TBF - Chart Watching + Does Stock Market History Rhyme Repeat Or Not Matter That Much?

2023-08-22 14:30:00 ET

Summary

• Matthew Tuttle is currently not holding any positions overnight due to the uncertain market environment.
• Rob Isbitts highlights the importance of paying attention to market history and the potential for a market downturn.
• 3 single inverse ETFs for profit and protection in case of a market decline.

Listen to the podcast below or on the go via Apple Podcasts or Spotify .

Matthew Tuttle talks about reading and reacting to the markets and why he's not currently holding any positions overnight (0:50) and Rob Isbitts encourages investors to pay attention to the rhyme of market history (3:20). 3 single inverse ETFs for profit and protection (11:00). Intraday and longer-term chart watching (15:00).

Transcript

Rob Isbitts: This is Seeking Alpha's Investing Experts Podcast. I'm Rob Isbitts, a Seeking Alpha contributor under the profile Sungarden Investment Publishing . My friend, Matthew Tuttle of Tuttle Capital Management, a fellow Seeking Alpha contributor and a highly experienced trader and an ETF innovator, joins me again.

First, tell me what you're seeing.

Matthew Tuttle: Up until sometime around the beginning of August, I was perfectly happy holding lots of long positions overnight because you'd wake up the next morning and you'd see, okay, the positions I held overnight are up. This is great. And you start off the day with green, and that's always a good way to start off the day. Now, I'm pretty much most days not holding anything overnight long.

RI: That's a sign right there.

MT: Right. Not really holding much of anything short overnight either. Just because I just get the sense that one of these mornings we're going to wake up and there's going to be stimulus somewhere in the world or something and the markets are big green.

RI: And that's the big save, and that right we talked about this on our last episode that there's always that chance and that's why you can't be a black or white investor. You have to kind of be shades of gray, but that doesn't mean you can count on that.

The mistake that investors make, and I see it in the comments section, Seeking Alpha and Twitter and everywhere else, ah, don't worry about it, the Fed will come in and save it. Well, that works until the one time it doesn't, and then you've changed your lifestyle because your portfolio has been crushed and it happens too quickly.

MT: Right. So, from my standpoint, I've moved into read and react mode. Let the market open. I've got my watch list of stuff I'm looking at, and I read and react to what the market is telling me and take advantage of those opportunities and wait. If we get into a bear market, then I'll be holding short positions overnight. If we're sideways or if this is just a correction, then I'll stick and read and react. And if we go back into bull mode, I'll hold long positions overnight. But right now, I'm seeing a very uncertain market environment that I don't want to have exposure overnight if I can avoid it.

RI: And now, so let me draw folks out beyond the sort of a day trade or very short-term holding period because I'm a bit longer than that at the same time, hey, risk happens fast, right? So, here's what I see watching this pretty closely and you develop a memory, but then you go back and you look at your charts and you say, Hey, wait a minute. Is this some history rhyming or even repeating going on?

So, I look back, there are three different – I mean, here we are in August, right? There are three different periods in which this August, September timeframe has either been or led directly to a past stock market wreck, probably the most famous one to those of us who go back that far is 1987.

A sharp dip in August, a correction you would call it, a quick recovery, and then a crash in October 23% in one day. Remember like yesterday the difference between 1987 and today, oh my God, do we have the tools to be able to capitalize, not just defend, but to capitalize.

The one that probably looks the most like what's going on right now is the year 2000. That was the first of three down years for the S&P 500. Right around September 1, or right around this time of year, it went from a, kind of risky market that wouldn't break to a decline of over 40% over the next 2.5 years.

So again, kind of rhymes with what we've seen so far this year. A lot of things that make you scratch your head, why is the market still staying up, et cetera. et cetera. And then eventually you get your answer, it just wasn't time.

And then the last one, we have to go all the way back to last year. I had forgotten this frankly, but in August and September of last year, the S&P went from 4,300 to 3,600. So, if you said to me, “Rob, is there any chance that in the next few months we could see the October lows 3,600 tested and maybe even broken?” I'd say heck yeah, there's a chance.

