How to Trade a Hated Rally

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1:07Rick Rule. Rick Rule is a favorite of the Real Vision community. If you'd like to meet Rick and get a masterclass from the master himself, you'll want to head to the Rick Rule Symposium on Natural Resource Investing in Florida July 23 to 27. You'll get access to industry insiders, elite bullion dealers, gold council members and uranium pros. Just head over to realvision.com slash rick for tickets that's realvision.com slash rick

1:40hi everyone welcome to the real vision daily briefing before we start the show we just want to thank you all for the comments and the emails that have been rolling in about the new real vision platform we're working on we've been floored by the incredible response earlier today Ash, Raul, and I did the first of what will be monthly, actually weekly, town hall meetings that are going to bring everybody up to date on all of the changes and new features that are coming your way. If you are already a Real Vision member, you need to lock in your pricing or upgrade now before July 24th. The prices will be increasing after that, so we want everyone to be aware of that.

2:18To do that, head to realvision.com forward slash level up, all lowercase. Brian's going to drop the link in the chat. All right, let's jump into the market action. With me today is Jared Dillian, editor of the Daily Dirtnap Newsletter. Hi, Jared. How are you doing? Hey, how are you doing? I'm doing well. Thanks. I'm doing well. I've been out for a couple of days, which is always kind of fun when you plug back in because you got to get a fresh sense of sort of how people are feeling. And we saw mixed action today. We had the Dow up. It did pair the sort of best of its gains, So still ended up about 163 points.

2:53NASDAQ, though, kind of ended toward the lows, down 2%. That was hurt by Netflix, especially Tesla, too. And then S &P kind of sitting in the middle, down a little over a half a percent. Bond yields moving a little higher as well. So just kind of curious about, it's been a little while since the two of us spoke, just how are you feeling about this market action? Well, I don't think I've been on in about three, three and a half weeks. and 10 days ago-ish, I actually got bearish on the market, mostly based on sentiment, but also technicals. The technicals I look at are the mark indicators, which you've heard about before.

3:38And I also look at MACD, which is moving average convergence divergence, and I look for divergences. And whenever those two indicators line up, you usually get a pretty good, reliable signal for a turning point. And I noticed that that came into play last week, maybe the week before. And sort of juxtaposed with that is the fact that I think we've completely completely worked off the bearish sentiment that we had from last October. And now I would say that people are pretty bullish. I mean, the types of emails I'm getting are, you know, you just have to be balls long the market. It's going higher.

4:25You know, I get emails like this and, you know, it's, it's, if people get sucked in, you know, like it just, it happens every time. So one of the main thing that I've been calling for is a rotation out of tech and into the rest of the sectors. You saw that today. And today is really the first day that it happened. I've been waiting for it for the last two weeks, but this is the first day that it's happened. So yeah, I think it continues. And I think, you know, the thing is, is that the S &P 500 at this point is basically a tech index. XLK is 29 % of the S &P 500, plus you have communication services with Meta and Google, plus you have consumer discretionary with Amazon and Tesla.

5:15So at this point, over 40 % of the S &P 500 is tech. It's really become a tech index. So if you think that there's going to be a rotation out of tech, then it necessarily means that the index itself is going to go down. So that's super interesting. So Mike, I think Jared read your mind. I saw your early question, which was, has tech sentiment reached a level where it's time to sell, lighten up, maybe move into forgotten sectors like healthcare staples? And it sounds like that's what you think. I don't know if you agree with healthcare staples though. uh health care is health care is kind of a mixed bag uh you know among the big pharmas you have stuff that's working and not working the stuff that's working are the farmers with weight loss drugs and the stuff that's not working is everything else you know it's absolutely true whether it's novo or lily or you know anything with the weight loss drug is going up and the rest of the pharma basket is a mess i don't know what this says about humanity um but except that We all want to be skinny.

