Market shifts from risk on to risk off

22:52David Keller:So the indexes have been going up, but the breadth has all been rotating lower, indicating that not as much participation as we would generally want to see. So that has been, I would say, from a technical perspective, kind of a real challenge to this market in April and May. But the warning signs have remained relatively low. So volatility has been low. Credit spreads have been narrow. You know, those kind of things have still been OK. All of that shifted starting mid last week. We started to see spreads widen up a little bit. We started to see volatility pop, especially on Friday. And now this week we're seeing, you know, the VIX pushing back above 20.

23:29David Keller:We're seeing defensive sectors like utilities and REITs start to really outperform. And those are just really common things at major tops. I should note, by the way, the two of my favorite indicators that flashed here in the last month would be the Hindenburg Omen, which is a classic kind of market top indicator looking at breadth conditions and trend. And then another one called the Titanic syndrome. And you can assume by the naming of those indicators just how bullish they are when they start firing. And the answer is not much. They're very bearish indicators. And both of those, the Hindenburg-Gomen, which is based on trend and breadth, the Titanic syndrome, which is looking for the market to make a new high, but new lows outnumber new highs.

24:17David Keller:All those things have fired in the last couple weeks. And so the market rolling over in the last week, week and a half doesn't surprise me because we've had a lot of warning signs that sort of emerged, you know, sort of beginning of Q2. And so now we see the S &P starting to rotate lower and start to break initial support. Our initial line in the same was 7340. And just as we're recording this on June 10th, we're potentially closing below it today for the first time. So I think that puts us in more of a risk off vibe for the S &P here. Should we go to the dollar? Yeah. So, I mean, and again, I think as an equity investor, it behooves you to really think about non-equity asset classes, commodities, currencies, interest rates.

25:03David Keller:I think these are all pivotal. And I find when people ignore those asset classes, you ignore them at your own peril because a lot of times indications and changes in sentiment will be reflected in the dollar. that will be reflected in interest rates in terms of like expectations about economic growth or reaction to inflation data, something like gold or silver and some sort of safe haven move. So I appreciate you asking about those other things. I think it's important to reflect on all of them. The dollar has been a really interesting chart. It really, I mean, if you look at the chart of the dollar, it's been sideways for over a year now.

25:37David Keller:I mean, right now we're right at the same level we were in April of 2025. And so the dollar has been choppy and noisy, but generally sideways. I would say one of the risks right now is the dollar index pushes above 100, and it's kind of right there over the last week. So the dollar has been popping since the end of April. It sort of bumped up against the same level it hit in March and April, same level it hit back in November of last year, same level it hit back in summer of last year. And it's sort of usually gotten up to around this point, and that's been it. Dollar pushes above 100. I think that starts to indicate a larger shift in sentiment and more of a risk off type of feel.

26:19David Keller:So I think the dollar for now is still probably kind of neutral on that longer term time frame, but very close to where it starts to feel like a sign of flight to safety that would be a potential issue for equities. Gold? Speaking of flight to safeties? Yeah. So what's so funny is you think, and I even just mentioned gold as a safe haven. It really hasn't traded like one, though, recently. I mean, the correlation between stocks and gold, one of the best, I think, benefits of gold over the long term has been the correlation is so low to stocks. So people think of it as an inverse relationship, right?

26:55David Keller:So when stocks go down, gold should go up because it's a safe haven. But that's really not what the data shows you. The data shows you that the correlation is just very low between the two, which means when stocks do something, gold most likely is kind of doing its own thing. And that's good because you want low correlated assets in a portfolio. That's true diversification. So gold generally, I generally have a position in gold. I still have a position in the GLD, but my position in the GLD has gotten smaller and smaller as the chart has looked less and less good. So while the S &P and the NASDAQ have been pressing new highs in April and May, the chart of gold, particularly the chart of GLD, which is what I look at pretty regularly, has been breaking down.

27:39David Keller:It was sideways for quite some time, very similar to the chart of oil. But just in the last couple of weeks, we've seen the GLD start to break down. And just in the last week, as the S &P and the NASDAQ have pulled back, gold's actually gone below its 200-day moving average for the first time in quite a long time. And so I think that represents a real shift in precious metals. So for me, I've been lightening up in my own position. I'll always have some position in gold because I think it's a good way of diversifying away from equities. but I kind of lighten up or add to that position based on the momentum.

