EDOW - S&P 500 Rally DIA Vs. QQQ Perma-Realism And Tech Giants' Important Earnings

2023-07-30 12:00:00 ET

Summary

• Rob Isbitts and Matthew Tuttle discuss the S&P 500 rally and DIA vs QQQ.
• Perma-realism and why investors should trade based on what they see, not what they think.
• Highlighting earnings reports from major tech companies as important events to watch.

Listen below or on the go on Apple Podcasts and Spotify .

Matthew Tuttle and Rob Isbitts discuss the SPY rally and DIA vs QQQ (1:00), why investors should trade based on what they see, not what they think (3:30) and why tech giants' earnings are important to watch (12:15). This is an abridged conversation from Seeking Alpha's recent Investing Experts podcast .

Transcript

Rob Isbitts: Welcome back. My co-host, one of the sharpest investors I know, my friend Matthew Tuttle of Tuttle Tactical Management.

He is not only a Seeking Alpha contributor, well he's that guy who took on Cathie Wood’s ARK ETF ( ARKK ) by creating an ETF called ( SARK ), which I happen to own personally right now, one of my inverse positions. That guy who created the Inverse Cramer, long Cramer ETFs. See, Matthew wouldn't want to talk about this because he doesn't like to brag about what he's done, but I can, I can brag on him.

And I am Rob Isbitts . I'm a Seeking Alpha contributor. Quick alert: A few thousand of you, thank you, have gotten to know us as Modern Income Investor . We're going back to our roots, Sungarden Investment Publishing.

We're going to do our best impersonation of the Fed. By that I mean, we're going to just keep poking at the bear until something breaks, okay? That's right up your alley. You ready to break something today?

MT: I'm ready to break a lot of things.

RI: I don't care that the market's rally - and I'm talking S&P 500 here - is supposed to stop. I'm a technician for 43 years. You are somewhere in that neighborhood. You're a little younger than me, okay, and so much better looking.

I see a shift going on right now. I've been tracking this shift on Seeking Alpha. If you want, I mean, look, I've written 160, 170 articles since like November or something, and the ones that I would say, I am most proud of are tracking this ( QQQ ) versus ( DIA ). I'm an ETF wonk, okay?

So, the Qs and the DIA and, to me, this is what is helping the ( SPY ) continue to drift higher because just when the Qs stop running straight up like a firework on July 4, okay, and then it crests. Well, and for a lot of reasons, my guess is, this probably has a lot more to do with hedge fund managers and pension managers playing catch up from what they didn't get the first part of the year because they were underweight Nasdaq and probably had their money in like solid cash flow, somewhat reasonably valued companies like a lot of the ones in the Dow.

But as far as I'm concerned, look, as a technician, yeah, the rally, it's so long in the tooth. There's so many sentiment and other things that would tell you, yield curve inversion, so many signs that this thing should turn around. And at the end of the day, I do not care about any of that.

If we go all the way up to the old highs at 4,800 and now we have a trading range between 4,800 and 3,600 from the lows last year, well, then that's what it is.

But I kind of feel like a lot of my fellow technicians are barking a lot about, oh, this is supposed to end. Well, it'll end when it ends. And I think you can identify with this, Matthew, that you can't tell the market what to do or you're going to have your hat handed to you.

MT: Yeah, I mean, there's a saying that I really love and I may have heard it somewhere, I may have made it up. So, for the sake of this podcast, let's assume I made it up. And that is trade based on what you see, not based on what you think. So what I don't like either is, well, every time this has happened, this has happened. And when the market does this, then it does this. And again, I'm looking at what I see. What I see at the moment is bullish.

And I think if you are going to be a Perma anything, at some point, you are going to get your head handed to you. And right now, I spend a lot of time on Twitter and there are a group of Perma-bears who are just getting savaged. And some of them have disappeared completely. And I really hope that those guys didn't blow themselves up, because another thing that I always found interesting and I know I didn't make this up, but it's 'the bears sound smart, but the bulls make money.'

So, I love the Perma-bears, and well, the S&P is going to go down because of this, this, and this. I mean, it's great analysis. It hasn't happened. But again, I hope those guys are okay. But to me, you've got to be agnostic between long and short. You don't need to understand why the market is going up, but I think you do need a sense of the rotations, where money is going. You've talked about the QQQ versus the Dow.

And up until today where it's flipped, you've seen money going to the Dow lately. Whereas earlier in the year, it was going to the QQQ. We go down even to the sector level, where is money going? Because money moves around. It's not just these hedge funds, these money managers aren't just buying the S&P, they're buying everything else. So, yeah.

RI: Yeah. Well, so, I would say this, the one thing that I think is pretty good to be Perma in investing, and this is really about the only thing, I like being a Perma-realist.

MT: Sure. I think that makes sense.

RI: Yes. Okay, so let's move on. There are three things that I really do care about right now, okay, and I'd love your reaction to this. So, first is the Dow Jones Industrial Average, okay? So, I think you'll get a kick out of this one as will a lot of the Seeking Alpha audience.

I heard some younger investors chatting the other day. I can't remember exactly where, but they were lamenting that the market was down 2% that day and they had lost a lot of money in their trading account. So, I looked at my phone and I'm like, what are these guys talking about? 2%?

