Kangaroo Market

Dano Weir:
[0:09] Hey, welcome to On the Markets from Sonoma Wealth Advisors. My name is Dano Weir. I'm the marketing director. But more importantly, I'm joined by not just one, but both of the managing principals of the firm this week. Welcome back, Daren Blonski.

Daren Blonski:
[0:24] Yeah! The ones I'm not traveling on a Friday.

Dano Weir:
[0:30] Chris Sipes CFP and a check-in is sorely needed after a kangaroo market this week, up and down and up and down. You've been looking at your portfolio. Maybe you've been logging into your dashboard and going, what the heck is going on?

Daren Blonski:
[0:44] But even better, maybe you haven't been looking because that's not encouraged bad behavior.

Dano Weir:
[0:50] That's right. That's right. That's right. So, but perhaps you've been following headlines or however you're tracking it, or maybe you're just looking for an update. So what is a kangaroo market? We'll talk about that. We'll talk about why vacation data might have an indicator for us on what's going to happen with the market and the economy.

Dano Weir:
[1:06] And Daren is back, so we're going to get candlesticks once again. Yes. We're excited to look at those after this.

Music:
[1:17] Music

Dano Weir:
[1:53] Chris, I feel like you've been living for this moment, for the diversified investor, for the part of your portfolio that sucks. So starting right here, tell me what this quote means.

Chris Sipes:
[2:04] Well, it's been said, this is one of those quotes that's probably been said by millions of people or maybe thousands, but it just got attributed to this Matt Ziegler from, he must've been a guest on the Excess Returns podcast, which I have not heard this particular episode yet, but the quote is still a great quote, which is, uh, you should ask yourself, am I diversified? Well, you might know that is tell me what you hate that you own right now. That's the test. So if you look at your portfolio and there's none of it that you hate, you're probably not properly diversified. Um, got a, got a literal belly laugh from a client when, when I said that this week to them so thought we'd revisit that on the on the on the show this week.

Daren Blonski:
[2:53] But it chris i i mean i have to say like it is such an interesting like psychology thing right when it comes to this because we say this a lot to clients like hey if there's not something in your portfolio you hate you're not diversified and i think so often i run into clients and they're like well this one's not doing good so let's get rid of it and we have to wait we'll time out like that one is there for when the market switches. Well, don't you know when the market switches and you could just put a different one in? And that's what we're constantly combating. The reality is there's no way to efficiently get in and out without using some type of algo. There are types of portfolios, investments like trend following that do do things like that. But those come with a different set of trade-offs, right? Because nothing in investments lacks a trade-off. Trade-offs are just the way it is when it comes to investing.

Chris Sipes:
[3:44] Yeah, that's very well said. And that leads to our next couple of quotes. Now, this is from Jesse Livermore, the famous trader from the Depression era. There's a great book called Reminiscences of a Stock Operator that if you're really into investing and trading and such, you should read it. But one of his quotes was, the stock market is never obvious. It is designed to fool most of the people most of the time. And a bonus quote that I couldn't find a little slide for, but this one actually is even better. And it says, the obvious rarely happens. The unexpected constantly occurs.

Chris Sipes:
[4:31] So that is something I think you have to drill into your head as an investor. We all suffer from something called hindsight bias, which is when we look in the past, we think that whatever that result was, was obvious. It was the only result that could have happened. There was only one path the whole time when in reality, there's many different paths that could happen moving forward. And none of us knows what that's going to be. But therefore, owning a diversified portfolio and having a few things in there that you hate and you think are probably not going to do anything can sometimes surprise you, especially during times like this when the markets, you know, when we refer to the market, we're usually talking about the S&P 500.

Chris Sipes:
[5:19] It's struggling a bit. And so thankfully, there's some other areas of the portfolio that have been doing well, which is the reason you own them.

Dano Weir:
[5:28] Thank you so much for saying that, Chris, because that's what I've heard from a number of people this week is the market is down and i just say well which market what do you which which are you talking about you mean the s&p 500 yes you're aware that there's a lot more than that out there and uh you know it's it's not like the nfl where there's only 32 teams yes Daren i found a way to bring up football

Chris Sipes:
[5:52] Yes.

Daren Blonski:
[5:53] How come I'm not shocked, Dean?

Chris Sipes:
[5:57] The S&P is always the one that everybody talks about. It's the prom king. It's the prom queen. It's the one that gets all the attention.

Chris Sipes:
[6:08] And so when people are referring to it, that's usually what they're talking about. And this is from the Idea Farm, but they had the co-CIO of Bridgewater, Bob Prince, on the podcast with Meb Faber maybe two weeks ago. And he said, you know, when you look at rolling 15-year performances since 1970, he says out of any 15-year period to be invested in equities dating back to 1970, the one we've just lived through was the best. And so that recency bias is coming out. A lot of folks have only been investing for 15 years or less or been paying attention to the market for that period of time, right? And so we kind of just incorporate what's happened recently as what is likely to happen in the future. And that can be dangerous because the market does all kinds of things. And you have to keep in mind that we just went through one of the best periods in history. And that actually builds up more risk, right? That's not a reason to say, oh, well, let me just put all my money in the S&P because why not do that? It's been the top performer in the past. It's likely to be the top performer in the future, right? That's actually wrong. The longer it's the top performer, the less likely, from a probability standpoint, it will be the top performer in the future.

Dano Weir:
[7:37] Chris, that is exactly like earthquakes. Every day that we don't have a big earthquake, it increases the chances of an even bigger one.

Chris Sipes:
[7:45] Yes. Forest fires. Yes. There's a rhythm to it in nature, right? Now speaking of surprises uh this one this one even surprised me because uh you know as as the resident guy who who's uh been preaching incorporating international stocks for a while even though they've not felt like they were doing well i was surprised to look at a three-year uh look back and uh if you look right under ndx which is the nasdaq you'll see ifa which is the developed markets just right above the S&P. And this is on a three-year basis. So how many people have been invested in developed markets over the past three years to have taken advantage of that kind of growth? I think that would come as a surprise to most people. I think that would come as a surprise to even a lot of advisors. And then down there at the bottom, there's another surprising one to me, which is that emerging markets have outperformed the U.S. Small cap stocks over those last three years by a lot.

