BACRP - Market Crosswinds And Nasdaq Looking Better Than Dow

2023-09-11 15:30:00 ET

Summary

• Major indexes below 50-day moving averages, regional and money center banks looking bearish, 10-year rate and oil prices at highs.
• Economic numbers show a soft landing, but negative numbers from China and Germany raise concerns.
• Market trading weaker, equity owners struggling to make money, potential for a burst of the "equities always go up" bubble.

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

Rob Isbitts and Matthew Tuttle talk market crosswinds (0:30), whether it matters if September's historically bad (9:35) and Nasdaq versus the rest of the market (19:25).

Transcript

Rob Isbitts: This is Seeking Alpha's Investing Experts Podcast. I'm Rob Isbitts, Seeking Alpha contributor under the profile Sungarden Investment Publishing. My friend Matthew Tuttle of Tuttle Capital Management is with me again. He is a fellow Seeking Alpha contributor, highly experienced trader and an ETF innovator. We hope that you can learn from our experience by listening to this podcast and by following us on Seeking Alpha.

Matthew Tuttle, when they say crosswinds, I think they're talking about the market that we have right now. There are a ton of crosswinds.

So let me ask you, first of all, with all the economic data coming out, with all of the market action , which is getting more interesting as September starts, what's sort of at the top of your list of what to be watching, and maybe drawing some conclusions about the market cycle, and where we're going here on the 7th of September, when we're recording this.

Matthew Tuttle: Yeah. So couple of key things that I would be watching. First off, you've got all the major indexes now below their 50 day moving averages, short-term that is bearish. You've got regional banks looking like something is horribly wrong, also bearish. You’ve got money center banks, the charts of those don't look very good either. I'm obviously not as worried about a Bank of America ( BAC ) or Citigroup ( C ). Those are all too big to fail.

But I am worried that you've got some other regionals having issues. You've got a 10 year rate that is nearing the highs of the year, and you've got oil prices that are at the highs of the year. All at the same time you've got inflation numbers that appear to show inflation is coming down. You have economic numbers that keep getting revised down, but they keep showing a soft landing is on the table.

But then on the other side, you've got negative economic numbers out of China, you've got negative numbers out of Germany. So, I sort of wonder if the economic numbers are saying, hey, soft landing, Fed is done, why are the regional banks looking like they've got issues? Why is the 10 year at highs? So those are the main things that I'm watching at the moment.

RI: Excellent summary of where we are. The first thing I would say is that, if I hear soft landing again, I think I'm going to have to take a long walk.

MT: Soft landing.

RI: Okay. Getting up. No – so look, you just laid it out. Let me summarize what you just said. Okay, bonds? Not happy. Oil? Not happy. If you're the Fed trying to stamp out inflation . Banking sector? Not happy.

And the only question is, why is the stock market, or I should say, why is half the stock market or more kind of getting the message that things are getting tougher, that maybe expectations of a soft landing, see I said it now, I have to take a walk again. Maybe we have a drinking game going here.

But there is to me, a major issue right now with the stock market, kind of just trading back and forth. A little bit weaker by the week, not the day. And I guess to me it's kind of for the equity owner who for the last two years has made no money on the S&P and lost money in a lot of things other than the S&P, small caps, non-U.S., many sectors, many themes, many industries. A lot of it's down over the last couple of years.

It just seems like a lot of picking up pennies in front of the steam roller. And I want to go back to you for a moment and then I'm going to give you some for instances now that we've kind of painted, let’s call it a -- I would call it a discouraging picture, except as you and I talk about all the time, we - bull/bear, we don't care. Market can go in either direction, whether it's through options, shorting, ETFs that go inverse, things that are less correlated to the equity markets, there’s half a million ways to make money in any market condition.

And I kind of feel like maybe the last straw for the equity market is that we're going to -- people are going to -- the bubble -- the last bubble that’s going to have to burst is what I would call the, I love equities, they always go up bubble.

MT: Yeah. I would agree. I think that you're probably, at least at this point, a little more bearish than I am on the market.

One of the things I do notice is - and I think I've said this before on the podcast, where earlier in the year short selling was easy. REITs , banks, you name it, it was very easy to short those and make money. Right now, it’s not so easy. It seems like the dips are still getting bought. Where I will start to worry is when the market dips and the dips don't get bought.

Again, we're sitting here on a specific day, but the market opened up really ugly today. And if you were a bear, what you would have wanted to see was the market gap down and then just have one of those days where it keeps going. And it has just one of those rip your head off declines and we're speaking, it's midday, so who knows how things will end? But the market is significantly off the lows and I just, it just doesn't feel like we're in an environment where this market wants to tank and I'll qualify that with yet.