28:13David Keller:And the momentum for me says more leaning away at this point. Silver. And then I'm going to do Bitcoin and oil for those paying attention. Yeah. Oh, boy. Yeah. So, I mean, silver, very similar. Silver in a lot of ways has felt like a leverage play on gold, to be honest with you. It's sort of like a, you know, it's like a triple long, triple lever gold ETF almost. And that's not entirely true, but that's exactly how it's felt. I haven't owned silver in my portfolio. I've just owned gold and gold miners. But I would say a very similar sort of setup. And between the two, when that group looks, when precious metals start to recover, most likely I would not be surprised if silver leads on the way out, because that's pretty common that you would see it underperform on the way down and start to outperform on the way up.

28:58David Keller:So something that's on my, I have a watch list of things that are definitely in a downtrend, but I'm waiting for signs that that momentum shifts and for silver, just not there yet. Bitcoin? Bitcoin, I do have a contrarian hat, as I alluded to earlier. And I would say the justification for owning Bitcoin at this point from a technical perspective is it's gone down a lot. And to be honest with you, right, it's gone down so much that it's testing those February lows. I have owned Bitcoin many times over the last couple of years. I've usually used ETFs, although I did. I did own, you know, just own Bitcoin directly for a while.

29:34David Keller:I've exited all those positions. And at this point, I don't own any GBTC. But I'm starting to think about it, given the fact that we're retesting those major lows. So the sweet spot from a technical perspective would be, or kind of the ideal situation would be what we're seeing now is a retest of those February lows or around like 60 ,000-ish. And we're testing that support. We find stability. We start to rotate higher. And we saw a bit of that over the last week. Not quite enough for my own momentum models to turn, you know, overwhelmingly bullish, but definitely where I'm jotting it down on a notepad and saying, let's watch GBTC for some sort of upside rotation.

30:13David Keller:So something like Bitcoin, I kind of think of it in a couple steps. I think too often individual investors think in binary terms, right? I own 100 % of something or I own 0 % of something. And I think what we want to do is learn more from how an institutional investor would generally think of it, which is if I think it's an interesting opportunity, but a high risk, I'll take a smaller speculative position just to see if it works. So I limit my exposure, but I get the benefit of that initial surge. And that's kind of where I'm at right now this week. And then if the uptrend emerges, and if you see signs of accumulation, which would be we start to break above moving averages, the momentum starts to shift, meaning the RSI is pushing higher as we swing higher in price.

30:55David Keller:those would be the things I would need to see to say, okay, that speculative position now needs to be a larger position than I put in a portfolio. But at this point, it's more of a speculative play, given the lack of sort of signs of accumulation, as I would describe them. A nibble approach, if you will. I think that's the professionals, that's what we would say. Yeah, yeah, yeah. I'm not just spitballing here. It's come from somewhere. Last one, oil. Yeah. So crude oil, honestly, I mean, if you, the spike in crude oil sort of around the, I guess, initiation of hostilities or the escalates, that original escalation earlier this year was not surprising, you know, given what's happened in the Middle East and how the U.S.

31:39David Keller:was drawn into, I mean, it wasn't too long ago we were debating whether the U.S. would be drawn into this Middle East conflict. Now the U.S. is kind of central to it. So you had that initial spike in crude oil. But from there, to be honest with you, crude oil has been really choppy, sloppy sideways, which is another, again, the professional term for that for that chart pattern. You know, I mean, it's really it's really been choppy. It's been very noisy. And so crude oil has kind of fluctuated from, you know,$85,$87 a barrel up to like$108,$110 or so. And it's just been been very, very sideways to that.

32:13David Keller:What's interesting to me right now is, you know, in the last couple days, headlines are all speaking to a re-escalation of hostilities with a helicopter, you know, shot down and, you know, retaliation of some sort. So it doesn't seem, I mean, it seems like the momentum headline wise is for an escalation. Crude oil prices are still relatively low versus the range we've been in just during this conflict. So I would say as a swing trading opportunity, we're at the lower end of a range that we've established based on this conflict. And so I would say on the short term, it's a tactical, you know, probably a tactical rotation up to at least the middle part of that range.

32:52David Keller:So I think it's a good short-term opportunity. As a long-term investment, the problem I would have with crude oil is it's sort of established this range. So things would really have to get severely more negative or restricted. Some larger change would have to happen to put upside pressure on crude oil prices beyond what we've seen so far. So I think of it as more of a trade than an investment at this point. What other charts are part of your daily or weekly process? Ooh, that's an awesome question. I mean, my process goes through, honestly, it's evaluating the major indexes. It's evaluating momentum.