Daren Blonski:
[8:58] You know, Chris, if you think about it, and I think this is just such a perfect moment to talk about that because there's so many people that are worried about what's going on here in the United States with the political reshifts and shifting that's going on. And if you look at Europe and you look at China, which are the bulk of those two indexes, right? For developed markets, it's the European continent, what's going on with Russia, et cetera. And then you look at Russia and then what's happening in Ukraine, you have every reason not to invest in those countries. I mean, we've got China and Russia destroying Ukraine, lines underneath the ocean for telecommunications. We've got pipelines being ransacked. We've got bombs being dropped. And you could make up lots of reasons why I'm not going to put my money in Europe. And yet the performance has been pretty good this year so far. And you can say the same thing about China, right? With everything that's going on over there economically in the stimulus. And what an important lesson for any investor to realize that it's actually in those moments when you feel least secure, the most opportunity could exist. And I say could because it's not always that way, right? But most of the time, the things that create fear in our brains about investing in areas, those aren't feelings that you should

Daren Blonski:
[10:25] Reward and change your portfolio for, um, because it's actually leaning against those fears that often ends in better returns.

Chris Sipes:
[10:36] Absolutely. Yeah. You know, uh, we're talking yesterday about how well, uh, the German, uh, you know, market has done specifically and, and like, you know, some, some of the top performers in the German market have been cement producers. So who, who would have thought that, you know, the result of a Trump election was that German cement producers were going to take off parabolic, right? I mean, I'm sure there's somebody out here listening to that going, oh, I had that one. I knew that was going to happen. Of course, A plus B equals C, right? But I don't think most people would have guessed that. And here's another one as an example. Over the last year, you've got the Chinese stock market absolutely trouncing every other market globally over the last year.

Chris Sipes:
[11:28] And that is after, talk about maximum fear, where China was considered to be uninvestable. But even there, the other one that really stuck out to me was that emerging markets as a whole, of which China is a part, has outperformed the NASDAQ, the mighty NASDAQ. The old plain emerging markets index. So you never know. That's why having these things in your portfolio is an aggressive way to approach it because you're admitting, I don't know, therefore I'm going to be invested there anyway to be there and

Chris Sipes:
[12:14] take advantage when those returns do come. Yeah.

Dano Weir:
[12:17] And yet another reason why you would want to work with an advisor, Chris, is that if you're already feeling nervous about something, if you're nervous about something and have no backstop and no other person to ask about it other than, I don't know, a chat bot, then maybe it is time to have somebody in your corner who has at least a little bit more experience than you do. I mean, nobody knows, right? But you know even less. So the advisor is the person that you could lean on in those situations who maybe could talk some sense into you or maybe say, you know what, that's a really good idea. Somebody trusted to bounce something off of.

Chris Sipes:
[12:53] Absolutely. I mean, we spend a lot of time up front with our clients to talk about, you know, what are kind of some of the expectations around a portfolio? And of course, you never know for sure. But part of that is understanding what does this look like when things are not going well? And are you able to stick with it in that scenario? Because we don't want to assume that things are always going to be going well. That's not realistic.

Chris Sipes:
[13:20] You have to bank on the fact that there's going to be pullbacks you know I didn't put the chart in this week but it's it's the famous chart from JP Morgan's guide to the markets that shows the drawdowns of the S&P entry year the average the average drawdown entry year is over 14 percent, that's just a normal pullback during the year and despite that the S&P has been positive, 34 out of 45 years that this has been tracked going back to 1980. And so, you know, most of the time it recovers and does well, and sometimes it doesn't. But, you know, there are going to be times where the market's down. And look, there's never like good headlines usually happening when that's happening. There's always going to be something to be concerned about. Politics, war, economy. There's always going to be something. And so the reasons will change, but the market's going to do what it's always done, which is, who knows, right? It's going to go up and down.

Daren Blonski:
[14:28] There's also, too, I think that a lot of investors don't know this or haven't thought about this. They don't talk about it in the financial media. Well, they do, but most people don't understand what's being said. But China is a perfect example of never bet against the Fed, right? Never bet against a government that has the ability to pump liquidity into the markets. And that's what you're seeing. When things start to get weak, China is just pumping the market, right? And we started that sugar addiction in 2008, we learned that you don't let things just crash. And when I have a lot of people talking and asking questions this week, one of the things I'm saying, I'm saying, look, don't underestimate the power of the current people who are in power to pump the markets with liquidity. Because if things get ugly enough, you better believe that's what they're going to do. Now, Bessett, the treasury secretary said this week, well, you know,

Daren Blonski:
[15:26] The markets have been on this sugar addiction and it's going to take some time to wean it off well that's true i don't i don't fully believe that they're going to fully wean the market off the sugar addiction of liquidity i just like no politician can withstand that in this country our political system is not designed trump and his administration they got 16 months to do whatever they're going to do and there's likely a blue wave coming after that and it's going to be very difficult for that not to come. Um, cause the other side is going to be very rallied up now. Right. So it's, um, I just don't see a world where Trump says I'm so committed to changing the government and changing everything in the government that he's going to let the markets completely fall apart. And when you look at who the bulk of the people who are in the stock markets to invest in the bond markets, et cetera, those are people who vote. Those are people who show up to the polls. It's complete suicide. And I think you have to accept that fundamental human truth and that fundamental systemic truth that at the end of the day, Trump and his people need to get reelected. And there's only so far they can take this thing before they have to pump it up.

Chris Sipes:
[16:43] Yeah. Don't forget.

