Can the Market Party Last?

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1:09Can the market party last? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Mark Ritchie II, advisor at Minervini Private Access and manager at RTM Capital. Hi, Mark. How are you? I'm great, Maggie. Thanks for having me back. Always fun to be on Real Vision. Yeah. And it's kind of fun to watch the markets today because we saw big moves in the wake of that Fed decision to keep rates on hold, especially when we look at bonds, a 10-year falling to 4.66 % just in a day. Stocks took off on the back of that as well. We have, for many indices, S &P certainly best day since May, but Nasdaq up 1.7, S &P up almost 2%, 1.89, Dow up 1.7, Russell up 2.5, VIX down 7%.

1:58All around, it certainly looks like it was sort of a day for the bulls. What are you watching most closely here? Yeah, really good question. Great day to be on because it's at least some interesting things to talk about in terms of the general market. So look, for starters, I don't want to say I was expecting this type of a snapback. I think you said something, can the party last? I would jokingly say, there hasn't been a party. You know, we've been in a pretty nasty tape really since the end of late July, early August. And if you look at, depending on which index chart, obviously, Russell being the worst in terms of the small caps and NASDAQ being the strongest, it has been a pretty nasty sell-off.

2:45I mean, the peak to trough decline in the small caps was close to 20%. I mean, so it's like you've almost had a bear market decline within a larger decline just over the last few months. So starting with where we are today, we were badly oversold. In terms of sentiment, pretty bombed out as well. And you and I were talking just before kicking off that in my mind, we sort of had a sentiment recycling. And what I mean by that is if you looked at a number of these surveys, AAII, NAIM, things like put call, fear, greed, all of those by mid-late summer were getting pretty over their skis bullish. And this is classic.

3:31And I've said this before in terms of I don't see those as the best timing indicators. But they're more like stick your thumb up in the air, which weighs the wind blowing, the overall environment. I tend to like them more at lows, though. For peaks and highs, it just means sometimes you need a little bit of a pullback. Well, we got a lot more than a pullback. And in fact, this entire year has been, we've seen these sort of momentum-driven snapback rallies and equities. And then the breath doesn't confirm, really. I think the last time I was on was in the summer where I gave a few things I'd like to see confirmed to say, is this rally going to broaden out?

4:10Are we going to see sort of more of that really healthy bull advance? And it was sort of the opposite. Like the Dow tried to confirm we never got new highs in the advanced decline line. And the overall participation from stocks has just been lackluster really all year. So now, back to today, where did that leave us? And anybody, if you want to look at a chart, say, of the Russell, I mean, we have been trading in a really narrow sort of range downtrend. And it looks like we're trying to snap out of that, coming back the other way. I'm sure a lot of people will say this is just short covering. it's a dead cat bounce.

4:44I don't necessarily have to have an argument in either one of those camps, whether or not it's a new bull bear. I tend to look at what are the technicals saying right here. I've been pretty defensive for the last two months, six weeks for sure. But as of today, I actually think it was certainly constructive to say this rally probably has a little bit of juice because we saw better than 9 to 1. Just looking at my screen right now, the final run numbers might not fully be in. But on the NYSE, 9 to 1 buying volume, nine times the volume on the upside, the downside. That's pretty good breath. 4 to 1 on the NASDAQ, you had 5 to 1 advances declines on the NYSE.

5:30That's really what you want to see coming off of a low or to potentially put in a low. And then if you take into consideration a number of the things I just said, yeah, we're really oversold. And it seemed like people were getting, for lack of a better word, pretty skeptical, negative. And the breadth, like percentage of stocks above their long-term moving averages was in the 20s. Percentages of stocks above their intermediate-term moving averages was very low, you know, net new 52 week lows to highs. Those were all kind of at levels where not that I would call for a bottom, but to say, this is what bottoms are made of, but I'm not, I'm not a guy who's trying to pick the low because that, at least for me, that, that tends to be how you get your fingers chopped off.

6:19Especially this year, especially like, that's why we didn't lead with, is this a bottom? Because that's what everyone's really asking, but we were like, We didn't even want to put that. We didn't want those words to come across our lips because it's been so disappointing for so many people who are for both in stocks and in bonds this year. It's been painful for people trying to time this. Well, and you mentioned rates. Obviously, I think the relief in rates is clearly a part of this. And one of the reasons, you know, I don't like to get too hung up sometimes on the secular or sick. Are we in a secular, you know, bear or bowl or what?

