Transcription
[Music] hello everybody and welcome to the investing with ibd podcast sponsored by vantagepoint. it's february 23rd, 2022, and i'm justin nielsen, your host. and joining me as always is arusha pierce. uh, arusha is a portfolio manager at o'neill global advisors. thanks for being here again, arusha.
great, great to be here, justin. i, it would be nice to, uh, to be here on better market conditions.
yeah, absolutely. so before we get started, i, i just want to reiterate. we talked about this last week for the podcast. uh, we have a survey that is out, and we'd love our listeners to help us out with some ideas of what they would like to see on the podcast. we want to get some customer feedback, how we can serve you better. so if you could go to investors.com/survey and help us customize this podcast for you, we would really appreciate it. so hope you can do that for us. and, uh, without further ado, let's go ahead and introduce our special guest. uh, this is scott sinclair, the manager of market smith and premium products over at ibd. and we call him the new arusha, basically, because he took arusha's old job. and, uh, in some ways, i think he's just writing on your laurels, right, arusha?
everything that you started. definitely improving everything. it's a new arusha with less fat, better. it's been super easy. i haven't had to work a day yet.
perfect, perfect. well, thanks for being back on the show, scott. and of course, uh, you can see scott often, uh, weekly on the ibd live, uh, show. and you have your own, uh, webinar that you do every week, the take on the market for market smith, right?
yeah, every friday at the close, i do a 15 to 20 minute video on, on the market, just to kind of keep people informed. if, if, uh, if they'd like. it's, um, it's, uh, you, it's a lot like this, except, uh, just myself.
so, so do you ever get lonely, uh, just doing it by yourself?
do you? i have arusha to. he didn't leave us. we left him. but let's go ahead and talk a little bit about what we've got in store for our guests, our, our listeners today. um, who cares about our guests? so we'll talk a little bit about the market, as ugly as it has been. uh, well, also, it seems like a good time to talk about those selling rules. now, we're not trying to go into hindsight and like, oh, see, this is what you should have done. but it is important for people to kind of learn these selling lessons about exit strategies and everything like that. so if you maybe didn't handle it right this time, you can handle it better next time. and scott will also share with us a few of the stocks that are on his radar, uh, what he's trading, as minimal as it might be. so let's go ahead and start by pulling up the nasdaq composite and that january 24th low that we were kind of looking at as, uh, you know, look, this is, this is our line in the sand for the rally having been a failure. well, we undercut that low today. so what's your take, guys?
uh, well, yeah, so we're, we're back in an official downtrend. i, i, we, we were under pressure. this leaves no choice. you have to put it into a correction. and i, i think the one thing i just want to say is, yeah, a lot of times when you're in bear markets, uh, or bear markets or bad markets or corrections, what call it whatever you want, uh, a number of these faulty days are going to fail. but you have to treat them all the same. even though you know you might think that they might fail, you have to look for something to buy. and then you get stopped out. but play really small. and now we're back in the downtrend. you don't want to use hindsight and say, c, i knew that was going to not work because one of these will work, right?
the one thing i might challenge you a little bit on that, arusha, is one of the things that made this a little bit more difficult to come in with any confidence whatsoever is just a lack of setup. so, uh, yeah, i mean, you're absolutely right. you always have to look for things to be buying. uh, that certainly is what helped me in april of 2020 because there was no way i believed that was going to work. um, but, you know, because i had that discipline and that routine of, you know, looking for stuff. but this time, gosh, it seemed like there was nothing out there.
what, what, what were you doing, scott?
justin, you know, i think there wasn't much to buy. and so, you know, you had this signal, uh, from a market's perspective, but, you know, the, the combination of merchandise things to own just wasn't there. so even if you took the signal, you should have taken it very lightly. and the odds are really high that whatever you might have bought has probably rolled over and gotten you out. um, then, you know, we have a new low in the nasdaq. and, and the good news is that, let's hope we get that second wave down. and if we get kind of a typical standard bull market based on history, you know, this is the beginning of the second wave. and, you know, like bill would talk about three waves down. so, um, you know, i really think we're probably further into the, the bear market than most people think. i know that the, the correction is on. you know, that's, i was at the gym this morning and saw on the cnbc or the tv, you know, the market's in correction. and i thought, right, you know, uh, because i think we're finally down, you know, on the s&p 10, 10, 10 today. so, um, i've been saying over and over, the market's been in the correction of bear market for a while for the, the average stock is down, you know, a lot.
yeah, right. i think, i think the stat i saw was half the stocks on the nasdaq are down 50 or more. and then, you know, it just gets worse and worse down the food chain. so if you're following closely, if you're looking for leadership, most people that, you know, i talked to and most people that we talked to kind of realized it just wasn't much to buy. and so, um, you know, you're just kind of waiting on, um, if you're looking for technology, nasdaq related stocks, there has been and have been some setups in energy and miners and mining and metals, etc. but, you know, maybe not everyone wants to, to kind of go down that road.
