Small Caps Diverge As Chop Continues. AbbVie, Alphabet, GE Aerospace In Focus.

28:45It would be really hard to buy it here, even though that's the same price, because where do you set your stop? Now here, again, at the same price, you know exactly where to set your stop at that low. So a really good key there in risk management. XLF, a little bit beleaguered, especially yesterday as a lot of those regional banks got hit. This was something that was discussed in yesterday's SMT with Zion and, you know, some of the bad debts that were showing up on their books. But a little bit of a rebound today, up 0.8 percent. But, you know, really inside and still in the lower part of yesterday's range.

29:27So color me unimpressed. I avoid that area. Yeah, absolutely. XLE, another one that's kind of just rough to play. The oils, you know, if you thought gold was hard, at least that's going up. XLE is just going back and forth. The energy stock's still very difficult and back below their 200-day moving average lines. And I've mentioned this before. It's not just that ExxonMobil and Chevron, which are the larger components of XLE. If you look at XOP, I think you brought that up last week. Like the Sector Spider oil and gas, those are still looking very poor. And even the RSPG, which is the equal weighted energy, doesn't really look much different.

30:10So it's not like Exxon Mobil and Chevron are not right in line with pretty much your average stock there. XLY, this is something that we've been talking about as being a little bit beleaguered as well. It came up to its 50-day moving average line, so we'll see how it handles itself there. RSPD, which is the equal weighted discretionary, that took a little bit more distance, you know, because again, when you take out the heavy weight of Tesla, which has been holding up a little bit better. I do have a position in Tesla. The RSPD is, yeah, a little bit weaker, that equal weighted when you take out the heavy weight of Tesla for XLY.

30:50XLP, as you would expect, is still getting a little bit of love. This is the staples. This was up 1.33%. And your top sector, well, or I guess a little bit targeted was KRE. That was up 1.6%. But again, can you really cheer 1.6 when it looks that bad and still in the lower part of yesterday's range? Yeah, again, color me unimpressed. Can you go to the weekly on that one for a second? I can. So just a reminder of, you know, the troubles that it can have, like, you know, the move back in 23 that it, you know, when that was breaking down there. So I would be, you know, I know there are people who like to buy weakness.

31:34I just would not, you can get lucky sometimes with buying the weakness, but I would be very careful with this space until we, yeah, I would, it's just not worth it to me. This podcast is brought to you by Federated Hermes. We put our investments through a ruthless vetting process because the market can be unpredictable and we don't think your investments should be. Learn more at federatedhermes.com slash US. Investments are subject to risk and may lose value. Yeah, absolutely. So let's take a look at some stocks here and we'll start, you know, you kind of made a nice case for the medical sector, the healthcare XLB.

32:11Here's one, AbbVie, that looks like it had a nice move along with a lot of that, you know, kind of in line with what XLV was doing. This came down a little bit more, but getting support right there at its 21-day moving average line. What are you seeing here? Oh, yeah. I like. Okay. For some reason, I thought that I had goofed on the date. I thought I had gone back. But we're good. No worries. So I was trading this earlier this week off of the 21 day, but when it wasn't really moving much, I went ahead and backed away from it. And I just wasn't in a buying mood today, so I didn't buy it back. But it looks buyable, really.

32:52You know, you could buy it here as it's trying to move away from the 21 day and then just use this week's low as your exit. Or you can wait for a little bit more strength. But if you're going to buy a pullback around the 21 day, this is where you do it. Let's go out to the weekly.

33:12And what's nice about this and bad about it at the same time is it hasn't really gone anywhere. So that space that I was talking about with a large PM, meaning not that they have weight to lose, but they have a lot of assets under management. Those folks are going to want to, you know, move out of some of the hot space into places that looks like the puck is going. And this is, I think, kind of a poster child for that. So it's moved up enough, but not so much, because we do have a base-on-base-on-base type of situation. Then you broke out of the last base, had some tight areas, and you're just holding in tight.