6:54And to me, it's like, again, I'm just trying to manage risk and make more when I'm right than I lose when I'm wrong. And I'll be the first to say, I've gotten a lot of things wrong in the last 12 months. The key is to be wrong small and not dig in with opinions. So but to your question or sort of point about, is this the bottom? And I sort of look at the lows and the bottom sometimes as two different things, meaning meaning sometimes you get a low in price, but you're not really sure the bottom is in, meaning that it's time to put on maybe more risk. And sometimes, actually, you also get lows in price, then those are retested, or you can look at other things where, let's say, hypothetically speaking, I don't know, the market comes back down, and then we make maybe new lows in some areas, but not in others.

7:49And that's where I would look at certain breadth things to say, well, maybe we're making new lows here, but I don't think they're going to stick because there's not fresh new lows in momentum, or we're not seeing, say, more stocks making new lows, those type of things. Right now, though, everything from today says, we want to be watching, is this rally initially met with distribution or selling? So if you look since the highs in late July, August, depending on which index you look at. We have not had more than a couple of days rally that is not met with distribution. And my definition of distribution is very simple.

8:30It's just a down day in the general market on higher volume than the prior day. And so even looking at the strongest of the indices, say the NASDAQ, when you've had a day like yesterday or today, within three to five days, it has been met with selling. Which if you think about just the nature of buyers and sellers, when you get a bunch of buying coming in, and I was on a call with some of our clients at MPA earlier today, and one of the questions I got repeatedly was, how do we know if this is just short covering versus real buying? And I said, we don't. No, that's not for me to say. All I can judge is, are we getting buying?

9:10And then as you watch in subsequent days, if there's no follow-up buying, and then you see a lot of net selling coming in, that tells you what you need to know, meaning there's still supply out there in the market. And any buying that subsequently came in was probably more of a short covering type nature. This is why everybody loves to label every bear market snapback as, oh, it's just short covering, until then it rips their faces off and keeps running. Well, that's because there's more buying that's continuing to come in, where when it is just a dead cat bounce or sort of that bear market rally, it fades quickly.

9:46Well, that's where you're watched from here. Do we get distribution? Do we see a change in character? So the nature of the tape over the last two months has been rallies have faded or been faded, meaning the institutions, the enormous buyers and sellers of stocks have been net sellers into this strength. Well, do we see that in the next three to five days? That's the first thing I'd be looking for. Then do we see breadth improvement, say, under the surface? Do we see more stocks starting to make 52-week highs? That'd be a really positive development. We really haven't seen that, but for a few moments over the summer all year.

10:28Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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11:41Tell me where you want to go with the discussion from here, Maggie. Yeah, no, I love it. Because as I'm listening to you, I think that this is such a critically important point. Because it's very rare that there is a bottom. It's usually a bottoming process, right? And you just really, really explain to us what you're looking for to confirm whether we are in that bottoming process. I mean, maybe you're going to be lucky. some people will be and have actually bought on the low of the cycle. But it does take a little while and all these other indicators to kind of line it up, to figure it out. I want to ask you a question.

12:17What did you make of the speed today? And I'm thinking really with treasuries because that was a big turnaround. I mean, we were on yesterday. By the way, keen viewers will remember that Tony was just expressing that same thing that Mark just talked about, about sentiment being so, so bearish. If you go back and listen, Tony was spot on on Halloween when we spoke about this sort of setup for something like this. But what did you make of the fact that we saw Treasury yield the 10-year go from, I was on yesterday with Sreen, it was 4.77. And then today we're at 4.67. I mean, these are big moves for Treasuries.

12:52Yeah. And I actually didn't look at, you know, some of this could be just a result of positioning, you know, people getting, pressing the short side way too much, either in stocks or in bonds. To me, that's a welcome sign in terms of, look, I'm not a bond specialist, but you'd be a fool to not realize that rates are really what's been driving a lot of the pressure in equities. And look, for years, I mean, the entire real decade of the 2010s, you had very little competition for stocks. And what I mean by that in terms of the risk-free rate, there was none. And therefore, even if you I don't use a lot of these classic stock PEs relative to interest rate metrics, But stocks were cheap on a lot of those basis, on a lot of those readings.

13:50If there's no, for lack of a better word, benchmark, or very little yield in treasuries. Well, in the last year, that whole dynamic has massively changed. And then since the summer, you really saw the TLT break down, which means yields on the 10s and 30s are breaking out. And that's been clearly putting pressure on the market. Well, the way I just like to think of it is in terms of you've got more options. If you're an equity manager and you go, well, why am I taking this extra risk in stocks when I'm getting paid more over here? And I think that's just sort of been the nature of some of these sell-offs really going back to sort of mid-22.