RI: And I'll just correct you with one thing there. I would not say I'm bearish because to me I don't know where the market is going to go any more than anybody else does. Just look at the title of our last podcast together which by the way came out this week and it was the 100th episode of the Investing Experts Podcast, which I think we're both just thrilled that we ended up being the 100th episode, like being the millionth shopper at the supermarket, except better.

MT: What do I win?

RI: That was my first question. Yeah, there's a Mel Brooks line I could use here, but I won't. So I think of it this way, okay. I'm not bearish or bullish. I would say this. I feel that in all the work that I'm doing and all the fundamental news that I am seeing one piece after another, okay, like water torture, that I'm gearing up to try to see if money can be made on a down market.

That's what I'm always trying to ask myself is where can the money be made? It doesn't really matter to me where. But let me give you a few things in here. Porter Stansberry reports, I'm sure this is fine. Commercial bank lending has declined by 1.63% from its all-time high.

That wouldn't be a big deal. It doesn't sound like a big deal, but it's only the fourth time in history that it's happened 1975, 2001, 2009 to 2010. In the last 50 years, the only time that commercial lending has declined by more than 1.5%, the S&P the other three times lost about half its value.

Thoughts as a gradual long term, I would say, a bear on regional banks in particular?

MT: So, I mean, obviously, I'm a bear on the regional banks and have been aggressively finding opportunities to short them. The charts are telling me something is wrong. I don't worry as much about statistics, like you know this has only happened four times since this and that, because I do think while human psychology is a constant in markets until AI takes over , but besides that market dynamics change.

And so I stay, you know, like we're sitting here in September and everyone is writing articles. September is historically bad. All right. I don't care because this September may be bad. It may not be. I don't think this September is looking and saying, oh yeah, we're supposed to be down. So I don't put much stock into that stuff. But again, my feeling on the regional banks is pretty well known at this point.

RI: Yeah. And I would say this, I'm a little more of a history buff and looking for analogs and things like that to the current time. History doesn't repeat, but it rhymes and all that stuff. And one of the things that I think folks should realize is that there is a lot more self-fulfilling prophecy in the way markets move.

So yes, I agree with you. September is just another month, except that there is so much attention, media, et cetera, et cetera, and so many outlets and so much information being thrown at people that I do believe there is a significantly more powerful group think element in what moves markets. Agree or disagree?

MT: I disagree because, yeah, John and Joe, John and Mary Smith might hear a Cramer on Mad Money say, hey, be careful in September and might be careful. I don't think if you're a big hedge fund, you're going to be looking at that. I don't think if you're a portfolio manager, you're going to be looking at the companies, the metrics, the trends. So again, I'm just, I'm not as worried about those types of things, right?

RI: And by the way, disagreement is part of this. So, I kind of wish more people would get that. But I look at it and I say, okay, how do you get some of the wild valuations if it's all about the fundamentals? I think that's a whole discussion for another time.

I want to run a couple other things by you and just see what you think. So we got a real issue with the housing market. Okay. And it all goes, everything I'm talking about, everything I'm reading, it all goes to the same thing.

Consumers are really sort of up against it and it's almost like for years they spent and spent and spent and now between credit card debt, student loan debt for 40 million people, and now they have to make the payments again starting in -- the beginning of October, which means the notices are going out now. As some named Jeff Weniger said here, okay, because the housing market is a part of this too.

It's a wild financial experiment that we're witnessing in real time, mortgage rates got shocked by four extra percentage points, just since COVID mortgages are above 7%. While in recent memory, people were locking in 30 year loans at 2.5% to 3.5% rates, housing affordability has tanked quickly. The system struggles to function when the rules of the game change like this. Lot of people can't get approved for a mortgage.

I guess the other study had in here, which I thought was pretty interesting. The typical amount of income needed to qualify for a mortgage before COVID $42,000. Now you need to be making $104,000. That plus the other factors I just mentioned are really tightening the reins on the consumer and to me that ultimately ends up being the story that and perhaps higher interest rates.

MT: Yeah, and I would agree, I mean, and you're not seeing it yet filter through. So, I think that's another shoe that's got to drop. Homebuilders , for example, are an area that I watch quite a bit and in the past couple of days here and there, they've had some drops, but for the most part, anyone who's been trying to short the home builders this year has been sorely disappointed.

But you've got to figure, math is math, with the 10-year near the highs of the year, inflation in all the other areas, credit card debt at record highs, credit card interest rates at record highs, I don't know how the average consumer is hanging on here and maybe they're not and maybe we just haven't seen what's going on filter into the economic data yet, or maybe they're revising the economic data, all the previous months down every single time, maybe it is in the data, we just haven't seen it.

RI: No argument there. Does this require any immediate action from you in terms of, let's say what you're more keen on looking at in your own trading and investing?