Dano Weir:
[16:45] Just so we're clear, Trump can't get reelected unless something changes.

Daren Blonski:
[16:49] Well, no, but what I'm talking about is the mid-year elections,

Dano Weir:
[16:53] Right? Yes.

Daren Blonski:
[16:54] He's got 16 months until the mid-term election cycles in, and then they lose the House and the Senate potentially. They still got to keep the House and the Senate to keep going for another two years. Otherwise, he gets lame ducked.

Dano Weir:
[17:07] Yeah. I just want to make sure you're not pushing for a third term there, buddy.

Daren Blonski:
[17:11] Well, he is. I'm not.

Chris Sipes:
[17:12] Just don't forget that this time, five years ago, under Trump, we had the Fed buying ETFs in the market, right? So there are no rules. We pumped the most money into the system in human history five years ago at this time. So to your point, Daren, anything is possible and I'll believe it when I see it, that they're willing to inflict maximum pain to push this austerity through. But anyway, on a positive note, look at all these markets doing great so far year to date. There are places that the stock markets are going up and not just by a little bit. I mean, we're only two months in. And so there's markets everywhere that are responding well so far. So a lot of green on that screen, a lot of places to look.

Chris Sipes:
[18:18] Now, we got new employment numbers today. While they kind of missed the market initially sold off on that news, but then recovered by the end of the day. But this is from Charlie Biello. He's been showing this, that 151,000 U.S. Jobs were added in February, the 50th consecutive month of jobs growth in the U.S. That's the second longest streak in history. So to go along with our best streak in the S&P 500, you've also had the longest streak of unemployment.

Chris Sipes:
[18:57] Can trees grow to the sky? Probably not. And so that to me is another sign that, hey, there's probably more risk built up than would otherwise be. So you've had a lot of these areas of the market that are stretched. They've done as well as can possibly be expected. Can they continue? Of course. um will they continue forever not as likely and so look someday we're going to get another recession i think and uh but the hard part is knowing exactly when that's going to come because look at 2022 where literally everybody including us thought there was a recession coming and no recession happened so timing it is extremely difficult it's it's impossible in my opinion And timing getting out is, is really difficult. Timing getting back in super, even more difficult. So the folks that have that kind of running through your brain, um, realize you're trying to, uh, complete something that is, is likely not going to work. Right. Um, you're trying to be the MVP all-star of the all-star games, you know, having never played the game before, uh, it's probably not going to happen.

Dano Weir:
[20:12] So you're not just going to get out of the market. You're not just going to get out of the market until things, quote, calm down, Chris? Is that not how it works?

Chris Sipes:
[20:21] I have never seen anybody pull that off successfully.

Daren Blonski:
[20:26] But see, even if things economically are crazy, that doesn't mean that the markets are going to be bad, right? And that's what I go back to. Don't underestimate the ability. Like you take the China in China right now, right? Like economically, things are pretty ugly. But they're pumping the markets by using liquidity,

Chris Sipes:
[20:43] Right?

Daren Blonski:
[20:44] So you can't even anymore. I don't think, well, I think you never could, but especially not now. Attach, one, your portfolio to your politics. That is a big mistake. One. Two, it is a mistake to attach your portfolio to how you perceive the economic conditions. And there's a lot of reasons for that. One, the government can pump it full of cash. One, the market is a very political hot button. And two, or three, how you experience the economy or how I experience the economy or how Chris experiences the economy or how Dan experiences the economy is not the way that everyone experiences the economy. For example, if you live in Washington, D.C. right now, And all these houses are up for sale because all these individuals are either resigning or losing their jobs. That's a very different real estate market than say Sonoma, California right now. And so our perception of the economy, we often think that how I experience it, where I'm at with the limited data sets, our brains can only take so much data in. That is in fact truth when in fact it is not. It's much larger than that. That's my plug for reading the charts, which I'm going to do in a little bit because the charts have the ability to absorb all the data and tell a different story.

Dano Weir:
[22:00] Daren, can I ask one thing real quick? And you almost got it there, but I just want to clarify because you've said it a couple of times. You said China is pumping liquidity into the market. Can you say that in even plainer terms than that? What does that mean? They're printing money? Yeah.

Daren Blonski:
[22:17] It could be their printing money. It could be their buying stocks. I mean, they can do all of the above. During COVID, one of the things that was happening here in the U.S. When the politicians were really concerned about the markets is we actually had a Federal Reserve who was buying ETFs, exchange-traded funds, which was creating a false buyer in the market effectively. So governments can operate in any way they want. One of the mistakes investors make is they think that And they extrapolate the current rules and think that the politicians and the powers that be have to play by the current set of rules. And what we saw in COVID was a clear example of that's not the case, where they were concerned about the markets, they just started buying the market, which then creates that demand in the market and moves it back up. So if you're gun-shy because you experienced 2008 and you think that's coming again, yeah, it could. It's possible. Is it probable? I don't think it's that probable just because there's no political will to let that happen. And I don't see any politician just rolling over and saying, oh, I'm going to let this market implode and let all the people who are invested in this market lose all this money so I don't get reelected. Like said no one. No one.

Daren Blonski:
[23:41] So I think it pays in the market to bet to the upside, right? We show that throughout time. You have to stay positive. Being positive often pays more than being negative.

Chris Sipes:
[23:56] Absolutely. Yep. And if you have some other things in your portfolio other than just the stock market, you know, 2008 wasn't as bad for folks that had, you know, other assets other than just all stocks. But if you're, if you've just been looking at your 401k and saying, oh, well, this one's done the best. I'm just going to put all my money in that one. Why wouldn't I, why wouldn't I do that? Well, that's why, uh, you know, it's the, it's the old, uh, the old Turkey analogy. Like every day the Turkey's feeling pretty good. And then Thanksgiving comes and boom, Turkey's gone. So the unemployment rate ticks up slightly to 4.1% with these new employment numbers. Now you can see this is another indicator. We're at low levels. We're still at low levels, but usually when that starts to tick up, that would be a sign of a recession. It just depends on the severity. Obviously, COVID being probably the biggest spike that we've felt outside of 2008.