33:53So I do like the look of this, but can you turn on your boxes so we can see the fundamentals? Ah, yes. There they are back. So let's go down to the quarterly numbers. This is the problem with it. There is nothing to write home about. Bill O 'Neill, we're looking at this. He said, well, why are you even looking at this? The sales are in single digits. Least are accelerating from negative. But the earnings are only at 12 % and next quarter estimate is at minus 41, which I don't know if those are comparable numbers or not because then it jumps up to 54. But still, your sales estimates are still mediocre.

34:30So I would look into this story and understand, is there something compelling? I haven't had a chance to do that if you're looking at it from a position trading standpoint. Absolutely. And then let's also take a look at Alphabet. This, of course, is the parent of Google and Waymo. Waymo actually just struck a deal with DoorDash. I was talking to my wife and her work friends about that because they're big DoorDash users at work. And in L.A., we do have the Waymo's going around. So basically, I think you're going to be able to get a Waymo, bring in your DoorDash, pop the trunk and take your food without any driver being involved.

35:12Is the Waymo going to ask for a tip? Yeah, that's a good point. You know, if the Waymo starts asking for a tip, it's, you know, so this looks really good. And I refuse to call it alphabet. It's Google as far as I'm concerned. That's a marketing gimmick. But it looks really nice. A nice little flat base. I know Patent Rec isn't picking it up yet. It must not be long enough, but it's getting there. And I think it's the best looking big mega cap out there. You've got the earnings behind it. You're diversified more from just the search because of the Waymo and AI stuff they're doing. And of course, the YouTube area.

35:56So I think it looks really good. And this just looks like a pause along the way, up to 400. So yeah, it looks really good. And I'm just waiting to get into it. So let's go to the daily and see where that would be.

36:14yeah I guess at this point I mean it could have been bought today if you were wanting to because it had a little bit of an upside reversal but yeah it's not you know just yeah it's kind of past your buy points I mean your buy point is exactly where you marked it there so if it goes sideways a little bit more and then takes out some highs like today's high or yesterday's high something worth getting into because it looks It's better than anything else, man. Although, in terms of the big major mega caps, you know, Tesla, again, holding pretty tight at the 21-day moving average line. So I think those are the two better ones.

36:56Well, I will say, I mean, I've got a positive bias towards Tesla, and I've got a big position in it, and it's got earnings next week. So you might see me with a big frown on my face next week. But the reality is— Either a smile or a frown, right? Yeah. The reality is this doesn't look that good. I'm playing the story and things like that. But this versus Google, Google looks so much better. But the potential with this one, if it works out, is dramatically higher than Google. But this is the type of stock that just will chop you up. And so I don't think most folks should be trading this one here.

37:34Bill O 'Neill would not trade this. The fundamentals are not there. It's just a story and all of that. Whereas Google is more of your classic, that it looks right and it's kind of textbook, whereas the Tesla isn't. It's kind of a special situation type of thing. Yeah. And I was, again, just in comparison because a lot of the other, you know, mega caps, you know, I mean, they're they're stuck below their their 50 day moving average line. So I think Apple doesn't look that bad compared to the other ones. You know, it's I didn't like the break that it had on Friday, but everything did. And it held in there and it was trying to move today.

38:17Okay, so if you're forced into something, I think it looks better than Microsoft and certainly better than Meta and Amazon and even better than NVIDIA. Yeah, no, I have to I have to remember to put Apple back on my radar. It's just kind of like I've ignored it for so long as it wasn't participating. One last one last talk to cover here. Let's talk about GE Aerospace. We were kind of chatting about history here and how, you know, GE, of course, before the breakup into GE Healthcare, GE Renova and GE Aerospace. You know, this was one of the original Dow components was on from the 18, you know, late 1800s all the way up until 2018.

39:02But, you know, this is this is now really since the breakup has seen a very strong move in both this and GEV. What do you think of GE Aerospace here? Well, first, I think that the Dow Jones Industrials should do put put their rules into a black box and not pick them by people, because no matter who, even if I was picking them, you were picking them, Bill was picking them. individuals shouldn't be picking stocks for an index. Frankly, it should be rules-based, but that's a topic for a podcast, not for the show. So this GE looks great. What's great about it? It's RS line is up near highs. It's got a decent RS number.