MT: I mean, nothing immediate. To me, sitting where we are, I think the entire playbook is open, meaning, there are sometimes in our daily note, we tell people, hey, just look for longs. And other times we'll tell people, hey, just look at the short side, I wouldn't be buying anything in this environment.

I think this is the type of environment where you look at both. You look at the set ups and there could be things you want to own and there could be things you want to short. Still loving T-Bills at these rates. And for the person who's not able to kind of look at this stuff, minute-by-minute, day-by-day, you could do a lot worse than 5% in T-Bills.

RI: Yeah. And I think we both have a lot of our own money kind of stashed that way. Take what the market gives you.

My biggest argument for, I would say anything in T-Bills, let's say out to two years is that you're getting paid to wait and to get more visibility on what really is still the post-COVID era of managing markets, trying to figure out markets and really making an investment plan that everybody does individually for themselves.

I will point out just in some of the things that I've been doing with my money and watching. And this also relates to a couple of articles I had on Seeking Alpha recently. My most recent one was -- well, I've written a couple about the NASDAQ. One was basically an endorsement of ( PSQ ), the inverse NASDAQ ETF.

I then went a little bit more granular and more recently wrote about the Magnificent Seven , and applied my technical analysis with I think some pretty nice visuals kind of how I do it internally and showing people my process. The bottom line of it was, I have 5 rating systems. I do it by colors. Green is the best. Then it's blue, gray, yellow and red. There were no greens among the Mag Seven. There were no reds, which is kind of like what you were saying when we started this conversation. The NASDAQ is tipping over. Is it falling over? Is it crashing? Not at the moment.

But I will say, the majority of the Seven, as you can see in the article, get what I call a negative rating, a yellow. So not a disaster imminent, okay. But the risk is much higher than the reward.

And the only other thing that I would add and I think we'll talk about this quite a bit going forward because there is an article I put out, I think about a week ago on Seeking Alpha and it had I mean, frankly, it just -- a very blushing reaction from me because the conversations were so great. And I learned so much from what the Seeking Alpha audience is doing.

The subject was ETFs that engage in covered call writing and individuals that do covered call writing on their own. Something we're both familiar with. And what I offered there was a way to kind of hopefully have your cake and eat it too with a little bit more risk management on those covered call ETFs.

And the response was so overwhelming that I basically promised a bunch of folks in the comments that I'm going kind of cover this regularly as sort of a niche within what I do in Seeking Alpha. And I'm very excited about that. So there will be a lot more on that.

Anything to say about either the NASDAQ versus the rest of the market or anything option related before we close up shop for the day?

MT: So the NASDAQ is continuing to look a lot better than the Dow. What you're also seeing is consumer staples stocks are looking awful. And you've had a down market and typically what you see is portfolio managers fully invested.

Portfolio managers going to consumer staples names in times of turmoil. You're not seeing that now. You're seeing them going to the Magnificent Seven names. Now perhaps the Apple news coming out of China will change that. Didn't seem to me to be that big a deal, but Apple ( AAPL ) has certainly been taking it on the chin the past couple of days, but you know that’s what we're seeing there.

RI: Well, we’re going to come back to two things on future discussions. One is going be the Dow versus NASDAQ. I've tracked that a lot, written a lot about it on Seeking Alpha.

In fact, one of the conclusions I reached is that you almost don't need the S&P as much if you just allocate between the Dow and the NASDAQ. But obviously that's a little bit more complex and sophisticated and you have to have a process for it like everything else.

I happen to believe that we are transitioning from an era where the NASDAQ handily beat the Dow, but that the Dow will likely outperform in a down market. That's what the weight of the evidence is telling me. Neither of us are gamblers here. So, we're not going to say, oh, I think that, so let me do something with 80% or 100% of my money, unless it’s T-Bills.

And on the covered calls, I think we'll try to do a little bit more. I think people like options, they like what options can do for them. However, there are a lot of securities now in the ETF space that make it so that you don't have to go and learn what gamma and delta and all that other stuff is. You just have to kind of say, hey, I know what outcome I want. This gives me a fighting chance to do it.

Thanks for listening to the Investing Experts Podcast. Nothing in this podcast should be taken as investment advice of any sort. At times myself, Rob Isbitts and my co-pilot Matthew Tuttle, or any guests, may own positions in the securities mentioned.

You can follow me on Seeking Alpha under the profile name, Sungarden Investment Publishing. Matthew Tuttle Seeking Alpha profile name is Tuttle Capital Management. We also invite you to join thousands of people who follow the Investing Experts Podcast on Seeking Alpha where you'll find full transcripts for all episodes. And take full advantage of Seeking Alpha by becoming a premium subscriber. Learn more at seekingalpha.com/subscription .

For Matthew Tuttle, I'm Rob Isbitts. See you next time.

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