6:21Forget about all the, you know, potentially diseases that could be curable, that remain incurable. But it used to be if you had, what, Botox and erectile dysfunction, you did well. Now it's weight loss. Oh, yeah. Pfizer in 1999 was a hot stock. It really was. And now Viagra is generic. Yeah. Well, there you go, right? Right. So just we'll get more specific on what you like and don't like in a little bit. But that was a great question, Mike, because I think it speaks to what everyone's asking. Right. So I want to dig into your sectors, but also the distinction you made because you said you were bearish.

7:00Now it sounds like you're a little bit bullish, but I want to get clarity on that. But one of the things that's been so hard, Jared, is that everybody is sort of like, is it time to sell? Should I sell? If I'm not in it, should I buy? It's been really, really frustrating, especially as we watch this market just sort of march higher. This question, this very question came up yesterday. So Raoul didn't ask me anything in AMA yesterday, first half on YouTube, second on the platform. And the second part is where he answered a lot of questions. But let's have a listen to a clip of that and how Raoul was thinking around that question.

7:35I'm currently not invested in US equities, expecting a bubble correction. Seems like a big mistake. How late am I to enter on tech? Yeah, this is the hard thing. I've been screwed up by this so many times. It's now impossible to buy because it's going up in a straight line and it never corrects. I'm sorry, I don't know how to answer your question. It's really, really hard. I think just wait for any kind of correction, sideways correction, anything that makes you feel like you're doing a smart thing than buying the chart going bottom left, top right. The other way that I get around it, Jared, Dylan told me this.

8:16He's like, Raoul, you need to get over that bias if the chart is at the top of the screen. It's like, it's only at the top of the screen because it's scaled that way. If you lower the scale, I know this sounds stupid, but it looks a lot less intimidating because charts all go up over time. It's a decent company, decent market, whatever. And if you just shrink that scale, you're like, oh, it can go a lot further and you worry less about buying highs. Also, it's about time horizon. But yeah, look, it's not easier. Well done, Caleb, by the way, asking that question. We love when Raul gets stumped.

8:50But he's honest, right? He said it's really, really hard to answer. It's important to point out the person who's asking, saying I'm not invested in US equities. I'm not invested in tech stocks. So see if you can give it a shot, Jared. By the way, I love that Raul was referencing you. We asked you if your ears were ringing because you didn't see it, that he was talking about you. But it really stuck with him that you said that. So talk to me about when you look at the chart, how you were feeling about the potential for it to continue to run and how you break it down from the overall market to maybe that sort of mega cap tech that really seems to have people kind of nervous.

9:27Yeah. I mean, what Raul was talking about was buying the upper right-hand corner of the chart. So imagine you're looking at a chart and you have the upper right-hand corner and there's a line across. It's basically the top of your screen. And the chart is going up and it can't go up anymore because that's the top of my screen. So what he's saying is to just zoom out and what you'll see is that there's a whole bunch of more space there where it can keep going.

10:04That's a trend-following trading style. It's not what I do. I'm more of a mean reversion person. Explain what you mean by that for those who – I know there are a bunch of our sophisticated viewers who know what you mean by that, but for those who may be joining who don't, what do you mean by that? You're looking for the turn, right? Yeah, I'm always looking for the turn. I'm looking to pick bottoms, pick tops. I basically call the end of trend. I'm not a trend follower. I don't bet that a trend is going to continue. I bet that a trend is going to end, which basically goes against all the collective wisdom of technical analysis and trading and everything else, because they tell you you're not supposed to do that.

10:46You're not supposed to catch a falling knife. How many times have you heard that? I have made a very profitable career by catching falling knives and shooting against bull markets that are up against the top. That's what I do. Maybe not recommended for everyone if you don't have the risk appetite for that or the tools to protect yourself. I'll just say that. But interested to hear what you think about the chart right now, given the fact that you're always looking to try to get ahead of a change. So same question, maybe that they asked, When you look at the auction now, if somebody wasn't invested, do they have time to get in now?