33:32David Keller:It's evaluating relative performance, which is something we haven't talked about, I guess, a ton here today. Relative performance or relative strength is all about this chart I'm looking at. How does that compare to all the other charts I can look at? And I think that's super important in the equity space because you can spend all your time trying to analyze one particular chart, but the relative strength or how this is doing relative to its peers, like that's the most important thing arguably to look at, because that tells you whether you're looking at the right chart at all. Because if you, you know, we, we, what we want to think about as equity investors is owning stocks that are outperforming the S &P.

34:11David Keller:Because if you, if you own stocks where the relative strength is going down, there's that opportunity cost of, I'm just, I'm not in the better charts that are out there. So my goal is to keep upgrading my roster and trying to put the best 11 players on the team, whatever sports analogy you want to use. And so if one of my players is not doing well and the relative strength is not great, I want to swap someone in who's doing better and just keep upgrading the portfolio. And relative strength is the most important way to do that. So I would say some of the things that come out of that work right now, one would be small caps, which generally in 2026, and it's changed a bit with this last surge with the NASDAQ, but for most of 2026, small caps have been outperforming large caps sort of at the higher index level.

34:55David Keller:So in my own portfolios, I own a lot more small cap ETFs than large cap than I normally would versus large cap ETFs because of that performance gap. So I think recognizing that has been has been important. And then on a sector basis, because technology has really been the only S &P sector to outperform in the second quarter. But you're starting to see those trends shift. And so you're seeing technology start to come off a bit, and then you're seeing an emergence of strength in other sectors. So when I'm scanning regularly for individual stock ideas and things that are moving higher, it's in value-oriented sectors like industrials, materials like an LIN comes to mind.

35:36David Keller:And then it's in defensive sectors, things like REES. There are more and more real estate names popping up on the list. And again, I think that has a macro tell because it tells you that investors are kind of shifting into sort of low volatility areas of the market maybe a little bit, but also in terms of idea generation because I want to generally keep rotating to where the relative strength is. And it's been in small caps. It's been in value. It's been in defensive sector. So I'm going to keep looking there. That's interesting. Our next two episodes are about small caps. I don't know if you know Courage and Conviction Investing.

36:07He's a big small cap guy who's done well. Yeah. Yeah. Yeah. And the next episode after that is about REITs. Anything else to underline or highlight about the small cap space? No.

36:18David Keller:I mean, to be honest with you, I think with small caps, it's been fairly across the board, right? I tend to look at the Morningstar style boxes, right? So look at small cap growth, value, core, and then the same for large cap, same for mid cap. And you get kind of a different read depending on what slice you're looking at, I guess. But generally, I mean, even small cap value has been outperforming, you know, mid cap value or large cap value. So even if, you know, within like a value sleeve, it's generally paid to go smaller than larger. So I think that's kind of consistent across those different captures, not just small cap value, and then other things are working.

36:59David Keller:I mean, in most of those areas, the small cap counterpart has outperformed the large cap counterpart. And so again, for me, that's a reminder to continue to evaluate performance. And at some point, small caps will not be as strong, and that's when I'll rotate away from them. But for now, we're still seeing strong performance. I'm curious, and not a plug, just a curious question. We have this quant system on Seeking Alpha that relies heavily on momentum and also sector relativity. I'm curious, do you use that at all? Or does quant play a part in your strategy process? I actually do. I've talked to Steve Kress about the quantitative model and sort of how it's designed and everything.

37:44David Keller:For me, a quantitative approach is super valuable, especially for someone like me. My skill set and my background is in technical and behavioral analysis. So my goal is to understand the charts and the momentum and the sentiment and the psychology behind decisions that I'm making and behind decisions that other investors are making. But I also recognize that generally buying undervalued stocks has usually worked over the long term, particularly in a beaten down market, right? Buying undervalued names. And I've learned that earnings growth, particularly estimate revisions, right? Improving expectations for earnings generally tends to work.

38:24David Keller:So I can either flip through a ton of 10 Qs to make my own assessment and review a bunch of street research, or I can use a well-designed quant model to sort of cut that corner and recognize, look, let me find companies that score well on earnings quality and score well on a value metric or whatever I think is important. And then the momentum that's included in the quant model is pretty good. For me, I feel like I have a lot of really good additional ways to measure momentum and think on a more tactical timeframe. So I think of it as more as let me look through all the thousands of stocks I should be considering.

39:01David Keller:Let me look at only those ones that score well for earnings quality. The dividend components in that model, by the way, I think are really good as well, right? The sort of dividend aristocrat, right? Consistency in dividends, increasing dividends. Let me find those stable kind of good companies with good growth prospects using that quantitative approach. And then let me look at those charts and find the best charts within that universe. And for me, combining those has been a pretty powerful approach. And that mirrors very much what we did when I worked for a large buy-side institution. We called it a thrice-blessed screen or a Trip Aces screen, the fundamental, technical, and quantitative teams all agreed that something looked pretty good.