39:47The volatility on it is very low relative to everything else out there. And how you can tell, get a sense of how much risk you're taking is look at the really bad days in the market and then see what the stock did. So like last Friday, yeah, it was down, but you can withstand that. It's some of the other high octane moves. You know, you can be down double digits easily, and it doesn't even look like a bad day on the chart. So what I like about it is a low volatility. It's an institutional quality stock, and it has a very nice entry. If we took out the highs from this week, you know, buying it both from a swing trading standpoint as well as a position trading standpoint.

40:32From a swing trading standpoint, then I would use today's low as your exit. For a position trading standpoint, meaning you're trying to hold it much longer, I would use where you marked it, the low from last week. So this is the type of setup that is nice, but earnings are right around the corner, which I didn't notice when we were putting that on when we were picking this. But that's fine. You just sit and wait for those earnings. And then if you get a nice reaction, try to figure out a way to get into it. But I wouldn't buy it ahead of the earnings. Well, and I was going to throw in a bonus stock Intel that we talked about with Brian Shannon this morning.

41:09But that also does have earnings coming up very soon. And that's kind of the problem right now is even if you do get setups and want to stick your neck out in what could be a choppy environment, a lot of these are going to have earnings. So that puts a little extra risk there. Yep. Okay, Webby, I'm going to turn things over to you. Are you ready to take over? Yes, my internet does get a little spotty. So if I'm not here, don't take it personally. Okay. It was just my Wi-Fi. Okay. Can you see my spy? I can. Okay. So this is the Take a Step Back, Bob Weir, and it was his birthday this week. It was, well, yesterday, along with John Mayer, they share a birthday and they share a group together, but that's not what we're here to talk about.

42:00We're here to talk about the weekly candle and taking a step back and looking at it. That's a nice candle from a weekly standpoint. You really couldn't have asked for anything better. You get a blue candle, meaning your close was better than your open, and it was an inside week. And that's what you want after last week's devastation. This is really as good as you could have expected from a weekly standpoint. Let's take a look at the NASDAQ and see what that one looks like. Same thing, marking time. And what I like about this is the body of it is in the upper portion. So you've got a longer bottom wick.

42:41Really, really nice action. Let's take a look at IWM. Not what you want to see. Downside reversal. You know, try to get into new highs and failed. And you've got this little tiny blue body, but a really wide top wick. So that looks terrible, frankly, on a weekly. You just got to be objective about it. Now we will move over to the regressions. And this is problematic. So this is our regression on SPY that we were using the date of May 12th and then 50 days out from there, July 23rd, to lock those in. And this is now dead because we broke down below our minus one standard deviation and we're living below that.

43:30So this is dead. There's no way to revive that particular one, which is also good to know. That trend is gone. And then the same thing here with the NASDAQ. Even if we were to jump up on some news, let's say we get a resolution to the China-U.S. issue over the weekend and we gap up 3 % on Monday, this channel is still, or that regression is still dead. Let's look at IWM. This was a bit different because we were using different dates on this, and we were using the August 1st. Yeah, along with last Friday, the 10-10. And this had this nice move up there on the 14th. It was moving back up, doing exactly what it should have done as it was coming back through the 0.75.

44:22You would have expected it to get up to home base and actually go beyond home base. And it started doing that, but then the regional bank issue brought it down. Even if it's only 10%, it was enough to kind of kill that trade for now. But this is still intact because we're still living right there at its one standard deviation. So we're still going to use that one. And I will show you what I was doing the other day with choosing alternative dates on SPY and NASDAQ. Just, you know, the same dates, August 1st and last Friday. And using that, and I'm not officially using that yet, because I still have more research on changing the anchor points.

45:13But that's intact with this one. And if you make it through this line, that's where you would assume that it's going to get up to your white line or your line of best fit or your home base, whatever you want to call it. And the NASDAQ actually looks better. They're very normal and natural, hugging your minus one standard deviation. If you can get up into this area, it looks like it should want to go up to your home base. We will see how that plays out. Now let's move over to your 50 % retracement. And we will go through these one at a time for SPY. I'm using the high and low from last Friday. And I want us to trade in the northern hemisphere to know that all is good.