14:32too, because it hasn't been that classic where prior it was, you know, the market's worried about growth. And then you start to see bonds become the flight to quality and volatility is the flight to quality. And it's been the exact opposite. It's like, you know, bonds are putting people under pressure and they go, oh, we're going to sell some stocks. And it becomes this sort of drip drab where everything sort of cycles lower and volatility never really has helped you. And we've talked about this as well. Well, you sort of saw the same dynamic even in the last two months. Volatility never, what did VIX, peak at 22, 23?

15:08So anyone who was looking for that big puke never really got it. And we've seen that now every time. Sort of the rubber band gets stretched, and some people are thinking it's going to snap or break, and it doesn't really happen. And all the ball hedging guys are probably disappointed. Like you said, I think the VIX got clocked today, which is exactly what I would have expected. So yeah, the real question is, of course, is this just a correction in the larger trend, say, in rates? Well, again, I'm not heavily trading the rate market right now at all, I shouldn't say, not as if I was prior, because that's not my area of specialization.

15:46But it's something I watch. And I would certainly not be surprised to see that continue to unwind the other way. But that's like in any trend, Maggie. Has the trend shifted the other way? I'm not ready to make that call. I mean, listen, I think it's pretty clear the Fed, I listen to the comments like everybody else, they're still trying to walk the tightrope. I think, yeah, maybe some people got caught over their skis in terms of rates or pushing it too hard. I think Powell's comments on, well, we're closer to balance. And he did seem to allude to the fact that, look, we've come a long way. So perhaps some people took a little bit of risk off the table there.

16:26And so, yeah, right now, again, the rubber band was stretched both in rates and in equities. I think we've snapped a little bit closer to neutral. Anybody who's expecting, even if you're an Uber bear, which I'm not, you would be expecting this type of a snapback in either market at this point. Yeah. As we're talking, I'm going to follow up on that with something Andre's talked about, but as we're talking, Ticketmaster just crossing Live Nation, Ticketmaster parent, Live Nation blowing out earnings, thanks in large part to, yes, you guessed it, Taylor Swift and Beyonce Tours. We know they made it into the Fed Beige Book and everything else.

17:03So the economic impact from that hitting the broader economy, but also really helping out Live Nation as well. That's trading up after hours. We're also watching for Apple out after the close here. So on that point, Mark, that it is interesting what this will mean for the Fed. Andreas released his latest update on our website today, and he's a little bit concerned about the market reaction. Let's have a listen and we'll talk on the other side. Jay Powell decided to hand over the keys to Federal Reserve policy to interest rate markets, basically, by stating that the trends that we've seen in US Treasury yields towards a steeper yield curve, so higher long-term interest rates, basically allowed the Federal Reserve to lean back a little bit here and allow the market to do the job for them.

17:56And I think that introduces a very, very tricky feedback loop to grasp from a market perspective, because essentially, Jay Powell, by saying that, has given a green light for markets to rally here, both in bond terms, but also in equity terms. And oh boy, that's what we've seen over the past 24 hours, a tendency towards a strong rally, a tendency towards risk appetite returning. And essentially, given this feedback loop that he has now introduced, ultimately, if long bond yields, they drop ahead of the December meeting, if equity prices rally, say, 5-10 % ahead of the December meeting, the Fed Reserve will have to hike following the same logic because markets will tell them to tighten again, given that he wants relatively tight financial conditions to keep inflation under control.

18:47So we now have a feedback loop going in both directions. So ultimately, I don't think this party is here to last. That full conversation is out today on our website. If you are listening on YouTube and you're not a full RV member, you are missing out. Go over to our website and jump on the latest offers there. So Mark, we do have some questions coming in. I think we kind of went over this, but Beau asking very specifically, are we looking at a monster bull trap here? It sounds like you think the jury's out on that, right? Yeah. Yeah.

19:24So for people who aren't familiar, maybe even in terms of my style, I get caught in traps all the time. You know, I buy highs and sell lows sometimes and things. That's just the nature of managing risk. You know, the idea I often tell people is embrace being wrong because that's just part of the business. Anybody who's obsessed with being right all the time is usually going to wind up losing money eventually and often big. So what would I be looking for in terms of is this just a bold trap? Well, yeah, for starters, like I said, I would be looking for an improvement in breadth and for it to last longer than even a few weeks.

20:10There is an interesting, we didn't talk about the seasonals too. And this is sort of, any of this stuff in terms of sentiment, it's always, what's more important is what are people doing, not just what they're saying. And there have been a lot of people even calling for this sort of seasonal rally. Well, that work, nearly as I can tell in the seasonality work we do at MPA, is quite constructive here in November, December on the third year of a presidential cycle. That's the strongest part of the year. So people, I think, are correct to be potentially anticipating some type of a rally as well. now to the clip we just watched, does that have a lid on it in terms of if it's too strong, the Fed's going to have to come back in?