What is driving all this to me? Well, who knows? It could be the stuff out of China and Japan. It could be the fact that the 10-year treasury is at 4.3% and that is a very significant number going back to the periods I just mentioned. It could be something that Goldman said yesterday about 0DTE options, which I think you mentioned in our very first podcast. Those are creating havoc for market makers accentuating a lot of these sharp S&P declines. That sounds like 1987 to me.

So, to me, we had happy times for most of the year, making light of a lot of the present dangers. It's now descended into very narrow leadership, greed at very high levels. If you look at the CNN Greed & Fear indicator, which I do, and now we've got the possibility of global disruption, and it becomes an excuse, really, to dump stocks.

China's economic weakness, a lot of confusion there. Japan's central bank, kind of losing its grip and the yen is fading. So, all I'm saying Matthew Tuttle is that it's all set-up for one of those times. And even if it doesn't happen, every investor, regardless of your timeframe, has to at least be cognizant and needs to be focused on, okay, how do I apply it to what my own investment mission is?

MT: Yeah. So, a couple of things there. And I think every investor, regardless of what type, has to be cognizant that the sentiment in this market has changed. What that means, who knows, but for right now the sentiment has changed.

The only thing I would take the other side on what you said is, I don't pay attention to history, except from the standpoint of, always understanding that whatever you're sitting there saying, that could never happen, yes it can. Because if you've been around as long as we have, you've seen negative oil, you've seen flash crashes, you've seen blue chip stocks opening up down 60%. You've seen Black Monday. You've seen a credit crisis where it looked like the U.S. was going under. I mean, we've seen all those things.

So, the one thing we know is, if I'm sitting here looking at a possible trade, looking at my downside and thinking, ah, no, that couldn't happen, I got to slap myself in the face and be like, yeah, I mean, anything can happen here. Beyond that, I think markets – the one thing that never changes is human nature. I mean, human nature never changes. So, that's the one constant.

RI: That's why the history – to me, that's why the history is so important.

MT: Why it isn't to me is structure changes. So, you mentioned, for example, 0DTE. I don't know what impact 0DTE is having on this market, but I suspect it's having an impact, which means that if I'm trying to compare a market with 0DTE options to 1987, there are just such structural differences that I don't want, because I'll see articles like, hey, the last 8x the market did this, it did this afterwards. I don't…

RI: You mean like the yield curve on inverting, which is slowly starting to happen?

MT: Yeah, I mean, whatever. You just see these articles, like the market just did this, the last 8x it did this, it did this. I don't want investors sitting there saying, oh, okay, great. Well, because it did this the last 8x, then it's going to do this time number 9. Well, but the last 8x may have been in a structurally different market. This market is different. You've got to play it according to what you're seeing, not based on what some article tells you is likely to happen because it happened in 1987.

RI: Point taken. In 1987, okay, it was what they called portfolio insurance, which time limits and we don't want everybody to fall asleep and turn off, but anyway, it accentuated the declines, okay? We've had other things like that, okay? 0DTE, these crazy, really short-term options.

Look, the – what does not change is that things come along that have the potential to short-circuit the system. And I'm certainly not the first one to warn about this, especially this year, but again, human nature does repeat itself, like you said, so it's not the same thing. It's just a different version of the same thing.

And look, when it comes to 8x in a row, okay, all I'm saying to any investor listening to this is that if you know something has happened 8x in a row, and this might be the 9th, don't automatically assume it's going to happen, but also don't say, ah, I don't even want to know why the other 8x happened. I'm going to close kind of my thoughts here and then invite you to do the same by giving you just a few examples.

3 ETFs that if investors are not familiar with, okay, I'm not telling you to buy them, I'm not telling you to do anything other than understand that there's this whole aspect of the markets that can protect or can be used to profit. Look, if we go into another theoretically 3 years of decline in the stock market, okay, like 2001, 2002, and really early of 2003 as well, it would be nice if you knew that there was something that for every year the market kept going down, this piece of your portfolio would be going up.

Well, I have three of them that are, let's say, among the more prominent ones in the single inverse ETF world. And this is where I always educate investors to start their research. One is ( SH ). It does the opposite of what the S&P does. It's got a lot of caveats, read, research, make your own decisions. SH is the symbol, it's the minus 1 S&P 500. ( PSQ ) is the minus 1 Nasdaq 100. And ( TBF ), certainly one that I own a good chunk of these days. A matter of fact, I either through options or through those inverse ETFs, I've got pretty hefty position in all three.