39:47David Keller:That was a really good list of names to focus on. So that's how I use Quant in my own approach and the Seeking Alpha model in particular. You were talking before how your firm was involved in the Facebook IPO. And I meant to ask after you mentioned that if there was anything else that you took away from that meeting, like in terms of watching a company grow and develop? Has it taught you anything? Oof. That could be a whole other hour discussion we have, maybe a whole weekend off. That's a whole episode you're part of. It is. But no, honestly, that was a fascinating experience. And I would say a number of things that I took away from it without revealing anything proprietary.

40:30David Keller:And probably the statute of limitations is probably done on any NDA I signed when I left that firm. But I would say this, number one, I was amazed at how oversubscribed that IPO was. And I just know from my firm, we had Zuckerberg and the team come in. He was wearing a hoodie. I mean, right out of script. I mean, he literally walked in to a professional money management firm in Boston in a hoodie. It was awesome. We were all debating, is he going to do it? I was like, oh, he totally did it. And so we had like six or seven portfolio managers in a small conference room as to not overwhelm it. But then I was in a separate room where there are like 150 of us because so many people wanted to like think about it.

41:14David Keller:And we were able to like talk to the people in the room and stuff, but it was more just like, I looked around, I'm like, oh my God, the entire firm wants to like check out this IP. I mean, that tells you how, just within our firm, how many people wanted to participate. So it was like the scale of You could tell it had market moving potential. I think the other thing that struck me at the time, Facebook was only monetizing their desktop app. And there was a mobile app. And again, mobile was in a different era altogether. But I remember the questions were all about how are you possibly going to monetize mobile because they hadn't done it.

41:49David Keller:And it was like all this really soft and fluffy idea about here's how we're going to do it. And I remember a lot of people being very skeptical like that, like no one's going to want to use their phone if there's a bunch of ads popping up. Like that's that's that's that's the nonstarter. And so it it taught me how far you're looking forward during an IPO. And then I would say the third thing is, you know, Meta has obviously been one of the great success stories in terms of like the performance of a stock. But there have been some really rocky periods during that. I made some huge management missteps, like the whole metaverse thing, right?

42:27David Keller:I mean, so it's not a straight line between we have this really cool way that we're going to be profitable years and years down the road. And this is one of the biggest stocks that everyone seems to have to need to own a little bit of. It was not a direct line from A to B. And so I think there's a lot of money to be made with it, even if you think something like SpaceX is going to be the future. And if you feel like the Starlink network is the future and everyone's going to need it, like I and we're all we're going to colonize Mars and this company is probably I don't doubt that a lot of that probably happens.

43:02David Keller:But that doesn't mean it's a good stock to own right at this particular moment. And I think there's a lot of time there's a desperation that if you don't get into an IPO early enough, you miss out. I would guarantee, I mean, I'm not going to guarantee, but as close as I can come to guarantee and still be compliance friendly, I would say there will probably be a great buying opportunity on a chart like that. That's not at the IPO would be my third lesson there. Getting back to cannabis, one of our headlines last year on the Cannabis Investing Podcast was, have cannabis investors been early or wrong or both?

43:36So definitely the first mover advantage, not always an advantage. to be sure.

43:45David Keller:And it's so funny. And I think that's a constant theme. I mean, culturally, will we think of cannabis differently? I think undoubtedly. I think that is a thing that's happening. We already are. We are. And just the way we're talking about it now, the fact that you have a cannabis podcast that is not a fringe thing that no one knows about, I think tells you a lot about how it's becoming more widespread. And at least people are thinking about it. But I remember Bitcoin being like this fringe thing. And I remember when the Bitcoin ATM went up in South Station and we all got pictures where we're like, this is so dumb.

44:19David Keller:Like, why would you even do it? What do you even get out of this? And it was way early and it ended up getting removed because no one was using it. But it was like it was a great sign that this was a theme. So I think we get way too nervous about missing out on themes. And just that's why charts for me are so vital, because you don't have to have a crystal ball. You just have to track the trends and how the sentiment is shifting. The sentiment hopefully will shift because I still own YOLO on cannabis stocks. But I'll be there when it does. And I'll look for that breakout. My last question about the Facebook meeting.

44:52Did you generally leave impressed with Mark Zuckerberg?