11:30Or is it getting tired? Yeah, no, I think the answer is no. I mean, look, at least in the short term. So I think$3 ,500 in the S &P was the low. I don't think we take out that low ever. I think that was the low of the bear market, and we do not make a lower low. And I think that we are going to get a correction of some magnitude, maybe 10 or 12 percent, in the context of a bull market. Now, 10 or 12 percent doesn't sound like a lot, but I can tell you that if the market sells off 10 or 12 percent, the VIX is going to get up to like 26, 28, 30. It's going to get a little scary. Like, it'll feel bad.

12:12Like it'll feel bad and it will feel bad, just bad enough to shake out all the late longs, all the people who showed up late to the party, shake all those people out and restore technical health to the trend. That's what needs to happen. When you say shake those people out, this is what we talked about. You talk in your newsletter about the mom indicator, which we flag. What do you mean by that? My mom is – I talk to my mom every day on the way home from work. I call her up. She's 77 years old. And she watches some CNBC. And she always tells me what the Dow is doing. Which is hilarious, but it's like every mom's move, right?

12:56I'm like, mom, I do this for a living. I really don't want to talk about it. And she insists on talking about it. But yeah, she's excited about stocks. She doesn't log on to see her balance, but she'll get the statement once a month and she'll see that she's making money and she's happy. So for you, that's a, that's a, a contrarian indicator that that starts to worry you when mom wants to chat you up about stuff. Yeah. Makes sense. Which is hilarious. I love your mom already. So, so you think that if you're not in that, you're going to get an opportunity. Is that sell-off going to be widespread and hit everything?

13:35Or is this kind of like a role? Is it going to hit the winners now, but this is where that rotation opportunity comes in. How do you think it's playing out? I think it's more rotation. I think the sell-off is going to be concentrated in tech. I mean, really what happened today, like just picture 10 more days like today and that's your correction. So it'll happen in dribs and drabs. That's the thesis anyway. I can't predict with certainty. Yeah. And this is not, as we always say, investment advice. This is just Jared's musings about the market. By the way, I should have mentioned it earlier, that whole AMA with Raoul is on our platform.

14:13If you missed it or you didn't get a chance to catch up with it, he was in rare form. He was alone and drinking and swearing. So it's quite hilarious as well as you've seen him like that, Jared. He was in good form. Let's just put it that way. But it was a lot of fun, but also super informative. So, I mean, you know how Raul feels about tech and exponential age, although we always say his time horizon is long. So I'm guessing he probably agrees with you that somewhere in there, there will be opportunities. But the timing of it's hard, right, Jared? So if you think tech's going to get hit, why does everybody hate this rally so much?

14:48Or you think they don't anymore? Because it's been, everyone's been just sort of waiting for the thing to go, right? Waiting for it to turn. Do you feel like that's gone away, that bearish sentiment now? and actually people don't hate it as much as they did? There's a, let me just tell you, StockTwits put out an incredible tweet yesterday. So they put up a picture and it was four screen grabs from some YouTuber like who I've never heard of, like talking about the stock market. And there was one from like four months ago, like, you know, the Fed is crashing the market. Like this is a bear market.

15:22And there was one from three months ago, like the market is going down. And then two months ago, this is a terrible market. And then the one from yesterday was how to make money in the new bull market. It's one of the best things I've ever seen. It's terrific. So yeah, I mean, look, people still hate the rally. The thing about turning points is that you don't have to get everybody to capitulate to have a turning point. You know what I mean? Like you don't have to have 100 % bullish sentiment or 100 % bearish sentiment. There's always going to be some holdouts. But I think enough people have gotten bullish and enough people have piled in late that you're going to get a correction.

16:05Interesting. Okay, so when you are looking at this, are you already buying or looking at sectors in anticipation of that? Like if there's going to be a rotation, what do you think benefits? You just mentioned healthcare, if weight loss, yeah. Other than that, a little bit fraught, although some of the people in our chat like it. So what do you like then? All right. So first of all, let me just say that there are a bunch of typically conservative hedge fund guys who have spent the last year being short tech and long energy, and they're really frustrated. And that trade is going to finally work.