well, and, you know, the other aspect here, too, is not only was there maybe not as many things to buy as you mentioned, there were some things, especially in energy and all those cyclicals, uh, areas that you just mentioned. but there's also this kind of concept of using the market as a feedback mechanism. and when you're, you're throwing some things out there and you're like, trying some different things, and they, they just aren't working. you know, you're finding the breakouts rolling over, you're not getting much progress, uh, or the progress comes and then, you know, doesn't last. that's telling you something. and, and it certainly doesn't mean that you have to either be zero or 100. there's a lot of room in between where you start off small. and if the market is healthy, you start adding to your positions or increasing the number of positions. but if you're not making progress, why put more money out there?
yeah, i think it's the follow-through day signal is kind of misunderstood a little bit in that regard. it's not a zero to a hundred signal. if you're cash now, you're 100% invested in a cash account. or if you're using margin, you, you know, it's not a zero to 200. it's a, if you're zero, it's maybe you go to 10% position. or if you happen to be 25% invested, let's say you're one of those really patient people, unlike me, and you've got nvidia, you've got tesla, or apple, or something, and you just don't want to sell it because you have big gains, you kind of earn the right. so you get a follow-through day, you know, and you're 25% invested, you, you might not have to do anything. you're already invested, right? right. wait to see if you get some feedback from the stocks you own. if they're true leaderships, leading stocks, if they should be held, they should advance. and then you can start to, you know, put more points on the board. or, i'm sorry, put more, more exposure on the board. go from 25 to 35 to 50, or whatever it might be. so it's never all or none. i think, and i've said it a hundred times, all or none decisions put a lot of pressure on you. i, i very rarely make an all or none decision when, even when i'm whether i'm entering or exiting something. the only time i'll make an all or none decision on an exit is if, you know, it's, it's hit my stop. you know, i've, and i've, um, ignored other signals down the food chain. so usually, uh, by the time it's hit my stop, i've already reduced some of that stock, some of that position because it's not acting right. so i might go from a thousand shares to 800 to 500. and then it hits my stop and it's, i'm out. but, and then we get in the same way. i've always thought, why, why can't i sell the same way that we buy, right? you know, we buy in increments. why not sell in increments? and, and i, i've always done that because the pressure to make an all or none decision is brutal. you know, if i, i like the stock, but the market's not acting well, and you sell it now, you're completely out. and what if it keeps going? so if i sell a little bit of it, and it, it starts to come back, well, then at least i have, you know, that, that portion that i haven't sold yet.
so arusha, for you, i mean, you've got this, you know, cmt, these letters behind your name. and, uh, a lot of people are maybe looking at where we're at now in the market as being oversold. it almost feels like you're at this rough spot because it's almost, it's almost in some ways, if you haven't sold by now, you're kind of too late to sell, but you also might be too early to buy. so what, what do you tell people that, you know, maybe didn't take the actions that they should have, uh, previously, um, you know, and you're kind of in that no man's land right now?
yeah, now that's a great question. that's a question that i've heard many years. uh, if you, if you don't cut your losses at 8%, now you're down 30%. and what do you do? the, the sad reality is that i don't know what to do at that point, right? because that, there's no good answer. exactly. and i had to learn that this, the hard way, too. the first few stocks where i didn't cut it at 8%, i was in the 2000 bear market. and i wrote them down like 70%. then it finally clicked to me that, oh, that's why they have that 8% stop loss, because it's really hard to know where to get out after that. um, so, so the way i look at it is, learn that lesson. at this point, i don't know what, what you can do. always look for some support area. for me, what i ended up doing, even when i was down 70%, some of those, i just ended up cutting, freeing up the cash. i eventually put it in stocks that were going up in uptrends, and i was able to make that back. now, going back to that other question about oversold. when you're in really bad markets, that oversold can stay oversold for a long time, which is, and get even more oversold. yeah, and, and that's a sign when it gets pinned there at oversold, how bad that's actually negative at that point, right? it's not a positive you're going to buy it. um, so, so even things like that, that's why i kind of really ended up focusing on can slim, because it simplified everything. and it really just, and it said, hey, focus on price and volume. because if you start adding too many oscillators, too many indicators in there, you're going to get things conflicting. and it's just going to be, at least for me, it started to become too much noise that was hard to make a decision. so stop losses, risk management's always been the most important thing. and then i, i've never tried to really project how far markets could go down and things like that. i just wait for the follow-through day. and kind of like what we talked about, you try something, you look for something to buy. if there's something to buy, try something. try one or two things. and for those real rallies, the market will slowly pull you in over a few weeks, over a month or so. and, and all of a sudden, you'll start to get traction. and we didn't get that, obviously, this time around.
that's what i was just going to say is it, you know, you pull up the nasdaq composite, and there were just like these minimal things. you know, we, we couldn't, uh, we couldn't hold above the follow-through day. you know, we couldn't get above the 21-day moving average line. i mean, we got there briefly and then couldn't hold it. um, you know, the 50-day and 200-day, i mean, forget about it. those are, uh, those are distant memories at this point. so again, i think that there were a lot of reasons to, um, you know, to not get heavily invested. and even though, okay, sure, okay, this was the undercut today that we got, but we had six days of distribution since the follow-through day. so there were a ton of, uh, these, these situations where you had signals telling you, hey, there's something going on here.
yeah, one, one last thing i would say is that, yeah, it was, it was as, as you mentioned, there, all those distribution dates were showing that chances are it's going to fail. i think the fact that we undercut both on the nasdaq and then s&p and truly ended this kind of rally, right? we undercut the lows. now we have to reset the account. we're back in a market in a downtrend, market in correction. now we just kind of start everything over again. we look for a count. we let day number one, day number two, look for a follow-through day. and it just makes it a lot cleaner as opposed to the last couple of weeks where we're in this gray area where it's like, oh, maybe the market might go sideways long enough for bases to form.
