00:00All right, Craig Johnson, CFA, CMT, Managing Director, Chief Market Technician at Piper
00:07Sandler.
00:08Craig, I know you joined us early here.
00:11You are officially in charge of just reeling us in this morning.
00:18In terms of this market, we got to back up and talk big picture, okay?
00:21Because Dennis, I'm not going to really walk you off the ledge because I'm sort of at the
00:26ledge, okay?
00:27Oh, crap.
00:28We're in the same spot.
00:30When I look at this market, there's clear warning flags out there for me, okay?
00:35All this work that we've done at Piper for years, looking at breadth indicators, looking
00:40at AD lines at the sector level, looking at all these different pieces.
00:44I've got my 26-week new highs indicator, Dennis.
00:47It's in a sell position, meaning that it has contracted over 15% from the recent highs.
00:54I also look at our 40-week technique, which measures how many stocks are above a simple
00:5940-week moving average.
01:01Again, that is also just last week flipped into a sell position.
01:06Do you have those handy, Craig?
01:08I know you got a lot going on and I didn't ask you beforehand, but I was just wondering
01:12if you could illustrate it.
01:14If not, that's fine, too.
01:16I just wonder.
01:17Sometimes a picture is not good.
01:19Let me throw some of these out here for you, okay?
01:21Yeah, sure.
01:22It's green.
01:23I'm going to go up to the beginning here so that you can see this whole entire piece of
01:27the equation.
01:29As we go through, this is our weekly piece.
01:31We literally just published it within the last hour, so really pretty fresh.
01:35Caught off the press.
01:36Caught off the press.
01:38One of the other indicators, and I'll hit on this one first because I have it right
01:41here.
01:42If I just look at this market and I look at how many of our stocks and how many of our
01:46industry groups that we're following are in an uptrend or a downtrend, I've got more industry
01:51groups in downtrends and uptrends.
01:55I don't love that.
01:57Our 40-week measures, again, how many of these stocks are in ... The 40-week measures how
02:02many stocks are above a 40-week moving average.
02:05When I go through and I look at this indicator right here, I'm starting to roll over.
02:11I am basically at about a 50 and change percent reading with our 40-week.
02:15This has been a pretty good tool to help us figure out some market timing for things.
02:22As I look at this, it is now flipping over into a sell position.
02:26Our new highs indicator gives us buy sell signals, has flipped over too.
02:31We're talking about a market.
02:33If you're buying like Dennis, you said, buying the new highs list, that's fantastic, but
02:38there's a lot of things out there that are not working.
02:42You got a larger percent of this market that is not working than working at this point
02:48in time.
02:49Again, that's the bigger challenge for me.
02:51I'm not going to ignore these breadth indicators.
02:53We've looked at them for a long time.
02:55In fact, when I think about the relative performance of the S&P, when you do have this 40-week
03:01slip into a sell signal, your relative performance is not that great in coming weeks.
03:07My point to people is, you got to have a warning flag out.
03:10Be careful.
03:11Be looking at some of these things that you want to come back and sort of avoid.
03:16My key bullet points for people were right here as follows.
03:20I look at this divergence.
03:22I look at the new highs, the new lows, the 40-week.
03:25All these are underperforming.
03:27Where do I want to be positioned?
03:29Well, selectively in tech, small, mid.
03:33I'm sort of into that sort of range.
03:35Services, those are weakening on us, but I'm seeing improving trends in some of these
03:41industrial names, and I am seeing okay things in financials.
03:45But when I go through and wrap this all up, I got a lot more concern today.
03:49And you guys know how positive I've been on this market at points in time.
03:53Now is not one of them.
03:58So let's just take that.
03:59Obviously, there's a lot of weak things here.
04:00Would you be a seller of the strong things here too?
04:03Do you get out of your invidious that eventually everything's going to roll over here or do
04:07those stocks just keep emerging?
04:09Because it's the tale of two markets.