Chris Sipes:
[25:05] And to your point, Daren, about how the economy is not the market, when you look at that chart that says, hey, these were the best 15 years to be invested since the 70s, well, guess what? That started in 2010 when the economy was in the doldrums from the great financial crisis. So had you had the guts to stay invested and or put new money in and do that in droves in 2010 when the economy was in shambles, that in hindsight was a very, very smart decision.

Chris Sipes:
[25:41] So our bearishness ticked down just slightly this week. We talked last week about how 60% was extreme.

Chris Sipes:
[25:50] This is another area where you want to look and say, okay, humans are heard. We're hurting. We have a very strong hurting instinct. And we do that for survival, obviously, which makes sense. But when it comes to investing, that can be, you can be shooting yourself in the foot. So you have to kind of take a step back and say, okay, what's the herd telling me right now? And do I really want to run with the herd? Because usually when you get very high pessimism, like we're seeing now, that's a contrarian indicator. Just like when you see very bullish sentiment, that's also a contrarian indicator. When everybody can't see how anything can possibly go wrong, that's usually a time to be a little more worried. So people are very pessimistic right now. And if you go to the next slide, just to further drive that point home, the extra question that they asked in the survey was, how have you changed your approach to investing recently? And notice that close to 60% have either become slightly or much more conservative in their portfolio. So they're making changes based on how they feel about the market right now. So the herd is moving in that direction now. Now, 20% have made no changes, along with maybe five have actually become more aggressive.

Chris Sipes:
[27:19] So, you know, I think that's a pretty stark number in terms of how many people are changing. Hopefully, they're just changing slightly and not, like you said, bailing out completely. Uh last week we talked about the cnn fear and greed index being um uh pretty close to i think it was 16 last week when we reviewed it it's 18 this week now they have seven fear and greed indicators these are all market driven so they're based on the positioning things like the put call ratio um as an example six of the seven were in extreme territory and i don't think i've seen that one before since we've been tracking this over the last, I don't know, four or five years. So that's of note, right? We're in extreme territory there. And Bitcoin this week was also in the fear camp, 34 up slightly from 16, the extreme fear last week. Talk about unexpected. We finally got the coveted Bitcoin reserve and Bitcoins up.

Chris Sipes:
[28:32] Bitcoin's down on that information. So you just never know, right? Now, this is a bit concerning. You know, this is U.S.-based, of course. Vacation intended in the U.S. within the next six months. This is from Apollo. They're an asset manager. And that's a steep, steep drop-off. Now, where that can be a problem is if these vibes, if you will, turn into reality. If people are expecting higher inflation, if they're expecting to lose their job, if they're expecting poor economic conditions, all those expectations can actually come to reality based on people pulling back on their spending, pulling back on their investing, in their businesses and such. So this can become a self-fulfilling prophecy. Now, if we at Snowmo Wealth Advisors are seeing this, I guarantee you the Fed's seeing it. I guarantee you that the administration's seeing it. And, you know, they're not likely to make no changes moving forward based on this information.

Chris Sipes:
[29:45] Now, the last indicator, so I mentioned six out of the seven indicators were in extreme fear. The only one that wasn't is probably the one that I would watch the most closely, which is the spread on high yield debt. So debt or fixed income, they're always considered to be the quote unquote smartest investors in the room. And that's because if you've ever tried to borrow money from a bank or a lender, they're going to ask you for every piece of financial documentation that you have and then some. So they are going to verify that you can pay them back. And so they usually know a lot more than, say, most of the other investors in terms of who they're lending the money to. And if they're worried, this chart is going to go up. So you see the last time that we had the recession in 2020, that those spreads blew out. They were very, very worried about the future. And so the amount of money that they were charging or the interest rate that they were charging above what someone would receive on a treasury note, which is considered to be credit risk-free.

Daren Blonski:
[30:53] Was very high.

Chris Sipes:
[30:54] And that number right now is extremely low. In fact, we're coming off of one of the lowest spreads in history. So the bond market or the fixed income market is not signaling stress yet. It's not signaling recession and not really even signaling any kind of major pain at this point. So keep an eye on that.

Dano Weir:
[31:17] You got to explain to me what I'm looking at here. I'm getting that this is a spread,

Daren Blonski:
[31:21] But this is a spread between what?

Dano Weir:
[31:22] Between actual lenders themselves and what they're getting the money from the Fed at.

Chris Sipes:
[31:29] This is the spread between treasuries, which are issued by the U.S. Government and therefore considered to be credit risk-free, meaning that the government will pay you back because they can tax and pay or print and pay, versus high-yield debt, which is junk, sometimes referred to as junk debt, which means companies that have less than desirable financials. And so let's say Daren has no debt at all. He makes a million dollars a year.

Chris Sipes:
[32:02] He's got a job that's guaranteed by the government or something like that. And he wants to borrow some money from me versus we've got Dano here and he's in debt to everybody I know, has paid none of them back. He's job to job all the time. Now, if I'm going to charge an interest rate between you two, there should probably be a spread between Daren and Dano in this situation. There should be a little extra compensation. If I'm willing to lend my money to Dano, it's going to be a lot more risky. And what this chart is saying is, as of right now, investors are not requiring very much more of those questionable borrowers over and above what they're requiring from the U.S. government. Why?

Chris Sipes:
[32:59] Well, the traditional outlook is that because they're not worried that they're not going to get paid back and they expect interest rates to go down. And so they're therefore not expecting stress in the market. Right.

Dano Weir:
[33:11] So, so basically what you're saying is lenders, this is just saying that lenders are not, if you look at lenders, they're not worried about an economic catastrophe or a market catastrophe.

Chris Sipes:
[33:23] Yes. at this moment now, there's been other theories floated, which is, hey, lenders are actually more worried about lending to the U.S. Government than they have been in the past, and they would rather lend to the corporation. So, you know, there's that argument as well. But either way, you know, the market is not pricing in much in terms of a premium for lending to a questionable borrower.

Daren Blonski:
[33:51] Thanks, Chris.

Chris Sipes:
[33:54] You got it i've.

Daren Blonski:
[33:58] Got a fun new chart you guys

Chris Sipes:
[33:59] Candlesticks yes i'm sure viewers are happy to have candlesticks and heat maps back Daren because we've yeah buddy we've not had those i know that you've

Chris Sipes:
[34:10] watched all of our episodes without you from start to finish i'm sure you have not missed one minute i.

Daren Blonski:
[34:15] Haven't i actually did i did listen to them i was laughing because One of them, I was driving down from Southern California with my family coming back from vacation, and we were on I-5. And if you know I-5, I-5 is like the boringest road on the face of the earth. And I was listening to you guys talk, and I nodded off for a minute. So I texted you guys like, hey, just want you to know that I slept through part of your show.

Chris Sipes:
[34:38] Okay.

Daren Blonski:
[34:40] So if there's anyone out there that's nodding off during the show, watching this, I fully understand. So I wanted to show this first because, you know, Dan made the point early on, the market, right? And people say the market, how the market's doing. Well, the market is, there's lots of markets, right? And here's an example of a lot of markets. So these are the indice markets. So indices track different subsections and groups of stocks and or bonds in the markets. And then we've got all our energy markets, our soft commodities, our bond markets, our metal markets, our grain markets, our currency markets. There's lots of markets, right? So when we say the market's down, usually people are referring to Dow Jones or they're referring to the S&P 500. And I think that's important to point out. So now When we look at The markets This is looking at it on a weekly time frame And how the market did on a weekly time frame And you can see it's been Actually an okay week Considering all the mumbo jumbo What?

Dano Weir:
[35:56] No, no, I saw a headline And I saw a picture with a trader with his head in his hands It's all going down I saw that article, Daren, isn't it?

Chris Sipes:
[36:04] Well, that's, you know.

Daren Blonski:
[36:05] That's the thing, right? The financial media has to jump on board with that stuff because that's what sells eyeballs, right? So from a technical trading perspective, that's in looking at this from a chart perspective. So what you're seeing right here is a, this is the chart and this actually go, we're going to go to a different chart for you. This is the SPX. So this is a little bit different trading hours in the SPY. So this is the SPY. This trades on the New York Stock Exchange hours. There's some after-hour trading on the SPY, but that happens a lot to the SPX, and that's the largest 500 US-based stocks. This is an ETF exchange-traded fund that tracks the SPY, which is that 500 stocks, represented by, when we look at that heat map I show on a weekly basis, it's represented by this heat map.

Daren Blonski:
[37:01] And let's see if I can adjust the size on this because this doesn't exactly work.

Daren Blonski:
[37:07] So you can see here, this is all the stocks in the S&P 500. We've talked about for a very long time about the concentration of this market being Microsoft, NVIDIA, Apple, Amazon, Tesla, Google, and Facebook Meta. And that's the magnificent seven. And we were concerned because they become such a dominant part of the whole S&P 500, what those seven stocks to, so does the rest of the market. All these other stocks have to really outperform to make up for down performance in these areas. This is a one-day performance. Now, I think it's interesting. We look at on the one-week performance, and it's red, right? And we got hit mostly in these areas. But underneath the hood, there were parts of the market that actually did okay this week. But banking, finance, semiconductors, technology, consumer electronics, consumer cyclical all got beat up pretty good this week. And because these guys are such big dogs, when they get beat up, the rest of the market gets beat up pretty solid. But then you see one day performance and we talk about how important the end of the day on Friday is. And you can see these bounces on Friday. And when we go to the charts and we look at this from a technical perspective on the daily chart, we hit this really important orange line here. So this orange line, what it's representing is the

Daren Blonski:
[38:32] Simple moving average. So SMA stands for simple. And the simple moving average right here, this represents the 200-day simple moving average. So why is that orange line so important? Well, that orange line is a very important technical line. We haven't hit it for a very long time. Notice the last time we hit it was right in the end of 2023, and then we bounced and went up.

Daren Blonski:
[38:57] So we're at an inflection point. We've seen a sell-off, right? So the gut checks are happening. And when we tend to see these important thresholds hit, we tend to see some recovery from them. If the up cycle is going to continue. If it's not going to continue, then you would expect us to lose that 200-day. If we lose that 200-day moving average, then you're going to start to see a lot of the algos or algorithms start to adjust trade. You'll start seeing movement in the market. and this could escalate and get into a worse situation. So this is on the daily chart, right? So this is 200, the average of 200 days. Now, let me point a couple of things out on the chart. One, you've got kind of this ugly double top, maybe even a triple top, but an ugly triple top. And then you've got a neckline right here. And the fact that we closed below and broke below that neckline this week, that doesn't bode particularly well for the market bouncing in this moment. and the fact that we didn't recover from there. So typically, if you break below and then the buyers step in here, that'll push the market higher. And what this tells you is that when we crossed that neckline of that double top, the buyers didn't step in. And what it does tell us though is when we pierced through this 200-day moving average today, the buyers stepped in. And you can tell that, if I see this wick right here, this is a wick. That means price went down here. And when price went down here,

Daren Blonski:
[40:21] Then the buyer stepped in and said, Ooh, I like it at that price. That's on sale, right?

Daren Blonski:
[40:27] And then we moved up. And the fact that we then closed above yesterday's candle price, Part of yesterday's opening of the day, and we closed in the green above that, that's an engulfing, so bullish engulfing candle is what we call it. That actually looks pretty good. Like we like that. The fact that we got a bounce here, the buyer stepped in, we engulfed this other candle here, we could say, hmm, maybe we're going to get some support here. Maybe we're actually not going to go a lot lower. The buyers are going to start stepping in.