yeah, but it's sort of good news that it, that it, it undercut, right? because now you've, you've got, um, this is how, if you study history, this is how lows are made. i don't know when the low is going to come. um, i don't know how, but historically, lows come when you undercut lows, you get a big washout, and then a huge reversal. and we just haven't had that kind of capitulatory washout. i, i know it's been death by a thousand cuts. it's like the nasdaq goes down one percent every day, it seems. and historically, there's a day or two or three where it's, you know, three, four, five percent, a really bad day. um, that can help to, you know, that can just wash, you know, wash it clean, clean sweep broom. and, um, you know, then you can start looking for a potential follow-through day. we're probably, i don't think we're close to that. but at least, at least now you, you kind of have that potential setup for another leg lower. so that you can have that. or even if we don't go lower, you know, we just might have to put in some time. uh, you know, who knows what, what, what the market's going to bring us. so we'll just have to again, keep on looking at that price and volume. look at those, uh, you know, wait for that follow-through day. and look at the individual stocks too, as our indicators. so when we come back, we're going to talk a little bit more about some of the lessons to get from this latest downturn, some of the selling lessons, and maybe even some of the shorting opportunities there might have been along the way. so stay tuned. we'll be right back.
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okay, welcome back to the investing with ibd podcast, sponsored by vantagepoint. it's justin nielsen along with arusha pearis and our guest this week is scott sinclair from marketsmith. so, uh, scott, you know, one of the things we do a lot around here is the, the whole post-analysis. and in, in doing kind of your own post-analysis of this latest downturn, what are some of the things you feel like you did well? what are some of the things that you, you know, wish you had done a little bit differently? again, hindsight is 20/20. so this isn't the idea of, oh, you know, you should have done this, this was obvious. but were there parts of this that were obvious and maybe a little bit easier for you to handle, just based on your experience?
well, a little bit. i think if you study history, then you're always flexible and open to the idea that this can happen. so, you know, i started in 1995, so i've been through the, you know, the long-term capital crisis management, the 2000 bubble, the great financial crisis, you know, covid. it's just the market just continues to amaze me, which is why it's so much fun, but so difficult. so i'm, i'm always of the belief that these stocks can do anything. they can go up. tesla, you know, it can go up 20-fold or whatever the number is, and then it can go down 72% because that's what stocks do. i know a lot of people think, you know, they get stuck in in these types of things. so, but one thing that i've done in the last few years, at least, is i, i just kind of stay with what's, what i do best. one of my favorite quotes, and i hope i don't butcher who, who quoted it, but it's from mark, hedge fund market wizards, is "do more of what works and less of what doesn't." and i think it was scott Ramsey. but i know it's the book, hedge fund market wizards, by jack schwager, which everybody knows.
and so, stop, let me stop you there. how, how, how did you figure out? how long did it take you to figure out these are the things that i do well at versus these things, and i'm just going to get rid of those?
a long time, arusha. i mean, how much time do we have? i know, i know it's crazy. i, i, i don't know if i've told the story on a podcast, but i think i've told on ibd live. but the first time i went to the, the kansas masters program, and charles harris spoke, and he said, you know, "i've never had a long-term capital gain." right? and the room, because there had to be 200 people in the room, and everybody just roared with laughter, except me, because i was like, oh my gosh, i've never had a long-term capital gain either, because i've never held something the 12-month window or whatever. and it was very enlightening for me because i was like, ah, you know, here's the guy, charles. he had shown his track record, and, you know, he runs money for william o'neill. he's a portfolio manager. and that's, he, you know, at least at the, what i could observe from him, he, we traded, you know, sort of similar. so that was, um, that, that was a relief because i, i've always kind of felt like, gosh, how come i've never had an apple or a google or, you know, somebody's pick and save like bill has? and it's just, just my personality. just get wiggled out along the way. it's, it's, you know, they just don't go up in a straight line, unfortunately.
yeah, right. you know, if a stock goes from 100 to 200, from, you think, well, that's 100 points. but i, it probably moved 500 points if in that move, and it just, somewhere along the lines, would get me. so i've just always been a seller, at least trimming into strength. i've just been doing it. and i know in 2017, it hurt me because the market would just stair-step, stair-step, stair-step, and i underperformed, um, the, the nasdaq that year. i think the nasdaq was up like 30-some percent, and and i was, you know, 500 basis points less than the nasdaq or something. i was less than the market because i would trim. and the one thing about the market, it's always fully invested, right? right. yeah. so if you have sell rules and you get out because you get a sell signal, but, and the market comes back, but you're, you know, you're underinvested, so to speak. so in the last few years, i've just gotten comfortable with, you know, this is what i do. and and i underperform. that's, that's, i'm okay with it. and in, in 2020, it was fine because there was so much merchandise, i could get out of something and, uh, and move on to another name. so that, that, that didn't hurt me like it, uh, 2017. but, uh, this year, having sell rules, and, and partly, i think, really honestly, in the last half of last year as well, it might not seem like it for the indexes, but the, the, the markets, the turbulence, the problem with the market has been a long time coming. and so, you know, you, you're like the boy who cried wolf. if you have a sell rule, you know, you know, the one thing about having a big winner, if you're going to hold something like an nvidia or google or something, you're going to have to ignore a number of sell signals along the way until the final sell signal, which, which works. and then it's like, well, how come i didn't get out? well, you didn't get out because you ignored some of the other sell signals along the way. so i would just rather not ignore it, knowing that, you know, i can always get back in. maybe it's going to be, or probably at a higher price, but i'm okay with that. so i just do better like that. so i've just found that if, you know, if i don't, let's say i buy something at 100 and it goes to 130, and i'm just going to be a seller on the way to 130 because i've reviewed and looked back and found like, let's say it went to 140, but there was a sharp break in the market down to 125 or something. a lot of times, i was selling at 125. yes, sure, i was getting scared. you know, so i was better off taking 130. you know, that's a, you know, that was a better price in the long run. and you can stack those on top of each other.