20:57Well, I think that's a fair concern. But I'm not, to be clear, I'm not going to sit there and not buy something because I think the Fed might come back in and raise rates. Not to mention, look, if you buy, say, good stocks breaking out of bases with good fundamentals, you can do well regardless of what the Fed's doing. I mean, look at what certain oil names have done this year. Look what AI names have done this year. If you buy right, that actually takes care of a lot of things. So the other things, bull trap and what, that's pretty broad. Yeah, that's true. One thing that jumped out at us, sorry to interrupt, one thing that we were looking at today too, and I don't know that you play in individual names, but we just mentioned Live Nation killed it.

21:47We know all about the Taylor Swift and Beyonce effect. But a lot of the earnings coming out, Starbucks is up 10%. Palantir was up 21%. DoorDash, 16%. Roku, 30%. Shopify, 20%. These were some big moves today. Was it just that it was all part of this just return of risk and overall broad market rally, or does it say something else about earnings that we need to be paying attention to? Yeah, that's a really good question. And listen, again, I'm not an economist, but I would say, I think it's probably surprised a lot of people how durable or strong the consumer has been in some respects. And the concerts and the restaurants of those things, I mean, right now, a good example, like even some of your retailers have held up very well.

22:39The Abercrombies, the G3 Apparels, a number of your stores that you would think, if we're heading into a recession here, that wouldn't be the case. I'm not making that call either way. It does seem, though, like even post-COVID, people are willing to spend money on these experience-type things, even more so than they were before. Doesn't mean they're even able to pay their credit card bills to do that. That's a whole separate issue. But yeah, there's a case to be made that the market had priced in maybe more bad news in some of these areas than was reality. And I think, again, the whole recession and how much has been priced in really has been the question.

23:25And I think in the summer, maybe a good chunk of that rally was the market sort of discounting the fact that the recession is not imminent. If you think of the markets always looking six months out, over the summer, we were saying, there's not going to be a recession in Q3, 4. Well, I mean, we just had GDP come in hot. Now, I know that's lagging. And I'm sure all the recession guys out there are going to give me five reasons why we're going to have a recession. Again, it's like, guys, I'm trying to stay agnostic and play the hand as every card comes out of the deck. So yeah, I mean, back to the question, though, in terms of like, what's going to really get me bullish from here?

24:07Because I'm still holding an awful lot of cash. I think it's going to be a number of like the market to me has to demonstrate that it's going to broaden out. So right now, we just had a snapback. And I already gave you what to look for in terms of It's a short, bold trap. You're going to see more volume selling hit the market. You're going to see most of these groups that snap back, they're going to fade quickly. Versus what we may see is things back and fill. And do we put some kind of a technical consolidation or base, and then things break out from there? Or specifically, the rally broaden out.

24:50And a simple way to watch that is just to see, do we get an increase in the stocks that are moving the overall market? This has been a very thin, narrow market in terms of participation. The percentage of stocks in the NASDAQ that were trading above their long-term moving averages, even while the NASDAQ was still well above its 200, was like 30%. That means that two-thirds of the NASDAQ was in a bear market, while one-third was dragging all the dead weight higher with it. Like, I want to see that dynamic completely reverse. And a lot of times, these things just take time. So when those relationships get really stretched either way, you just need time to kind of see where things are going to wash out.

25:38And my goal isn't necessarily to catch the low price. is to catch the right price, meaning do I think there's a meaty part in the middle of the move? And I'll leave the tails for somebody else. But that's my style. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

26:02Boris has a great question, and I wonder if this is something else you want to look at for sort of confirmation of longevity. He said, hi, Mark, do you expect money flow out of money market funds back into equities? Or is fixed income at this level of interest rate for the foreseeable future even more attractive? You mentioned right at the beginning that for years, there was no competition for equities. There has been this year. Is that something that's part of what you want to see? Certainly. Well, listen, let's be really clear that if the Fed, this is where a lot of people have been caught off guard repeatedly thinking the Fed's going to go to cutting quickly, or the economy is going to roll over, and the Fed's going to go right back to cutting and QE and all these other things, which will be this real big positive burst for risk assets.

26:58That's true if or when it happens, but the Fed has been not playing along, for lack of a better word, with everybody. There's been this Pavlovian response that the minute anything looks like it's going to falter, the Fed comes right back in. I've been in that camp myself in terms of thinking they were going to do that. I wasn't putting a lot of risk capital on it. Rather wait to see that confirmed. So if or when they do, yes, and to his point. So all that money then is going to come out of, if they lower rates, again, at some point, that money is going to find a home somewhere else. All these markets are just giant flow charts for capital, as flows are moving in and out of different things.