Daren Blonski:
[41:01] We need to see follow through before we can be convinced of that. So that's on the daily. So on the short term, I would expect going into next week, unless we get some other wild news, that we actually get a bounce, right? It's not a bad thing to test these areas. Like the idea in this concept, the market should always go up forever and forever more and never stop, take a pause, is just fallacy. We need to have these kind of moments where we take a breath. Think about like, you know, running a marathon or a long-term race, like you got to pace yourself. And we basically haven't touched this 200-day moving average, which is really important for over a year.

Daren Blonski:
[41:45] And you can see that moving. So it's not bad that we're checking in here. The market's checking it out, seeing if there's buyers and their support there. What's really interesting though, is look at this close. We close right here and it's right on the bottom of that neckline or dip from that area on this double or triple top, however you want to look at it. So I'm not convinced yet like, hey, this is the bottom and things are really going to bounce. I think you got the makings of that. I think we could see a Monday, Tuesday with some positive flow in the market, but we need some follow through. So then let's look at the SPY on a weekly. So this is now looking at each one of these candlesticks represents a week in the market. So you can see this is this red one. This red one represents the market opened up here, and then it closed right here. But price actually went all the way down to here at this wick during the week. And that buy-up came primarily today, and we saw a lot of buyers step in. Now, there's a couple things I like and a couple things I don't like about this chart. So I like the fact that it traded down into this area and found support, which is going all the way back to...

Daren Blonski:
[42:59] July of 2024, the market traded in there and then was bought back up. That means there was a lot of buyers sitting in this zone right here. But I like that. That shows me their support there, that if it goes down that low, that there's people willing to buy into the market. And then it went back up. I like that this SMA right here, that we came into it, and this is a 50 period SMA. So that's just looking at the simple moving average or 50 days or 50 weeks, excuse me. We came in there and we found support in that area. And you can tell this is an important simple moving average. We saw it as support way back here in October of 2023. And you can see how important that is overall for the markets. What we're watching and what we'll know, I don't think we can say we have a confirmed down cycle in the market yet. Right now, it just stands as a correction. What we're looking for is this cross over something like that 50-period moving average you see way back here in 2022. And it crosses over and then goes back above it, but then goes right back below.

Daren Blonski:
[44:09] That would tell you that we have something different in the making. But right now, it's just a test. it's getting a little dicey. But the fact that we found support here, I think that's okay. You need the market to correct itself. And you need that support to step in. And that tells us, okay, there's support there. We can move higher. And you can see how important that 50 was right back here in October that year. So I'd say on his face, like, hey, not great. We've had three weeks of sell-off. We haven't seen that in quite a while. The last time we had three weeks of sell-off, if you could see right here in July of 2024, um,

Daren Blonski:
[44:46] This is where, if this is just a short-term correction, we should start seeing some bouncing. If this is a longer-term shift and we're going to have a more medium-term cycle down and a rougher go into the spring and summer and then maybe fall bounce, we'll see. We do have some of the makings, but notice this bar is bigger. See, this candlestick here is bigger than a lot of the candlesticks we've had in the last month and a half. We had a pretty good size one here back in the first week of January. When you see a big candlestick, that's telling you there was a lot of volatility, a lot of movement in the markets, and this one happened red. So if we look at RSP, this is an equally weighted index. But what it's looking at in particular is when you look at the S&P 500, instead of having boxes that are all different sizes, this index is tracking all of the same boxes. So these boxes here are the same size on the RSP. Why is that helpful? Why do we look at that? Why do we care? Well, we care because that gives us a better sense of the overall health of the market versus the market that's just, quote unquote, concentrated in these seven magnificent seven stocks. And when we look at that chart, you can see it doesn't look nearly as bad because you have more support.

Daren Blonski:
[46:05] I do what I do see in this chart is you have this kind of triangle, this consolidated triangle pattern going in. This is a consolidation chart. And so I would expect it to trade in here and then we'll get either a breakup and it'll start moving higher or a breakdown. So I do see over the next month, month and a half, based upon that chart, we're going to see some action in the market.

Daren Blonski:
[46:28] But it could be positive action. We just don't know. You just have to take it a day at a time as it goes. Now, one of the charts I talked about, I guess, two months ago now, and I started talking about, hey, I think we see a bottom in the X. And I think the bottom is forming, and we're definitely starting to see that. Now, egg went down this week, primarily the last four days. But I'll tell you what I like about this chart. You have this big double bottom.

Daren Blonski:
[46:58] And on this double bottom, that's a dip, up, dip, up. And then here's what we call the neckline. So the neckline is of that chart. And then notice how we traded above it. We came in and we tested this region here for buyers. And we primarily got them. So that's telling you there's support in the market for the bond market. So the good news is for our diversified folks out there, for our people who have been holding bonds because they're more conservative, they're in retirement,

Daren Blonski:
[47:28] they're more on a fixed income, the chart for the bonds market is actually looking pretty nice. And the fact that it moved up above it, it's testing it, and I would expect to see a resumption upward after that test. But I got to see the follow-through first. so next week we'll see we're going to fall through now what are we watching to see if the bond market is going to continue to improve we're going to be watching this 10 year the 10 year is the 10 year treasury and what we're looking for is a continually falling treasury now you can see in the last you can see the last four days we got red in the ag market because we got more or less green in the 10 year bond market and um

Daren Blonski:
[48:08] This area right here called 4.2 is an area where there's a lot of support, meaning a lot of buyers are stepping in there. People like those yields.