and did you, did you just kind of do, um, you know, an analysis of all of your trades, or did you just kind of go by feel? were you looking at hard numbers? what, what kind of finally convinced you, hey, this is, this is what works for me?
i, i think there's a lot of personality in there. i just think it was what i was most comfortable with. also, i might have been trained to do that because i, for a longest time, this, this is the first kind of real job i've ever had. and i, i was a broker for a lot of years, but it was strictly, you know, commission-based. it was old school commission-based business. you know, you eat what you kill. and i started to get some money in the market was doing this, and really was making my living from the market. and so when you're doing that, you're kind of getting this mentality, if you got to make money every month or every quarter. uh, and so you, you just develop these habits of, you know, i've got to always be in the stocks that are moving. i can't, i don't, i can't afford to sit through a base. so if i think the stocks, you know, short-term extended, i would get out and look for the next name. and, and, and so, you know, some of that is, is just kind of a little bit of personality, but some of it maybe it's just a lot of years of doing that. and so i've tried to, to retrain myself, and i've gotten a little bit better. partly one of the reasons i wanted to come work at william o'neal and company in ibd was, is kind of get back on that bike to, you know, maybe re-learn the rules and, um, unlearn some bad habits that i had.
yet, scott, now, one thing that, and we've known each other for for a long, long time and worked very closely together for a long time. one thing that i was always impressed with you, especially when these markets were starting to turn, you were able to shift that mindset to going long to going short. and, and you did it again this time around. how do you manage that balance? because i've always found it really hard to switch. and so the, for me personally, and this is one thing that took many years for me to learn, is for, for the most part, i'm kind of more long only. when the markets get tough, i'm gonna go, most of the sidelines. maybe i'll do a little bit of shorting of the indexes and stuff like that. but how do you balance that by going long and then shift that mindset to now you're going to short?
yeah, it was experience. it kind of, the, the time frame that i, that i came up in the markets, you know, i started in 1995. and if you look at a monthly chart of the nasdaq, it's like, oh my gosh, this is right. started right. i opened my, my, my own personal account in march of 1995, and it was just nothing but up. um, so, you know, i, i just was trading and trading and man, i was an active trader. i was really, you know, moving around full margin all the time. sometimes, you know, you know the story, arusha. sometimes more than full margin because back then they didn't have the checks and balances that they do now. so i would literally go home 4x stocks because i just didn't know any better. you know, that stock looks great. what, you know, why do i not want to own four times my account in it? and i'm sure at that point, your salary was basically paying for your commission. so i was my best customer as a stockbroker by far, by far. it was, uh, yeah, because back then you had to, you know, pay commissions. so, um, so i was very active doing this. and, and that was, like i said, i was making my living from doing this. and then in 2000, just dumb luck or whatever, but i was able to recognize that, you know, not at the top, but i just knew that it was a bubble. i, i know that sounds crazy, but i did. and it just was a matter of, you know, i just knew i was making too much money. the people around me were making too much money, and it, it was going to end. i didn't know it was going to go down 90%, but i knew it was going to end. so in 2000, i started getting short because i knew that it was going to end. and i was studying history. and i thought, history says this can go down a lot. there's potential for it to go down a lot. so it, i made the most money i've ever made in my life in 2000. not the greatest percentage-wise, because i had a little bit more money in 2000 than i had in 1995, 1985, at the greatest percentage i'll ever have. but, um, i made the most money in 2000, which has been a blessing and a curse, to be honest with you, arusha. yeah, because when you get the short side right, it's fast. it's furious. and you know that for, and you can get, you know, the nasdaq's not going to be up 6% one day, unlikely, right? right. but when you're in the short, in an environment where the market's in bad shape like it is now, it can be down 6% or, you know, something. and, and if you're short the names that you know are our high beta, high alpha stocks, they, you know, they can be down 10, 12, 15%. yep. so, you know, i, i made, you know, that feeling of being able to make that kind of money, like i said, honestly, honestly, it's a blessing and a curse. so, um, i've just had that kind of switch where, you know, i want to, i know it, i like, oh, you can make a lot of money from being short, but it's, um, i've also learned that it's, you know, there's been some, i've had my worst days in my trading life from being short. um, overstaying my welcome. so i was short fannie mae, and the government came out, and, and i don't even remember what the news was that you weren't allowed to short stocks, or they were going to backstop it, or i don't know what the news was. but i'll never forget watching that stock go up 20% in about an hour. [Laughter] yeah, and i was frozen the whole way. so, um, you can, you have to, the short side's a very difficult, um, animal. but i think it, that i developed this, the style and the strategy and the, uh, is it probably would be from, you know, 2000, from, from trading that 2000 top.