04:11I mean, the Q's are at all time highs here, seemingly up every day.
04:16And there's obviously a dozen stocks that are really responsible for the majority of
04:20that.
04:21But is this a sign that maybe we're just bubblicious in these stocks and that the real economy
04:26is trying to tell us something else, Craig?
04:29Okay, so when I look at it, when I look at the chart of Invidio, why don't you pull it
04:33up on your guys' screen.
04:34Okay.
04:35Yeah.
04:36And I'll stop sharing here for a minute, okay?
04:39But when you pull up a chart of Invidio, I mean, the stock is up like 140 change, 140
04:46change percent sort of year to date, okay?
04:49I know when I added this into our model portfolio and portfolio of the So Top Us fund that we've
04:53got, you know, it was about a 16 fold return that we've had in it.
05:01I don't know about you, but I don't need to be overly greedy on a stock that has clearly
05:06gone parabolic.
05:07It doesn't mean that it's over yet, but everybody's got the same approach out there, which is
05:12I am going to wait until things roll over and then I'm going to sell.
05:16Oh, I'm going to be watching this and I'll be able to get out before everybody else does.
05:20Really doesn't work that way.
05:21No.
05:22Right?
05:23When the selling starts, people don't want to sell.
05:24They're like, oh, I'll wait for the next move up, then I'll sell.
05:27And then they keep saying that all the way back down.
05:29I've already taken profits on the NVIDIA.
05:31I said 16 fold is enough.
05:34I didn't exit the semiconductor trade.
05:36I bought Micron MU because that's making a multi-year new high.
05:41And I also bought Taiwan Semiconductor.
05:44I think those two are also plays.
05:47I was just going to say, I mean, in terms of like the scope of the drawdown, do you
05:51think it'll be, you know, around there, 10 percent?
05:54Or do you think we could see, I mean, even going back to like 2022 when we had the sell
05:58off in a lot of the big tech stocks and Mag 7, I mean, some of those stocks drew down,
06:02you know, 40, 50 percent.
06:04You look at like Metas Charger, even NVIDIA has went, you know, down a lot.
06:08Do you think we'll see something similar or do you think it'll be a little bit more of
06:11a muted downturn?
06:13You know, to the downside, it's hard to always put the exact finger on what that level is
06:18going to be, to be completely honest with you, I've been doing this for years.
06:21What I will tell you is, is that when you can start to see things getting bubbly, things
06:26starting to get ahead of itself.
06:29But in the 2000 period, I wouldn't have guessed that the drawdown would have been as large
06:34as it was. In 2007, ahead of the great financial crisis, you can see these divergences
06:40happening in the market. You knew something was wrong.
06:42You knew it was time to protect capital, but you didn't know that it was going to be a
06:45market that was going to get cut in half.
06:48You never know how low it's ultimately going to go.
06:50This market is so concentrated in so few stocks right now.
06:56And you've got so many factors out there.
07:00People have been piling into private equity for a long time and private equity isn't the
07:04most liquid vehicle out there.
07:06But if there are going to be capital calls or other things, you're going to have to sell
07:09what is most liquid in front of them, which is probably going to be public equities.
07:13So again, that could magnify the impact to the downside.
07:17I just say to people and all your listeners, again, it's fun when the market's going up.
07:23It is great, but it's becoming more concentrated.
07:27It's becoming narrower.
07:28It's a warning flag for me.
07:30There's a lot of people I talk to that say, I'm not going to sell anything.
07:33I don't want to pay the taxes right now, et cetera, et cetera.
07:36And usually that kind of commentary is, you know, probably a little miss.
07:43It's probably correct for some people, but for a lot of this, you know, it never hurts to
07:48take a profit. And I've sold some of these stocks that have gone parabolic.
07:52I did some of that back in March.
07:54I'm running a 10 percent cash in the model and actually the Sotoplus fund.
07:59And I'm probably looking to go higher than 10 percent cash.
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