Daren Blonski:
[48:17] If we continue to see a slowdown in the market, and Secretary Bessett of the Treasury has been very clear, we are going to bring the 10-year market, the 10-year down. And the reason is, is the 10-year sets all the rates for people who like to buy lots of big things and take out debt. And if you have high 10-years, it's very difficult and that tends to create a slow in the market. Notice we're sitting on that 200 day moving average again but what's interesting about this time is we traded into that 200 day moving average here and bounced up and then we traded back in below it and bounced up but the fact that it's revisiting it that when we tested it we didn't move forward and now we're going back to it the more that a chart tends to test a particular area what happens is each time it goes down there there's a different group of investors or buyers who take a bite of the apple and they take a bite of the apple and then it goes back and they take another bite of the apple and eventually you wear off the buyers and so then what you tend to see is the longer a chart spends in a particular area the more likely that the buyers get tired if it's on the down and the longer a chart spends going up in a particular area and testing an area of resistance, which would be right here, then those sellers eventually can get worn out. So it works opposite. So the longer a chart spends in an area,

Daren Blonski:
[49:40] It's more likely it's going to go lower or slightly lower to grab more buyers into the market. And what you're seeing is because we revisited that, there could be some I guess the buyer's getting tired is a way to think about it. There's not as many people that want to buy that area, and eventually it falls through that area and goes lower. Well, that'll help your ag, which is your bond market, and our diversified folks out there will have a better time of things. Let's go to the gold market because the gold market's been one of the real darlings of the quote-unquote markets over the past little while. And when I look at the gold market, you can see it's holding on to these key trading ranges. So this blue line and red line, the red line is the 20 simple moving average, and the blue line is the 9 EMA exponential moving average. And you can see it's just holding on to that right now. It's looking strong. I would say it's winding up to go higher. It would make sense, though, if we have more of a risk-off environment that we would see gold going higher. If we see a 10-year going down, that will help gold.

Daren Blonski:
[50:46] One of the markets that I'm watching really closely, and I've been talking a lot about over the last few months, is the oil market and the crude markets. Oil in so much of what we consume, so much of what we do with our lives has to do with oil, whether it's putting gas in our car or buying our plastic gadgets to fill our homes and sit on our plastic couches.

Daren Blonski:
[51:08] Oil is involved. And so it's an important consumer-based resource. This 67 mark for basically a barrel of crude WTI oil is an important threshold. You can see how important this has been. So if we fall below that, that's deflationary. That could signal recession coming. the fact that we keep hitting it and then we try to go up and we try to go up and it doesn't go up and it falls back down tells me that there's weakness there. Now, here's the thing with the oil markets, though. There's a ton of manipulation in the oil markets. And various parties in the oil market can influence the oil markets and try and stabilize pricing. One of the things the last administration did is they used the Strategic Oil Petroleum Reserve and tried to stabilize prices that way when we were dealing with Russia invading Ukraine. But if all of a sudden we get peace, we get peace in Ukraine and Russia, and we get peace in the Middle East, and there's all of a sudden all more oil. And if the Trump administration's opening up the oil fields in Alaska,

Daren Blonski:
[52:23] Et cetera, now there's just this glut of oil in the market. And this is why I tell people, especially after the Trump administration won, they're like, well, should I buy oil? Should I buy oil companies? Is that a good investment? Well, it doesn't always work out that way because companies that,

Daren Blonski:
[52:39] Like oil companies will do better in a constrained environment. All of a sudden, if the Trump administration is super pro-oil and lets us thrill everywhere we want and pull as much oil out as we want, then there's a glut supply. If there's a glut supply, then the prices have to go down to create more demand. And, well, that's what I think you're starting to see the beginnings of here, but we shall see.

Daren Blonski:
[53:05] Now, let's just take a quick spin on some of the magnificent seven stocks because they're such a big part of the S&P. I think things look pretty ugly for Microsoft on this chart. So I would expect we see further downside, the fact that it wasn't able to make new highs, the fact that it just kind of traded along in this range of 406, the fact that we're hanging out in the lower areas of the market. I would expect, like I was talking about earlier, that we'd see further fall in Microsoft. I do see a ton of support around the 360 level. There's also a lot of support around the 380 level, which we're tapping into right now. So when we look at NVIDIA, which is the big dog, it's the same thing. We pierced below our 200-day moving average. Things look negative there, although there's a lot of support right in this $98 and $100. I would expect to see quite a few buyers step in in the $100 mark on NVIDIA. I would call that. I would look at that area really closely as an important threshold. We look at Apple, and the Apple chart actually looks healthier. Look, we've maintained our 200-day simple moving average. It's kind of chop, chop, chop sideways. You definitely have a wind-up in the chart going on here. So I would expect to see a significant move in the next month in Apple because we'll get to the end of this kind of parallel triangle, and then we're either going to break up or break down. Gary, what is a wind-up?

Daren Blonski:
[54:34] Well, think about it this way. When we look at it like just from an emotional, from a human standpoint, it's when the buyers and sellers are getting closer and closer to price. So as we get closer and closer to price, what's happening psychologically is more and more people are taking bites out of the apple. They're like, oh yeah, I like that price. Oh, I like that price. Sell there, buy there, sell there, buy there, sell there, buy there. And it gets closer, tighter and tighter and tighter. Um and there's a lot of mechanics in the markets when it relates to shorting and relates to options and when it gets tighter and tighter about price then price tends to move more significantly um and that's what i call wind up gotcha in the markets um so what this is telling you is that the buyers and sellers in apple are getting tighter and tighter um and they're arguing over a smaller and smaller range of price and then eventually one of them will just give up and then you get these big moves or you get one common thing we saw a lot with NVIDIA last year was what we call a short squeeze where it'll just break out a little bit and then all these people who were shorting NVIDIA have to all of a sudden buy, buy, buy, buy and they have to just buy as much as they can to cover their short and that short squeezes the market up higher. It can work in the alternative too, right?