well, now to put that into present day, uh, what we had here, and, and this is, this is fairly common. you, you don't go straight down. a lot of times, you'll, you'll come down, you'll have these rallies. um, and you, you really have to kind of gauge this concept of when, when does it become too obvious? when, when is the pendulum shifted too much the other way? so maybe you could walk us through, and maybe, you know, you could use an individual stock if you want, or maybe just use the nasdaq to kind of talk about some of these concepts. because i know one of the things i've really respected on ibd live that you've done is you've been very spot on in terms of, hey, this is where i'm covering my shorts, because now it's, you know, now it's a little bit too obvious. we're undercutting these lows, and, and so on. so could you walk us through a little bit of the, the present day, uh, on how you've been handling things?
one of the things about shorting that's even so difficult too is that you can't turn the charts upside down and say, okay, it's breaking out of a reverse cup with handle. that's the time to short. that's not the time to short, in my opinion. that's the time to start covering. so you need to short into strength, which is very difficult. because, you know, you're shorting into strength, and there could be a couple of days where you have to learn to endure a lot of pain. because, you know, if the market's up, if, if i'm shorting into some moving averages on the nasdaq, like it's rallying, i might, if you're a day or two early, you know, you, you could be down two, three, four percent, uh, on the indexes. and if you're, if you're on the, uh, the individual stocks, it, you know, it could be, it could be worse, for sure. so that's what makes it real hard. is you got to short into strength. um, and then you need to cover on weakness when it looks obvious. so like now, we're undercutting the lows, and, you know, maybe today, um, might be one day too early. but like, i only have one short left as we sit here, because i've covered shorts, you know, for the last three days. i've taken off names into the weakness. so, um, tomorrow, like if it was, if we had like a really bad washout day, then i probably won't be short anymore. so you can't, you have, you have to, when it's breaking these lows right here, it seems like, oh, that looks like a short. that look, you know, we're breaking support. but my experience is, uh, that's when you're, you, you can get run over. so you have to, you have to be careful shorting like that. you almost have to kind of just go against your emotions at that point, right? where you're, you're seeing like today's a perfect example. you just kept seeing the market getting worse and worse and worse, and you're like, oh, this is, it's breaking support. you're, you, this is the time everyone's going to give up. and it's just too late. you know, that, because i'll find out the hard way, where i used to do that. it's like, it would right here would be where i'd short, and i just get run over in a few days, and wondering what, why, why is it not going? it broke support. yeah, i, i was with about a half hour to go. i thought, man, we're gonna, the market's gonna close on the lows. we're gonna cut the low. and my thinking is, tomorrow's going to be a bad day, and i want to be short. you know, so i was, i pulled up, i was going to buy sq, which is the, the reverse of the nasdaq for my iras. it's a triple reverse, right? and, um, because it's an ira, you can't go short if you want to be short in an ira or a roth. and, and i do, i sometimes feel like you have to use these inverse etfs. so i, i pulled it up and, and was about to put the short on because i'm like, it's, it's, uh, this, this is going lower. and i didn't do it. i, i just, i didn't pull the trigger because it's like, it goes against everything i've just said. it's, it's, it's the time to be short was two, three, four days ago, uh, before you get this wash. now, could it be up a dollar tomorrow or something like that? yeah, but i'm, i want to deal in probabilities and the risk reward. so to me, the, the risk reward wasn't wasn't skewed in my favor by taking the short now. even though i feel like, you know, we're going to go lower.
now, how do you kind of put into all of this analysis, the whole geopolitical, the rate hikes, the, the wall of worry that's going on out there? it's not something you pay attention to at all, or are you just really looking at the charts?
i don't want to say i don't pay attention because you can't help but notice it. like, i, on twitter, i like to use twitter for sentiment. um, i like to see if people are talking about the stocks i own, because if they are, then i want out, because then i know that a short-term, a short-term, uh, wiggle, it could be likely. you know, and so i'm aware of what's going on. but, you know, wow, you talk about above my pay grade. it's just totally impossible. so, and we'll talk about it maybe in the next segment, but i am long gold. and there must be some, obviously, the geopolitical tensions have, there must be something built into that price. uh, i've been long it before this occurred, and so i felt like it was going up before i kind of, you know, knew what was going on in, in, you know, ukraine. but i can't ignore the fact that some of that strength has to be attributed to that. and that if that, if the tensions were to end, uh, uh, you know, what would happen to gold? you know, i have to have to, i know that it probably would be down. so then i have to say, okay, i kind of think, well, how much would it be down, and can i handle it being down? and, and so, yeah, you have to think about it. but most of my, um, my analysis is just going to be, you know, price and volume. and the narrative. and the fed is an important narrative for sure. it's, it's one tier lower on my, um, pay grade as far as ukraine and russia. i might know the, understand the fed a little bit better than that. but the fed is an important, huge factor in stocks, and has been my entire career. and marty's wide, you know, "don't fight the fed" is one of the first things i learned. you know, when, uh, i think even bill has it, the quote in his his book. so i've been negative in to this, because as the backdrop, prices are going down, and the, the fed is, they just don't look like they're going to capitulate just yet. now, at some point, they might capitulate. you know, and then you have to change. kind of like with, uh, the whole, you know, 2020 and 2018, the fed taper tantrum, and, and all of that. you have to be aware of it. but, um, you don't want to be, i don't want to try to guess what the fed's going to do. and i definitely don't want to try to guess what, you know, is going to happen in, in russia/ukraine. so i just, i'm just going to go with, you know, kind of what they say. the fed says they're going to raise rates, so i'm going to, until i see action that tells me, wait a second, the market's acting contrary to what they think the fed is going to do, then i'll just keep that in the back of my mind as is, you know, it's part of my playbook.