16:46That trade is going to finally work. So if you look at factors in the stock market, like if you watch – if you look at energy and tech on an intraday basis and you watch the chart during the day, they're always going opposite directions. These are factors. And there's some algorithm or a collection of algorithms that if you're long energy, you have to short tech. So if tech goes down, energy has to go up. It must go up. There are two different factors. That's really interesting. So you think regardless of any of the fundamentals, supply, demand, any of that stuff, you just think if you're going to start seeing tech get hit that you're going to see the opposite reaction?

17:33Well, the other thing is, is that if you look at the chart of oil, it's pretty interesting. So, you know, bottomed out around 68 or so, tested there a bunch of times, and you had a couple of highs around 72, 73 in oil. and we just made a new higher high. Like oil is trading like 75, 76 now. I bought oil two days ago. And when I trade, I don't, like I'm a very long-term trader. Like for me, this isn't a one or two week holding. This is gonna be a six to 12 month holding and I will add to it over time. But I think the chart of oil looks really, really interesting here. Interesting. So in our chat, we've got some of those people who remain in the camp, I guess you could say, that have not sort of bought into the bull rally and think there's going to be a hard correction.

18:26Bo pointing out, we've lowered earnings against high PEs. I don't see how we don't have a hard correction. Christopher also thinking maybe we're going to have a hard correction. What do you make of that, Jared? What would be the circumstances where you'd think this goes from like a 10 % correction to something more serious? Have you ever wanted to trade Bitcoin but haven't dared try? With Plus500 Futures, you can trade crypto without the hassle of opening a wallet. With just a few clicks, you can register and start practicing with their free and unlimited demo. See a trading opportunity? You'll be able to trade it in just two clicks.

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19:44I mean, I - Or is that a scenario? Because all of this is probabilities. We talk about that all the time, right? If you haven't gone to the academy, go check that out. People who are smart and look at this don't tend to go all in on one narrative. They have probabilities assigned to things and they're always kind of checking against what could change their mind. Is a hard correction or a steep correction, either in the market or the economy, we should add, on your radar at all? Do you think that there's a risk of that? Well, ordinarily, I would say that if the Fed suddenly got much more hawkish and we started pricing in Fed funds like six, six and a quarter, six and a half percent, then that would lead to a correction.

20:28But I have an interesting statistic. So the Fed started hiking rates a little over a year ago, like a year and two weeks ago was the first rate hike out of the Fed. The market is 5 % higher since then. After all these rate hikes, the market is 5 % higher. Does that strike you as odd? Yeah, well, trading is hard. Yeah, this is why we talk about this being a really difficult macro environment, and you've seen really experienced people be on the wrong side of it. The correlations haven't held up the way they traditionally do. some of the models, some of the – you have a lot of people scratching their head.

21:10Not everything has been falling in line because nobody would have expected that if you told them that the Fed was going to hike for a year, over a year, and you see the market and you see stocks rally and bonds get smoked a couple of different times. How are you feeling about bonds? Pretty good, actually. Sentiment on stocks is very bullish. Sentiment on bonds is very bearish. I saw a chart from Sentiment Trader, if you know those guys, Jason Gepford, and difficult to describe, but basically they plotted stock sentiment versus bond sentiment. And the ratio between stock sentiment and bond sentiment is the widest it's been in I don't know how many years, like 10 years or something like that.

21:56Like people are max bullish on stocks, they're max bearish on bonds. So you in your newsletter, you called we laughed at a couple of different things, but you said the Fed is the idiot in the shower. I think it's why you called them. What do you mean by that? How long you got? We got some time. OK, so the Fed kept interest rates very low during the 2010s. Like for a decade, we had super low interest rates, but more importantly, real rates were negative, right? So you had 2 % inflation and 0 % Fed funds. So you had negative 2 % real rates. And negative real rates cause a whole bunch of distortions, right?