44:59David Keller:um is the hoodie is the hoodie the answer i mean if you want to not sell a group of like stuffy boston money managers coming in the hoodie that is like number one on your land it's like but it definitely showed the attitude i mean it was just it was such a culture shock it was awesome i i mean i would say the other no i would say very few impressed with mark zuckerberg in particular plenty impressed with the prospect of it, but it showed how much the team that he had around him were the ones actually able to articulate the investment case and what the potential was. And that's what, you know, Zuckerberg was very good about talking about these ideas, but in terms of like what your dollar now could mean down the road, that was others.

45:46David Keller:So it definitely taught me in some cases, the founders are the visionaries. The others are the ones that can help actually demonstrate how that can, you know, add value over time. Yeah. Yeah. Okay. Two questions to end with. Number one, as a music man, what's your favorite kind of music to listen to? And what's your favorite live show that you've been to? Or some of the top? That is such an awesome question. So I might disappoint you a little bit because I'm a classically trained musician. I actually studied trumpet and voice as an undergraduate. So I, my favorite stuff is all classical, to be honest with you.

46:25David Keller:And I, no, I'm just kidding. Normalize every good music. It's all, it's good music. And the, honestly, some of the best, you know, pop musicians are classically trained. I would argue, I don't think it hurts to have a good music theory sense when you're writing stuff. So for me, it's all, honestly, it's all classical. And I, I sing with the Seattle Symphony Chorale, which has been a joy. I used to sing with the Cleveland Orchestra Chorus. So doing Mahler's Second Symphony, and those of you that are not classical music people, listen to Mahler's Second Symphony. It's the Resurrection Symphony. It is absolutely stunning.

46:57David Keller:And the ending should bring shivers to your spine or you're not human. I mean, it is the quintessential emotion driven from a big orchestra and a big choir singing and playing loudly but musically. It's absolutely fantastic. So performing that in Severance Hall in Cleveland was a favorite moment for sure. Great answer. Not disappointed at all. Impressed, if anything. And the last question is, I've been asking people at the end of conversations if they have an investing or a life motto. Ooh. Oh, so many. I only get one, though. That's tough, Rima. You could do tops. You could do a couple. I could do a few.

47:43David Keller:I have many. So I will tell you the investing one, and then I'll tell you a life one. Perfect. The investing one is it's always a good time to own good charts. And I sign off my market recap show with that at the end of every episode. And it's just a reminder for me, like so many times as investors, we get too caught up in the narrative and what should work or what should be happening. and a former therapist called that shooting all over yourself to me. She was absolutely right. So it's like, you need to think less about what should happen and more about what actually is happening. And so a consistent process of identifying strength and following it, identifying weakness and getting away from that is important.

48:26David Keller:So I always just think it's always a good time to own good charts. Don't ever discount some good opportunity because it's not in this sector or it's not this type of thing that should work, like just find the good opportunities. And my other one, my life lesson, most important one to me, remember rule number six. And that is a quick story. If you indulge me, it's basically these two, there's a different versions of the story that come in, but the one is there are two prime ministers in their office and they're talking about matters of state and an assistant comes in and says, hey, we have this issue with X, Y, Z, and I'm not sure what to do.

49:04David Keller:And he says, hey, remember rule number six. And so the person goes, oh, you're right, and walks out. And then they keep talking. Another one comes in and says, hey, we have a huge problem with this economic release. Somebody goes, hey, remember rule number six. And they go, you're right, and leaves. This happens a couple of times. And so the other prime minister is like, what is this? You know, remember rule number six. And the prime minister says, it's don't take yourself so goddamn seriously. And he said, well, what are the other five rules? And he says, there aren't any. And so the lesson is don't take yourself so goddamn seriously.

49:34David Keller:And for me, I feel like with parenting, with investing, with my career, anytime I've taken life too seriously, it is usually not helped me. Anytime I've just relaxed, taken a deep breath and been myself and just done what I felt was right, it's usually ended up better. So that's my hope for everyone listening. Love that. Love that. David, I always appreciate these conversations. Always appreciate you coming on. If you would share with our audience where else they can find you, read you, get in touch with you, would be happy for you to do so. Thank you, Rena. You do awesome work with the show and I appreciate you inviting me on.

50:09David Keller:It's a pleasure as always. Yeah, you can find more information about me at marketmisbehavior.com. That URL is a recognition of the bonehead mistakes we often make in our own investing and the mistakes that other investors make that hopefully we can take advantage of in our consistent processes of decision making. So marketmisbehavior.com, you'll find my YouTube channel, my own podcast, and a lot of great content to share. Just a reminder, anything you hear on this podcast should not be considered investment advice. This is for entertainment purposes only, and you should seek advice from a licensed professional before investing.

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