well, when we come back, we're going to get a little bit more into what your playbook looks looks like right now. so make sure you all stay tuned for that. we'll be right back.
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okay, welcome back to the investing with ibd podcast, sponsored by vantagepoint. it's justin nielsen here along with arusha paris and our guest scott sinclair. so scott, uh, before the break, you were talking a little bit about how you had a position in gold. so maybe we could start with gld, which is an etf that kind of goes over the spot price of gold. why, why this one? and do you look at the gold miners too, or is it just really about the, the price of the commodity itself here?
well, mostly it's going to just be price action. it's going to be like 90% of my analysis. you know, like i mentioned previously, i, from a macro standpoint, uh, it's very, very little goes into my decision-making. but the price is just acting abnormally good. uh, gold has gone up and gone down and gone up and gone down. and more people out. and and so maybe there's a possibility that it can go up a lot, right? and so i want to, as a general rule, with everything you buy, whether it's gold or twilio or google, you want, you want a chance to make a lot if you're right, and lose a little if you're wrong. so the relative strength line is really shooting up. the relative strength rating is 86. uh, i, i was before the, the in the break here, i think we were saying, i don't think it's ever been that high. i don't know for sure, but i would venture a guess it's never had an rs rating of 86. now, remember, it's relative, right? because since everything pretty much is going down and gold is, you know, going up a little, it's relative to everything else. it's really shooting up. so i just, i, i think there's a potential for a huge move here. and if i'm wrong, and, you know, barring a a gap down where i can't honor my stop, like i'd like, i'm risking a little to make a lot. and and that's what you should be doing all of the time, whether it's gold or xyz or is any of the other stocks that i mentioned.
and can we just define what, what to you is a lot? you know, a move for gold here?
that's a good question. because i'm, i'm going to, you know, if it, if it ran to 2500, you, you know, i would be out way before that. but i'm also using, um, a much larger position size than most people. like for me, in a normal position would be 10% of my portfolio. i, i'll even go to 30%. i don't go much further than that. i think a few months ago, i can't even remember what it was. i think it was cf. anyways, i had a, i was at almost 40%. i don't remember if it was cf or not, but it just made me really uncomfortable. and so i, i, that's the kind of feedback i need to know what the right position size is. so this is a pretty good sized position. and, and for most people, you know, 10, 15, 20% is just unheard of. they would never do that. but i've been doing this a long time, so i'm super comfortable in in that kind of sphere of, uh, exposure, because i know that i'm going to get out quickly, uh, if i'm wrong. so, um, i, i have one of my favorite sayings, another one. i know i mentioned i'm big on sayings, as arusha knows this, is i haven't pasted to my board everywhere. it says, "courage, patience, imagination, and execution." and the imagination is, is really imagine that it can go up a lot. like i have. you know, if the people that made so much money in tesla, they really imagined that it was going to do what it did, right? and and so you have to kind of have this imagination that it can go up a lot, or the opposite, you know, that it can protect you as well. yeah, right. if you have the imagination that it can go down a lot if something goes bad. so, i, i would say, you know, 20, 25% if, if i captured that with the position size that i have, uh, i would be really, really happy about it.
no, i mean, that that can definitely add up to a lot. now, scott, with, with gold here, at least with the gld, what was it? were you entering it as it was getting past that 173 area, that short-term resistance within the, the flat base?
yeah, 211 is the day i entered the trade. and i own calls. uh, i own options. yeah, that's what that looks like. exactly. what i'm even more, you know, levered to the price when you own options. so, yeah, that's that, um, the day. okay, 211.
and, and maybe you could talk a little bit about this long base that's on the monthly chart. so, you know, some people would look at that and say, hey, this is, this is something that just hasn't gone anywhere for years. so what to you makes it look like, hey, now, now's it's time to shine?
they are right. yeah, that hasn't gone anywhere for years, right? it's, it's basically at the 2011 peak. uh, gld topped around 185, and here we are at 178. so in the last 11 years, you know, it hasn't exceeded that high. uh, but that's the idea that maybe that could take off from out of the space. i like to look at monthly charts a lot when i'm buying something, because if it's coming out the beginning of a long sideways price action, maybe something has changed, right? like, if, if gold is, if all of a sudden it's in, using gld as a proxy, 180, 185, 200, the market is telling me that something has changed. and so there's a possibility that that change could be really huge. so, um, it hasn't gone a whole lot, but all the relative strength is starting to turn up, and that, you know, the rating is much higher. so i'm thinking that that this is that maybe there's a setup here that it could be more timely, especially if i'm
Going to use call options right now. They're long-dated. They're, they'll, they're all the way out until uh August or July of this year, and I can always roll them if I want. But anyways, um, yeah, I need, I'm, I need a catalyst, right? And so the, you know, the catalysts, uh, would be a bear market and, you know, that maybe we're in, or, um, the, you know, Fed tightening cycle that goes awry. Anything can happen. Nothing I could ever predict. I just have to be there and and follow the price action.