Daren Blonski:
[55:52] So options markets tend to drive volatility and we have a lot of people playing in the options markets and a lot of really uneducated people playing the options markets kind of like the new cool hobby right and that creates you know a certain dynamic of volatility I want to look at the dollar and the dollar strength I mean that's a big drop in the dollar strength this week so I think that's important to take note of which is actually good for our smaller companies I

Dano Weir:
[56:23] Was just about to say that it looks bright red so it looks bad but I know in the past you've said that's good.

Daren Blonski:
[56:30] You could argue that a couple of different ways, but generally speaking, if the dollar is weaker, it gives our companies in the U.S. A better ability to sell things and goods across the world.

Daren Blonski:
[56:45] I think where we would see that show up would be in IWM. We're not seeing that pull through the market, which is kind of an interesting thing where we should raise an eyebrow at.

Daren Blonski:
[56:56] IWM is the Russell 2000. So these are the smaller, midsize cap companies that are more sensitive. They're also more sensitive to interest rates. The fact that we have interest rates going down in a stronger dollar and IWM is generally not responding well to that, that could be an indication that,

Daren Blonski:
[57:14] Going back to what Chris was saying earlier, that we could be headed for a recession, which I think the probabilities are pretty high for a recession, frankly. I just don't see how you can let go of as many government workers as they are, have as much tectonic shifts in the overemployment landscape and not see that creating insecurity and creating people feeling a little more pinched and careful, right? Going back to that vacation statistic that we talked about earlier. The other thing is, you know, the Trump administration and Secretary Bessett are flat out telling us that, hey, we're going to try and get that 10-year down. And that 10-year going down is going to help things. And it makes sense from a timing perspective, right? Like if we're going to take a recession, now is the time, right? If you think about going back strategically, if I'm a politician and I know I've got to get lined up for re-election in 16 months, I want to take as much air out of the balloon so I can pump it up right before election. So strategically, it makes a ton of sense if that's what they're doing. That would be pretty amazing if they engineered that economically.

Daren Blonski:
[58:26] But I wanted to bring up, this is what we call the yield curve. And so what happens is when the 10 to 2-year difference is negative, that's called an inverted yield curve. And every time we have an inverted yield curve, when it reinverts, that's where we get a recession typically. So we're right, just from a yield curve perspective, take nothing else into account, we are right in the hot zone for a recession. And a recession doesn't necessarily have to mean that a 2008 where the markets all sell off and it's awful, we don't know how long it is. There's no statistics to say the yield curve was inverted this long, so therefore we're going to have this long a recession. There's really nothing there. But I'm in this side or in the camp of the fact that, yeah, the yield curve might be reinverting and we might be headed for a recession, but that doesn't mean they're not going to turn on these printers again. That doesn't mean they're not going to stimulate it. Again, going back, we got a timeline here. We got 16 months until we start to see

Daren Blonski:
[59:28] People needing to get ready for re-elections in the House and the Senate. And that's really important if Trump wants to get his agenda, quote-unquote, continued. And there's going to obviously be a lot of pressure on him moving forward. So we're right in that area where we could hit a recession based upon the yield curve. We're seeing these big companies selling off the Magnus of 7. We did see a nice support level held in the SPY this week. So perhaps that correction is now in and the markets could take off there's an argument to be made for that as well the VIX looking 30 days out on volatility it's moving up but we're not seeing a big spike in volatility so this is how complacent people who trade the futures of the S&P 500 are and they're fairly complacent right now now the VIX tends to really spike and move up really quickly and we see a lot of volatility and that's where there's a lot of fear in the market and people are like, oh no, and then it settles down pretty quickly. But every time we see these big spikes, it tends to settle down. This is COVID, right? Just for what's a...

Dano Weir:
[1:00:34] What a disparity too between this chart and the fear and greed chart we saw earlier. So the average investor is at extreme fear and this chart looking at the pros is sort of ho-hum.

Daren Blonski:
[1:00:50] Yeah, right. Right. Well, and that just tells you, I go back to what I said early on, you have to separate your portfolio from your politics and you have to separate the economy from the markets. You just do. And in trying to connect those two items together and make decisions for your financial future, for your retirement plan, is just not a good decision. It's not a smart thing to do. It doesn't make sense. There's some correlation, but you really just got to stay the course to whatever your strategy is and turn off the media. And if you're going to watch all the media in the junk, just please don't even bring your portfolio into that conversation because you're really doing yourself a disservice. Yes. And Trump is a magician at getting eyeballs and he knows how to work the news cycle and dominate the news cycle. And I think that.

Daren Blonski:
[1:01:53] Ability to dominate the news cycle is creating a kangaroo market. It's creating this up and down and people worry and tariffs this and tariffs that and yada, yada, yada, yada.

Daren Blonski:
[1:02:06] And what I know to be true is I don't know what's true. That's what I know to be true. And that's why every week we go back to the markets, we go back to the charts, and we use a logical based approach where we just look at the markets and what are the markets telling us and what are the charts telling us and when we look at the spy in the scheme of this down month we've had this is just one down month you could argue this is the top this is the beginning of a downtrend and that's very possible given how fast we've gone up in the markets but also maybe not you know like right here people thought it was over and they started protecting themselves and then boom it moves up and you missed all that um upside in the market generally it's in your favor to bet up and to the right because generally the markets are positive generally the politicians want the people who support them to make more money so they're happy and guess who owns the market that's wrong well we're going to leave it there um dan you want to wrap it up

Dano Weir:
[1:03:09] Yeah sure so thank you so much thank you both it's great to see everybody uh it's fun to be on the show today myself uh

Daren Blonski:
[1:03:16] Love participating

Dano Weir:
[1:03:18] We are uh sonoma wealth advisors so if this is your first live stream first time checking us out uh we you could become a client of the firm we're at sonomawealth.com if you want to learn more about who we are learn more about Daren and chris see some of our other podcasts and we do this show every week thanks for checking it out make sure to subscribe take

Daren Blonski:
[1:03:38] Care everybody have a great

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Daren Blonski:
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