22:42Like people piled into stocks, people piled into crypto. I mean, everybody knows what happens after you have 10 years of negative real rates. Now, the opposite is happening. Now, if you think about this, so right now, CPI is at 3%. Fed funds is at 5.25%. We have 2.25 % positive real rates. But that's looking at it on a static basis because inflation is going to go down to 2%, maybe lower. The Fed is going to continue to hike. By the time this is over, we are going to have 4 % positive real rates, which is too restrictive. And what happens if you have monetary policy that's too loose or you have monetary policy that's too tight, it causes misallocations of capital.

23:30And you can see the misallocations of capital. You have trillions of dollars in T-bills and money market funds and CDs while the NASDAQ went up 44%, right? So there's just a ton of money hanging out that's not being put to productive use in the economy. It's causing a misallocation of capital. Great point. Christopher brought up a terrific point in the chat. The market is higher because of residual fiscal largesse. We can't just look at rates. This idea that even though we've seen rates go up, all of this hiking campaign, which has been really aggressive, that we had such an influx of fiscal spending that it's just been really hard to rein that in, pull in the effects of that.

24:24You think the Fed keeps hiking because of that? Or are we getting to the point where? I take them at their word. I do think they're going to hike two more times. And ultimately, we had a claims number today, which was – this is – the markets are great. I love the markets. So claims came in today at 228. The expected was 240. We also had like five or six other pieces of data. Every other – we had Philly Fed. We had continuing claims. We had something with housing. I think leading indicators too. Leading indicators. Every other piece of data was weaker. But since claims beat by 12 ,000 jobs, the bond market shit the bed.

25:10And I don't know if it's algos or whatever, but everybody is focused on payrolls and jobs, the labor market, to the exclusion of everything else. So you like energy. Is there anything else you like? Not really. No, I don't think so. So SB, let me make sure I get this handle right. SBD758 said, Jared, China data was underwhelming. Where's the upside in oil going to come from? OPEC extending cuts indicates fear of a slowdown. Yeah, I mean, all I can say is, you know, don't come at me with fundamental arguments on China and oil and stuff like that. Like, it just, like, I don't know what the catalyst is going to be.

25:57Read the chart, read the sentiment. Yeah. And your point that if tech's going to get hit, energy's going to – there's an inverse relationship right now. The factors. Yeah, regardless of – which is super interesting to think about. Edward asking, where does the 10-year peak? I think it already has peaked. I think it peaked – well, I mean, it got up to 4.5 % earlier, but it's – most recently it got up to 4%, and now it's a 380-something. I think ultimately 10-year notes go to below 3.5, maybe 3.2 or 3.3 or something like that. If we do get this correction, if we get a 10 % or 12 % correction, bond yields are going to come down for sure.

26:48So I think that's your answer. What area do you really not like right now you think is most vulnerable? Is it that mega cap technology or is it something else in technology? Or just the NASDAQ or S &P? Yeah, probably just the NASDAQ for sure. Yeah. And by the way, I really hate to say that because, you know, the cemetery is full of people who bet against the NASDAQ for an extended period of time. You know what I mean? Like it's just, you know, you've gotten your head blown off like every single time trying to bet that tech stocks are going down. All I'm saying is that I think they will go down over a one to two month period.

27:33Right. It's super important to put a timeframe on that. I was just going to say that. Yeah. And so if you did catch RAL's AMA and you listen to RAL, we always try to point out RAL has a much longer timeframe. So this is where really drilling down on what people's timeframe is matters. And by the way, understanding what yours is matters just as much. Mark saying, Jared mentioned Argentina last time. Is he not bullish on that anymore? Oh, no, still am. Yep, still have those positions. Like I mentioned, I bought a couple of stocks. Yeah, the charts still look good. Consolidation, breakout, consolidation, breakout.