46:00And we're just kind of hugging that. So it's really indecisive. We want to spend more time up here to know that it's healthy. Right now, you can make a bearish and a bullish case. Let's see. Same thing for the NASDAQ. This one actually looks a little bit weaker. I was using the same high and low from last Friday. And it's just more in the middle to the southern hemisphere. So not necessarily what you want to see. IWM, I went with some different dates because the data played out differently. And I'm using last Friday's low. And then the high that we hit this week, and we're underneath the midpoint there.

46:40So that's a bit problematic. We'll go to our next set of charts, and this is going to be our levels. I'm trying to simplify these a bit. The most important level here in the short term is last Friday's low. Then from there, you would be jumping down to really kind of your lows from August 20th, 632.95. Let's look at NASDAQ. That one again, last Friday's low. So, and in this, you can slice this a bunch of different ways. Here, I was using the August 13th high as a level of interest because that's kind of closer to your 50-day, but then also the August 20th is important. You know, there's a lot more lines I could have put on there, but just keeping it simple.

47:25Last Friday is the one to be aware of. And then the same thing here for the IWM. Last Friday is the one that's most relevant. we will go over to our next chart. This is where I have all the moving averages, all exponential, and they're all the Fibonacci numbers starting from a three-day moving average, a five-day moving average, an eight-day, a 13-day, a 21, a 34, 55, and so on. So each one of the Fibonacci numbers. And the point is you can use different numbers, but use very short-term, intermediate, and long-term moving averages in C, are they stacked properly or are you in a base building phase where they start rolling over?

48:14So right now, a few of them are rolled over, but it's not terrible. The longer-term ones are still in a clear uptrend, which is why we like to look at all of these things. Let's take a look at the composite. Same basic look there. Look at the IWM And you can see that's getting a bit more volatile in there. And then the last one, we just like to keep it simple by looking at just the 21-day moving average. That's your blue line on there. That's my favorite one. And we want to see, is your low above the 21-day or not? Or are you in a bad situation where your high is stuck underneath there? And we're just chopping around.

48:56And that's kind of my definition of CHOP is, is your low not staying above your 21-day or is your high not staying underneath it? Anything else, you're in CHOP city. Or as our good friend Arusha would say, what did he say? A CHOP fest, I think was his? Yeah, that sounds like it. Sounds like Arusha, right? And then the same thing here with the NASDAQ. and a little different with the IWM because the IWM did poke above there. That was looking really nice there until yesterday and it came crashing back down. Let me stop sharing those and I'm going to go over to share the WebE-RSI. One second. Can I get that one up?

49:46Okay, can you see it? Okay. There it is. All right. So here we've got the WebE-RSI, which is the thing at the bottom. That's your histogram. And that just measures your distance of your 21 day versus the low of the bar or the high of the bar. In this case, because we are going back and forth in the chop area, you don't even have something. So that's a reminder to yourself that when you're in this area, you're in a chop period. just like, you know what, we'll look at that on the NASIC real quick and go back to the December 18th. So here was your December 18th day, and you can see there was no WebEOSI for a while.

50:33And then you just got this chop area. And then the orange, the burnt orange color is when your high is stuck underneath that. And then that's where you're kind of in a world of pain until you get a day like this where it's kind of a capitulation type of bottom. And what you're looking for is a wall of blue. And that is with your low above your 21 days. So this is a reminder to just stay light, wait for that trend. I heard the trend is your friend from someone. And then the same thing here with the IWM. You know, it was here and then it was, then I was gone. Then it was here, then it's gone. So we really need to get that low above it and to stay above it.

51:17And last one is our Bob Marley chart. This is our off high. And this is using, you know, just a way of seeing what's normal and natural, meaning as you have your pullbacks off your high, are they getting worse or not? And this one that we just had last week, kind of a little bit worse than what we had back on August 1st, but pretty much in that same ballpark, but certainly worse than the pullbacks that we had in late August and in September, and then again in late September. So you're wanting to see, is there a difference? Is there a change in character? And with this, it's not necessarily a change of character because it's pretty much around that area.

52:04We don't want to get in materially into the yellow area, which would be more than four ATRs off of our high. Let's look at the NASDAQ. Same basic thing there. It keeps on stopping down right before we get into the yellow territory and that happened again. So that's actually looking more normal when you look at it from that standpoint. And the IWM is a little bit different because it's kind of a recovery type of phase. Let's look at the RSP just once. And this one came down. It actually held up better than it did on August 1st. So this wasn't as far off your highs, even though the chart looks terrible.