Okay. I looked at the S&P 500. I looked at the Dow. They were down like two-thirds of a percent, then I realized what they meant. They were talking about the Nasdaq. The Nasdaq was the “market” and then it hit me. You and I are old enough. We're both in our 50s. I'm almost not in my 50s. You got plenty of run left in your 50s. Congratulations. We are old enough to remember when the Dow was called the market, okay? And everything else outside those 30 stocks in the Dow was called the secondaries, remember that?

MT: I do.

RI: They were the non-blue chips, okay? So, for me, not much of that thinking has changed. It doesn't mean I discount the other stuff, but you could take the Dow 30 and throw on maybe another 20 stocks, some of the glamour stuff and some of the others. And I mean, not trying to make another NIFTY 50. But basically, look, I just don't think a lot has changed.

And again, going back to this DIA versus QQQ thing, there are times when the Qs are flying, great. There are other times where you want to run the heck away from them and we'll get into that historical swing back and forth. Probably another episode coming up along with the inverted yield curve. I got two follow-ups for us for future episodes because I think they really could drill down questions for next time.

MT: Can't wait.

RI: Anyway, I kind of feel like I'm in the minority. What do you think here? And then I'll kind of give you my bottom line about what I think the Dow is, but I want to get your initial input here first.

MT: Yeah. I mean, all the indices, I think, are stupid. You look at the concentration in the S&P and the Nasdaq. I mean, yeah, it's 500 stocks in the Nasdaq. I mean, most people, I think, look at the 100 because that's what the Q’s are, but it's dominated by the Magnificent Seven . And then the Dow, the way it's weighted, I mean UNH is up 1% and the Dow is up like, 500 points.

And you're like, oh, my God, the market rallied today. The Dow is up, as everyone know. It’s just ( UNH ) had a good day, and that's the highest price stock in the index. So, I think they're all poorly designed. I think you ought to be watching them, but I think you get a much better sense of what's going on, looking at the equal weighted…

RI: For sure.

MT: …and looking at breath measures…

RI: And that's what I was going to say, okay? I'm thinking more in terms of, well, there's two ways to think of it. One is, lists. They're just lists, okay? 100 Nasdaq stocks although most of them don't count unless you're buying ( QQQE ), which is the equal weighted Nasdaq 100, which I think a lot of people who like Nasdaq investing, but don't like what's happened here.

Look, Nasdaq even had this first ever rebalancing, first ever of its kind rebalancing because some of the stocks got too big and it was starting to make it so that portfolio managers, pension funds, et cetera, would not be able to continue to hold the stocks because they were breaking their own diversification rules. They were undiversified.

So, I mean, I wonder if this is part of that bell they ring at the top, but I guess we'll see. I'm sure we'll come back to that another time. But when I think about the Dow, I'm really thinking about the 30 stocks. I know there’s a quirky weighting and all that, and there is an equal weighted Dow. There is a yield weighted Dow. It's ( EDOW ) and ( DJD ) for those who care. But I guess I'm looking at it as, like what is the stock market, okay?

Today, if you're an investor, and back when I was an advisor, I used to always say, there aren't many investors, at least there weren't at the time, okay? If you had your individual retail, high net worth clients, you're not saying, all right, I'm going to buy 6% of this one and only 2% of this stock for you because that's their cap weighting. You would equal weight or you would have a couple of tiers and that was it.

I think it was really the advent of something that we both hold dear to our heart exchange-traded funds, ETFs that kind of changed that, because now when you did invest in the market, you were automatically getting thrown into the cap waiting, and the more money that went into the cap waiting stuff, it created, if you will, a self-fulfilling prophecy, did it not?

MT: Oh, yeah. And not only that, but now you've got the dollar cost averaging. People do 401(k) contributions every month. So, it just keeps making these stocks bigger and bigger and bigger and bigger. Now, eventually that could cause a problem, but again, just because that could happen eventually, you don't necessarily need to be trying to trade that now, but certainly that's a scenario that ought to be in the back of your mind.

RI: Is there something as you look out to, oh, I don't know, the week of July 31, early August, right? I think NVIDIA ( NVDA ) is toward the end...

MT: You got NVIDIA coming up. Yeah, you got a lot of earnings coming up.

RI: So, is there another one in that batch that you would say that will not have been released by the time this Pod episode has that you really kind of got circled on the calendar ?

MT: I mean, it’s really, it's the biggies. I mean, NVIDIA, Apple ( AAPL ), Amazon ( AMZN ), Google ( GOOG ), Microsoft ( MSFT ).

RI: Okay.

MT: I think those are going to be the most important.

RI: What some people call, the whole freaking stock market.

MT: Well, if you look at the SPY and the Qs, it is.

Nothing in this podcast should be taken as investment advice of any sort and at times, myself or Matthew Tuttle, my co-host, may own positions in the securities mentioned. You can follow Matthew Tuttle and me, Rob Isbitts at Seeking Alpha. You'll find transcripts of all the episodes and we invite you to take advantage of Seeking Alpha to become a premium subscriber. Learn more at seekingalpha.com/subscriptions. For Matthew Tuttle, I am Rob Isbitts, and we'll see you next time. Thanks for listening.

For further details see: