of the group?

Yeah, they're really divergent in terms of relative performance versus SPY. I mean, that's been really obvious. So, you know, it's never easy, right? There's always, it's what you look at and what you think is important. So the way that I'm looking at this is, you know, we've had some recent breakouts in both of the NASDAQs. NVIDIA has broken out. I showed you those patterns earlier. Go back to Microsoft for a minute.

it's sitting on that big support there. It's actually, you've got the 21-day moving average, the 50 and the 200 that are all right around 420, right around 420 a share. It's a support level. It's an inflection point. Whenever you get these moving averages that everyone's watching and they all converge, it's usually an inflection point. So what does that tell me? It tells me that right here,

I don't know about the direction, but right here, if I want to buy Microsoft, I've got some risk reward because I could buy off of that, you know, convergence around 420 and have open ended upside or I'm out of there with a very small loss. So that tells me somewhere in year, Microsoft has to make a decision whether it wants to go up or down. If you go to if you go to Alphabet, if you go to Google, we've got the same situation there. Look at those moving averages converge. Yeah.

It's sitting right on top of there. If you're a market technician and you look at patterns, you could say that that's an inverse head and shoulders pattern forming there. And if we cross the trend line that you could draw across the 820 and the 10-1 highs, or if you can draw a trend line from there, you could see if we break out of there, we've got a breakout up at the highs there.

right there across those tops. And anyway, so if we get up above about 170 a share, there you go, perfect. That targets a retest of the highs. Is that a great trade to take right now? No, but your risk reward right here is very small. If you're saying, boy, I wanted to buy Google sometime if I only had a chance, your risk is relatively small here.

And if you're wrong, you're going to take a small hit. If you're right, it targets move back to 190 or 200 bucks a share. So even though we don't know what's going to happen with these, it does tell us that we're at an inflection point in two stocks that have a lot of sway.

We know NVIDIA is trying to get through its all-time high. We know comp's trying to get through its all-time high. We know we have chart patterns that have unrealized upsides. So that's what I'm looking at. I want to see potential and very good risk-reward, and I think we have those in the market right now.

And I'd be remiss to, since this is a live show, I'd be remiss not to get your thoughts on Tesla. Tesla did come out with earnings. It looks like they did surprise with a 9% increase.

And it looks like it's up 12% roughly right now in after hours. Not something that's been outperforming recently. Again, the relative strength versus S&P 500, not great. But here we are, a 12% gain in the aftermarket based on earnings, which again, we can see some big moves to the upside and downside on earnings. What are your thoughts on Tesla?

So I'm looking if Tesla is up 10% tomorrow on the opening, we're somewhere in the neighborhood of about 237 bucks a share. So we're still in the middle of that range. Like if you look at the price activity here from July, it's in a range. It's kind of a triangular looking kind of sideways pattern. So what's holding...

There's two resistance levels to be aware of. The first one is the high that we made in December of last year. It's at 265 a share. The next one is the high that we made. I'm looking at my own chart here, is the high that we made in September of 2023 at about 280 a share. Those two old highs are what has confined us.

Tesla right across in here, right? So you can't see those on this chart. It doesn't go far enough back, but that's what's holding that back. We'd really need to get above 260, 270 a share to have a meaningful breakout. So even if we open up 10 or 12% higher tomorrow, we're still in the middle of this trading range and it really hasn't, it hasn't rocked the boat yet. It hasn't done anything right.

really, to get anyone off the dime, as far as I'm concerned. And to your point earlier, you know, one of the last things you want to do is necessarily get something right in, you know, right ahead of resistance, especially an important level of resistance, as you mentioned, that goes back a little way. So definitely important sometimes to look at those weekly charts to get a little bit more of the bigger picture of some of those resistance areas that might not show up on a short term chart.

Yeah, I mean, we're still range bound. So if you like Tesla, you know, your risk is probably somewhere around those lows of around $180 a share, which is a lot of risk right now. But even if, like I said, even if we have a spectacular opening tomorrow, we really haven't broken out of this range that we've been in since the middle of the summer.

Yeah. Well, hey, John, it's always a pleasure chatting with you. Really appreciate you coming on. Where can folks find out a little bit more information? I know you've got a great website at AsburyResearch.com. And anything else that they should be kind of looking for? Yeah. If you like our approach, we have some free information we can send you. Go to AsburyResearch.com.

and go to the contact tab and you can just give us your email address and we'll send you some free info. Or if you like, we also have a sub stack and we have a free version of our sub stack. You can go to asburyresearch.substack.com and sign up there. And there's also some free research that we periodically put out. So those two places,

can get you information about us and also some free stuff.

Yeah. And also I should mention that you have a lot of YouTube videos out there. You're pretty active on the videos. If someone goes into YouTube and just looks up John Kosar, don't forget those CMT letters. You can find a lot of great stuff that you've put out and pretty timely as well. And I almost forgot to mention, we also manage money. There is an asset management tab at esbreresearch.com. So if that's something of interest to you, there's four model portfolios there that you can take a look at.

Awesome. Well, again, John, it was a pleasure having you on the show again. Thanks for walking us through your models and the way you're looking at things. Really appreciate it. Always fun to hang out with you guys for an hour. We'll see you at the next one. Thanks.

Okay, that's going to wrap it up for us. The internet mostly held out, so I'm appreciative of that. Thank you all for watching the live show. And for those of you that didn't catch the whole thing, we do archive these and you can catch it at your leisure anytime on YouTube or at investors.com slash podcast. Don't forget to like and subscribe.

Hopefully you'll be able to join us next week because we've got Don Vanderbord coming to the show. He has been on IBD Live a few times and really has a great kind of look. He looks at things from a very traditional O'Neill standpoint. And right now he is the chief investment officer at Revere Asset Management. So it'll be good to talk to Don and get his thoughts on the market. He's got a lot of great knowledge that he shares. So

Hope you join us for that. Thanks a lot for watching this week. We'll see you next time. AI is coming to your industry if it isn't already here, but AI needs lots of speed and computing power. So how do you compete without costs spiraling? Upgrade to Oracle Cloud Infrastructure or OCI. OCI is the blazing fast and secure platform for your infrastructure, database, application development, and AI workloads.

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