52:41You know, just objectively speaking, it's in line with what it did back then. So you put all those pieces together. You're just trying to paint a picture of what we've got. And what we have is a chop sass. It's not a trend the way that we like to look at it, or at least the way I like to look at it, until your low is above your 21 day and maintaining that, as I said at the beginning, three days or more, that would be three bars on that WebE-RSI, you know, on there. At least it's a sign that we're going. Now, you could wait for five days. You could wait for 10 days. You could wait for 20 days. But the more you wait, the more evidence you have, the less likely you're going to get whipsawed.

53:23But the later you're going to get. And so there's that balancing act there. So if we You get a move above the 21 day, give it a little bit of a shot. Low above the 21 day, a little bit more. You're low above your 21 for three days, a little bit more. Just gradually in, gradually out. Sometimes you've got to go rapidly out if it warrants it. Absolutely. And you know what? I'm going to just field a question real quick because Fernando, he's fairly new to watching live. You know, there's a lot of folks that don't actually get to watch live. And so it's kind of tough that we don't get to answer their questions.

53:57So we're going to try and figure out a way to have like a mailbag or something. But Fernando was asking. Yeah. Yeah. So Fernando was asking about, you know, our experience with Bill O 'Neill, the founder of Investors Business Daily, and, you know, when he would start shorting, you know, of course, you know, as you get some some bad days, you start thinking, OK, well, should I be looking at the other side? And of course, Bill, he he had some very successful shorts. Make no mistake. But what would you say, you know, of his profits, it was maybe 1 % if he made off a shorting? He didn't like shorting.

54:33And, you know, I know there is the book out there and all, but he didn't like shorting. In fact, for all the PMs, he would cap us at 10 % of our equity short. By the time folks typically tend to, you know, there's different styles. There's some people who like to always have shorts on. That's a whole strategy. I have total respect for that because you're playing both sides. And if you can mentally do that, that's something I'll probably do someday. So I don't have anything against always having some shorts on. But if that's not what you do, you really want to wait. He would wait until the top was clearly in before he would consider shorting.

55:12There's zero chance, zero chance that he would be shorting right now, in my opinion. Zero. It's just too soon. And too choppy. Yeah, too choppy because, yeah, shortening is so hard. It looks easy when you cherry pick a few. But in reality, it's very, very difficult. So this is everyone's homework. We don't have time to go over it today. But what I would suggest folks do is when you're watching this, pause this and look at each one of these dates because these are the ones that the two of us are using for precedence. Now, what it is, and correct me if I misspeak on anything, I had asked you to get the days that looked like last Friday and how we identified that was with a break of at least three ATRs in there.

56:07Or did we move it up to three and a half? Three and a half. Okay, so we started with three, then we raised it to have a smaller sample size, three and a half, because on October 10th, which is your bottom one there, just look at that. It was down 3.56%. But we don't want to use percents because we want to normalize things. So this is using... And this isn't a mistake. It was 3.56 on 12-18-24 as well. It just so happens that it matched to the hundredth of a percent. Isn't that trippy? But from an ATR standpoint, last Friday was actually worse because it was four and a quarter ATRs. And we're using a 21-day look-back period.

56:48So what was your average range for your last 21 days at that point? So it was 4.25 times normal. So it was a bad break. So this is what we're looking at. that it was three and a half ATRs down, that on the day in question, your day one, that your high was above your 21 day, but you closed underneath it. And your moving averages were stacked properly, meaning that your 21 was above your 50 day and your 50 was above your 200 day. So you're in an uptrend. And then of course that you were closing in the lower portion. So the lower quartile or 25 % closing range or less. And this is the data that we got.

57:31So this is what you want to study over the weekend and go through each one of these. And then what we did... I do just want to explain real quick, column D, ATRs above the 21. This was something we just added as a data item, something we were talking about, and we actually haven't looked at it, but we wanted those, you know, we wanted to just kind of see, okay, how extended are you from the 21-day moving average line. And we just put that in ATR. So that is, you know, what we're considering day one, that loss, that bad day that looked like Friday, the high to the 21-day moving average line, what that looked like.