What does TBF do? It takes the 20-year to 30-year treasury and it shorts it. And - which means that if 4.3 for the 10-year, okay, and it's the 20-year and 30-year reacting similarly, if you see a thing fly and interest rates all of a sudden are up another 1% or 2% over the next several months, okay, this thing will rip the way it did in 2022.

I will also tell you just at a little more granular level and everything I'm about to mention here, I probably own either a small or growing put position on or an inverse ETF, but again, time limits. We can always go into these or take questions from folks. Hit us up on the comments. I think Apple ( AAPL ), Meta ( META ), and Tesla ( TSLA ) all look absolutely gosh darn awful. And I think it's very, very possible that those are going to roll over hard.

The banking and the housing stocks look terrible to me. And again, to sum up, it's like all the things that people worried about all year, but then saw those worries quickly go away because you had more FOMO, you had AI hype . It's all now coming back at once, kind of like the night of the living dead trades. And with that, tell me what you think. We'll close out.

MT: Yeah. So, a couple of things. First, one of the things you said, like, I don't know, 4 hours ago in your diatribe, you mentioned something about following what everyone else is doing. And I am a huge believer that the conventional wisdom is neither. If it was, then the Forbes 400 would be the Forbes 40,000.

There's a reason it's the Forbes 400. And my guess is if you weren't born with it, then the reason you made that list is because you did something different than what other people were doing, and that is extremely important in investing. The areas I would be looking at, I think, you mentioned some of them.

If this market takes another leg lower, rates are going up, commercial real estate, regional banks, home builders are going to go down at some point, I'm just hoping it's in my lifetime. And I'm hoping they're still on my watch list when they go down, because things have a nasty way of, I'm watching them for three weeks waiting for the downturn, then I finally remove them from my watch list, and that's the day they tank.

So, hoping that doesn't happen with homebuilders and I'm around for that. But those are the three areas that I am shorting intraday. Don't have the guts yet to hold them overnight, but typically just about every day, I've got a short position and either regional banks, REITs, or home builders. Sometimes I think yesterday, we had short positions in all three. Today, early, I was short the regional banks. I actually flipped long. I'm not going to hold that overnight. Just looked like they bounced, but that's what I'd be looking at.

RI: There's not that much difference, not as much as you would think, between what Matthew just said about looking at very, very short-term charts, the rules of charting, at least according to me, and I think according to you, they do apply very similarly, even if you're looking at a different timeframe, it's just that it all happens so much faster.

So, you can look at daily, weekly chart, the same way you can look at a 5-minute, 10-minute, half-hour chart, and you're looking for the same thing, it's just that maybe in the very short-term, it's a little less reliable than, let's say, if you're going out to weeks at a time.

MT: So, I disagree from the reliable standpoint. You're looking for the same thing, you're looking for the same patterns. So, I look at daily and I look at 5 minutes. And for me to take a 5-minute chart on a or trade on a 5-minute chart that I'm going to hold for any period of time, the daily chart has to agree. But I'm looking for the same patterns. I think you get a lot, a lot more noise on a 5-minute chart than you do on a daily chart. So, you may see a move on a 5-minute chart.

RI: That's really what I was saying.

MT: Right. Yeah. You may see a move on a 5-minute chart where you're looking and you're like, “Oh my God, look at that move.” And then you zoom-out to a daily chart and you're like, “Yeah, all right.” That really in the whole scheme of things was nothing, but on my 5-minute chart, it looks like the four just fell out on that name.

RI: Yeah. See, the difference for me is, I look at 5-minute, 10-minute charts when I've already decided I am buying this, I am buying it today or selling it and it's just a matter of can I squeeze the best price out of it in the granular, whereas you're doing it as kind of a, it's your daily routine? And I just want to explain to folks that that's kind of the difference.

MT: And actually, it's not that different. So, I'll construct my watch list off daily charts. And I will do my entries on the 5-minute chart. So, not that different.

RI: Yeah.

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