Yeah, well, I mean, it's gone up. But if you look back like at 2019, it's gone up like 50, 60 percent, right? And over the last year and a half, it's held most of those gains. So there is a little bit of a character change here. And then you look at the larger part, it could be breaking out of this monster cup with handle. And gold is, if you follow gold at all, it's just disappointed people for. That's true. Even the gold bugs hate gold, you know? So exactly. And so that, that appeals to me a little bit. The contrarian in me is like, gosh, nobody likes gold. You know, Bitcoin's the new gold. And so it's like, if nobody likes it, why is it going up? And that, that, that, um, that appeals to me. But, you know, it's a little bit off the reservation from what, you know, we normally do. The can slam. There's no earnings, there's no sales. It's a pet rock. Believe me, I know all of it. I know all of it. You don't have to at me about it. I understand. And if it goes down, I'm gonna get out and, you know, take a small loss at this point. Maybe I, I could lock in a small profit or something if it doesn't work, you know? So I get it. But it's, it's that's what appeals to me is the potential for a really big move be, you know, based on the fact that nobody likes it and the price is moving the wrong way. Somebody's pushing the price.
So in kind of a similar vein, maybe we could take a look at EWZ. Now, this is, uh, a Brazilian ETF. So it's kind of keeping track of Brazilian stocks. It's an index made up of Brazilian stocks. And this is another one. If you kind of go back to the monthly chart on this, um, this, this really hasn't done anything since the, the great financial crisis of 2008. Um, it's, it's kind of been in this, this long-term, um, you know, consolidation. And I mean, I remember, uh, before that, you know, you have all of the buzz was about the BRIC nations, right? You know, um, so what, what's attractive to you right now about EWZ? Because this is another one that you said that you've been following.
Yeah, I do own this one as well. And I have an analog that I came across that makes me think this could go on another long move. And it's an ETF, so it'll be a little bit slower. I've gotta temper my enthusiasm for normally how I trade. But, um, if you look at EWZ right on a weekly chart and, okay, great. Thank you. You can, it's, this is week seven, uh, today's Wednesday. But and if you back date a Nasdaq chart to let's say May 1st of 2009, the start of the this massive, I guess, you know, cyclical bull market we've been in that maybe is ending. The Nasdaq did the same thing. Went two, four, six, nine weeks up in a row. Yeah. And then ran right into that 40 week right where if it's a bear market rally, it should, it should lose steam. It should get hit right there. You can also see the three waves down, which is perfectly displayed here from, you know, 2155. You rally, then you, 12, 12.95. You try to rally and then you undercut that low, which is that three waves down I mentioned earlier. But you, you run into a little bit of resistance here, but then you go on a, a long bull market. So, you know, commodities and these areas are have just been way under invested, way, um, under exposed to capital for years and years and years. I, I saw a chart of, you know, tech spending in capex for tech and capex for commodities. You know, it's the old alligator jaws. And so it's the, it's again, it's a risk-reward trade. I think if it's the start of something big, like big, I can risk a little to make a lot. I think I don't even think it was down today. It was up six cents today. So is the market getting hammered? It's just kind of sitting there refusing to go down. Uh, and so that, you know, if you're going to play and and I like to play, you know, I take, take this seriously. I don't know if play is the right word, but I love the markets and I have a, a hard time stepping away sometimes. So I'm always looking for areas to to be invested. And so if you're going to be invested, you know, you can't be in the Nasdaq right now. That area is just under fire, uh, there. But there are areas that are that are holding up or trying to.
Okay, so let's go ahead and now this isn't necessarily related, but we'll go to Rio now, which of course is a metal miner. Uh, so Rio Tinto, this is a UK-based company, ticker symbol RIO. This is another one that again, a lot of these cyclical names have been where the action has been lately. So walk us through a little bit of what's attracting you to Rio.
Set up. You actually have a pivot point you can buy if you want to. There's a really large cup with handle here, but the relative strength, you know, is the RS line is almost new highs and the RS rating is 88. And it's just outside that universe of tech. And so if, if this market gets really bad, if we go into a longer term downtrend, there's a lot of of money out there, tons of it, that that has to find a home. Um, we don't always like, I'm, if I'm running my own money, I can be in cash if I want, or I can be 20% invested and I, and you know, I, I don't know what Arusha's mandate is, but I know some of his, I would imagine some of the institutional money he runs, he can, he can be on the sideline. But very few people have that luxury, you know, in the institutional world. So some stuff will hold up and, you know, it'll try to, and money's going to go where it's treated best. And and if these, if this area, uh, if we're in a long potential boom, if, if, you know, history repeats in 2000, tech topped and what happened? Right? You had a huge, uh, emerging market boom, commodities boom. The potash's of the world went crazy. Uh, so you could have that type of, uh, potential setup. And so if it's, it's an area where, you know, if you're looking to put money to work, it seems like the, the money's being treated best in these ones.