58:07Exactly. And so how you kind of translate that is that when you look through these, look at the February 5th of 2018 example, and you'll see that because it's only 0.17 ATRs above it, that it doesn't really have that same look and feel as the other ones. And so you'll kind of see the process of how the two of us like to do our research together and kind of, you know, start off wider and then tighten it up. So the next time we look at this, we'll probably eliminate some of those ones that are really close to your 21 day. Now, day two, how you read this is, this is what happens the next day. So day two for the 10-10 would be that Monday.

58:53And what did, you know, what did that end up doing? So it was up 2.21%. Then the next thing is from your day in question, how much worse did it get? And that is your I column, correction percent drop. That's the one that you really want to look at because that's telling you how much worse does it get from your bad break. Now, some of those are a lot worse until you make new highs, but some of them don't go lower. Like the 1983 didn't go lower. 1989 didn't go that much lower. 94 didn't go that much lower. 95 didn't go lower. So look at each one of these, kind of put them into different categories.

59:35We also have in terms of to normalize the data, we have in J, the ATR drops. So that's just the percent converted into that or vice versa. And that is as of that day one. So again, like I think you're Bob Marley, it's constantly adjusting that ATR. This is just saying, okay, day one, here's what it was and puts it in those terms. And that's the right way to do this. Like Like each thing has, and the Bob Marley is the right way to do that one. So different ways of slicing it depending on what you look at. Sometimes you want static, sometimes you want dynamic. Exactly. And then your K, your recovery, that is when, did we say the low had to get above the day one?

1:00:19Yeah, so day one high, the low has to get above that day one high. And the last thing is the number of days. So how many days of pain or chop city do you have? And these are trading days. Yes. So study all of these. You know, it's so great working with Justin because I can ask him anything like this and he'll just go, I can figure that out. And he goes to his spreadsheet. And yes, he's the one person in the world who's maxed out Excel on this magic spreadsheet. I have not maxed out Excel. You're crazy. You maxed out Excel. You did once. Tell the truth. Yeah. Then they changed Excel and they added more stuff.

1:01:01But you max it out at one point. I'm not maxing out Excel anytime soon. I think you should get a tattoo. I maxed out Excel. But please go back and do that homework and you'll see, look for other things. Like each one of those, look for clues. Forget my three days with your low above the 21 day. Just be completely objective. Go where on this chart would I have wanted to start pressing the gas? And then mark that on each one of them. And then look at it with a completely fresh mindset and an open mind. Don't use hindsight stuff because that's not appropriate. Just be very objective and then try to write some rules and maybe do it on half.

1:01:47Study half of the sample. Just go every other one so it's completely random. Come up with a thesis and then test that out on your out of sample, which would be your other ones and then just iterate on that and then see what works for your style of trading. Now, obviously, if you get some upside reversals in there, you don't have to wait for the low to get above your 21 day for three days. I'd prefer an upside reversal to that trending, but that's kind of your fail safe in there. And with that said, I would just say, again, this is the Tom Petty Market, of the weighting being the hardest part. So just be careful out there because most likely, you know, I think we could get an undercut of last Friday's low and that's not going to be pretty or might not be pretty.

1:02:41But that could end up giving us our entry point because it would be really nice is to undercut that, have an upside reversal right there. And you and I noticed that a lot with Chuck when we were doing the market school rules, when you would have a follow-through day and you would then undercut your ultimate low of that rally attempt, lots of times you wouldn't go any lower than that. You just undercut that and then turn and have the real rally. So if we undercut it, you know, stay tuned and really have your watch list ready. Well, thank you so much for all the commentary, Mike. Enjoy yourself in Florida.

1:03:18Hope you have Have a great show and say hello to everyone for me there. And yeah, perfect. Thank you also to the audience for joining us live. We have quite a bit of you. So thank you very much for that. And again, we'll figure out how to get some of those questions from folks that maybe aren't able to watch it live. But we really appreciate it. Everyone has a great weekend. We'll be back on IBD Live on Monday morning. And of course, the Stock Market Day video at the end of the day after the close. So thanks a lot for watching. We'll see you next time. Bye-bye now.

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