Yeah, I just pulled up the, the monthly chart in Rio and it looks like it's, you know, setting up to emerge out of a monster base here too. Yeah, it's, it's probably, I don't know if it's ever been, maybe it was in the 80s, 80s in May of 2007, right before the crisis, 2008. Yeah. So again, you know, if, if the market's telling you something when it, you know, partly go back to Bill's, you know, all-time highs, you know, I, I when stocks or markets or whatever it is, when they make a new high in price, it's a signal that something potentially has changed. And it's the toughest signal to take because we're, you know, we're not used to, uh, that price. I find that, you know, I see that people want to buy stocks on the way down. And as hard as it is to believe, I think in, even the statisticians, that there's a guy I follow that I read a couple of his books who prove that stocks are actually safer at higher prices. You know, so it's crazy to think that. But yeah, Tesla was was much safer at 700 on the way up than it is, it's 700 right on the way down. That's an interesting idea. So when Tesla first made its great, the first time it ever hit 700, you know, there, there was there was a little risk, but a huge potential runway. Now it's the reverse. I see people that want to buy this on the way down because they love the company, etc. They can get it on the cheap now. Yeah, it's, it's, it's so much more riskier here at 700 on the way down, then, uh, versus on the way up.
Yeah, I should mention that I do have a tiny amount of Tesla still, just just trying to get a feel for it. And it's not a very good feeling right now. I know a lot of people do, which is, yeah, a lot of people. Charles, uh, I don't know, I assume he still has his position. But it, I think Tesla, if we're going to go down the Tesla road, is is the poster child for this bull market. Such an important stock for sure. And and I, and I, it's been a very good barometer for me for for trading the markets because I watch that one closely and I'm in it a lot, uh, usually on the other side of everybody else, which is short. But, uh, it, when, when the last few months, Tesla has not been able to rally in, and so it's told me that, you know, if Tesla can't go up, then nothing's going to go up. And that's why you should be following these leaders.
Yeah, I think that's a really important concept for everyone to to hear is, you know, watching those leaders and how they behave. I remember even with a, with Google, when they reported earnings and they had the earnings gap and it was breaking out of this consolidation past 3000, that was one that I was watching very closely to see how are they going to treat one of the, the big stocks in the market after a good earnings report. And we found out very quickly, they're not going to treat it well. And so that was telling you a lot about the, the overall market right there. There's a lot of wisdom in watching stocks that are leaders that you don't own. Yeah. Right. A lot of people don't realize how, how much feedback you can get from out. Uh, I almost said Alphabet. I'm gonna call, I always call Google, Google, Nvidia, Tesla, Apple, uh, Facebook, PayPal. And you go all the way back to December. I was looking, you know, December, uh, third, when DocuSign, uh, blew up. Yep. That was December 3rd of last year. That was a really bad omen for the market that, you know, that stock was down 40% on a gap in one day. Yes. And so when you see that, you should, you just say, whoa, wait a second. You know, that's unusual price action, the wrong way. Maybe there's more risk in the market than I, than I see. Because at that very moment, the Nasdaq and especially the S&P is probably pushing, uh, brand new highs. Yeah, the S&P was, uh, was 4700, you know, on its way to 4800 when that, when that happened. Yep. So in, and these are things that as you get, you can, you can learn them the hard way, which most of us will do, right? Or you can go back and study history, uh, which will help. But in my experience, you'll still have to learn it the hard way, uh, because and you're gonna have to learn the hard way more than once, unfortunately. I, I don't know why. I've, I've made all the, the, uh, amateur mistakes more than once. You'd think, well, one time should be enough, right? But it's, emotions creep in. And this time will be different. Famous last words. I don't know. It doesn't seem to be. But, you know, there's, there's two ways to learn. And and the, the, the cheaper way is to study history and see, uh, what's happened before and and try to learn from that. But maybe the one that sticks with you is the one that hurts the most.
So well, you feel it more when it, which is why I'm a big proponent of skin in the game, of being in the markets, of, of if there's a follow-through day and you're at zero, put on a small position because I just think the feedback is so much exponentially greater when you have a position versus paper trading or just watching. You know, I just find it, it's, I just don't feel it's have that same feel when I'm on the sidelines.
Well, great, uh, great advice for people and a lot of lessons to kind of learn from this. So thank you very much, Scott, for showing up on the on the show again. So always great, great to have you. Thank you, guys. We'll see you later. Okay, wonderful. And, uh, next week, keep in mind that we are going to have Pedro Palandrani back on the show. He is a research analyst at Global X ETFs. Last time we got his take on infrastructure and EV lithium plays and all of that battery technology. So it'll be interesting to check in with him and see what kind of thematic investing he's seeing on his horizon. So make sure you come back for that. Thanks for watching today and we'll see you next time. Make sure to subscribe, rate, and review our podcast if you haven't already. We'd really appreciate it. You can also send us your questions and comments to investingpodcast@investors.com. We would love to hear from you and may use your comments on an upcoming episode. Hey everyone, thanks so much for watching Investor's Business Daily on YouTube. If you want to watch more videos, make sure you hit that subscribe button so you don't miss a thing.