Craig Johnson, Managing Director, Chief Market Technician Piper Sandler
Craig W. Johnson, CFA, CMT is a managing director and senior technical research analyst and directs Piper Sandler technical research group. Johnson joined Piper Sandler in 1995 as an analyst in the firm's private client research department. He offers frequent technical commentary on the broader market and individual stocks. Johnson earned his B.S. degree with an emphasis in finance and marketing and his M.B.A. from Drake University. Johnson holds the Chartered Financial Analyst and Chartered Market Technician designations and is an active member of the Twin Cities Society of Securities Analysts and co-chapter chair of the Minnesota Chapter Market Technician Association. He is also the President of the Market Technicians Association and leads its Board of Directors.
Craig W. Johnson, CFA, CMT is a managing director and senior technical research analyst and directs Piper Sandler technical research group. Johnson joined Piper Sandler in 1995 as an analyst in the firm's private client research department. He offers frequent technical commentary on the broader market and individual stocks. Johnson earned his B.S. degree with an emphasis in finance and marketing and his M.B.A. from Drake University. Johnson holds the Chartered Financial Analyst and Chartered Market Technician designations and is an active member of the Twin Cities Society of Securities Analysts and co-chapter chair of the Minnesota Chapter Market Technician Association. He is also the President of the Market Technicians Association and leads its Board of Directors.
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NewsTranscript
00:00 Right. So so Craig a month ago Goldman Sachs told us that couldn't go any higher than
00:06 4700 next year and
00:09 Now they're saying
00:11 5100
00:12 You you've got a you start to your mantra a little over a month ago
00:16 I probably should have pulled up the exact date and you just told us just to sit tight here sit tight
00:23 We're gonna have a rally gotta look at the small caps and presto your your direct pipeline
00:30 Are you a fat are you on the Fed or you is that your new job?
00:34 Are you gonna come on today and announce that you are replacing Jerome Powell?
00:38 That I am NOT doing that is 100% for sure
00:42 What I will say though is this is a market that got sort of pushed down too far. It was sort of a
00:49 Beach ball below the waterline and when you get the breath measures in the market that beat not bit springs back
00:54 That's what we've historically seen but you know, Joel I think it's more important at this point in time to talk about
01:00 2024 if that's okay
01:03 Absolutely, and you could die you can drive there
01:06 I know you know how to do it if you want to share your charge go right ahead
01:09 But yeah, who cares about the past we want to know about the future. Well, that's that's exactly where we're at
01:16 So, let me just get to the right window here
01:18 I think this is it right here. I can see the future
01:21 All right. So can you guys see that on my screen? I got you Craig. Yeah trading range, right?
01:28 HLTR so 2024 we think is gonna be a
01:32 HLTR and I hope you guys make t-shirts and hats and everything else to go with it a whole new clothing line
01:38 but HLTR stands for a high level trading range and
01:42 I'm stealing this phrase from a good technician friend of mine that used to work at Fidelity by the name of rich Gula
01:48 He's honored and pleased that I'm stealing his title, but into the day
01:53 I think this is a market that's gonna just grind right up to those old highs
01:56 4800 40 25 ish range our year-end objective for
02:01 2023 has been 48 25 and I really do think we're gonna get there in the next eight to nine trading days
02:08 Like we're very very close to getting there and from my perspective. We're gonna get there
02:13 Then we're gonna probably end up in a period of consolidation and we probably end up in this high level trading range
02:20 probably for a good chunk of
02:23 2024 before you finish the year higher with a 50/50 year-end objective not that I'm questioning it
02:30 But our point and figures came up at 50/50 for a year-end objective
02:34 It's gonna be a good year next year
02:36 But it's a totally different trading setup in 2024 than what we had seen in
02:41 2023 and let me show you a couple of these charts that I've put together in here. So take a look at
02:47 This is what I think the year is gonna look like and everybody looks at me and they go you're out of your mind
02:52 Johnson that you're gonna go put some forward-looking projections out here like this
02:56 But as you guys all know and your listeners all know I'm not afraid to put my neck out there
03:01 I'm not afraid to be wrong, which I'm Wall Street would do more of to be honest with you
03:06 I agree and at this point in time, I just see this consolidation range and
03:11 Again, think about it. We got a pretty contentious election next year
03:14 So if you want to think about what the key themes for next year are gonna be
03:18 equity stall near the 22 highs
03:21 Breath improves and expands and you enter this HLTR and all these big stocks Apple
03:26 Microsoft all those mag sevens
03:29 They go from mag 7 to lag 7 and you watch all these small mid caps start to play start to play catch up
03:36 Put that together with the election uncertainty
03:39 We've already seen the Fed number four theme has already happened with them now coming back and saying hey
03:45 we're gonna cut rates as we get into 2024 and
03:48 Inflation is moderating but not enough not to ask for the raise just to be clear and then sometime next year three and a quarter
03:56 three and a half
03:57 Probably mid part of next year is where you see the 10-year bond
04:00 You'll work your way down to and that's gonna keep a nice steady bid for equities
04:05 So you're
04:07 Sorry, you're thinking mega cap maybe just hangs out
04:11 Consolidates and it's more gonna be that small cap continues to play the catch-up trade here as you know rates are as inflation has peaked
04:19 And looks like rates have peaked as well
04:21 Absolutely. Look at this little chart that we put together in our weekly piece yesterday, right?
04:26 If you look actually look at small mid and large stocks and compare that to the mag 7 now the lag 7
04:34 You can see here that small cap stocks are outperforming
04:38 You be your mid cap and they're all performing the mag 7 and the S&P 500
04:43 So the breadth of this market is really starting to expand. Yeah, that is a constructive and healthy sign for this market
04:50 But there's such large weights of the market that's where the HLT are and the consolidation ring comes into play guys
04:58 So I guess depends the index you're looking at too
05:01 So you think the IWM probably going to outperform the S&P next year? Oh, I
05:06 Absolutely think that is gonna be the case and I think for the first time
05:10 Let's see here. Yeah, I
05:13 Think for the first time in a while, we're gonna finally see this this Russell this Russell
05:21 Finally start to break out
05:23 Your consolidation range because if you think about the composition of this particular index it is primarily financials
05:31 industrials and health care health care still struggling
05:34 But the relative strength inflection point with these and with these financial stocks is absolutely amazing
05:41 And again, you know Dennis look at this chart right here
05:44 I'm gonna zoom into this so you can see that everybody gets to see these charts, right?
05:48 But when you zoom into these things and you look at the total return of the financial sector
05:54 This is all financial stocks above a 25 million market cap in a $2 price
05:58 Here is unweighted and market cap weighted. Come on buy seller hold on this chart
06:04 It looks like we're starting to and again just thinking of the rate environment here, too
06:10 I mean if rates have indeed peaked if we do believe the Fed here
06:14 It's got to be good for all these interest rate sensitive stocks. Not just financials
06:18 I mean, there's so much in the IWM that is you know, that's has really been hurt by higher rates, right?
06:24 So we're going to take that you know
06:25 And that's what's really been holding down the ball like you talked about this ball under the water that won't stay what's been holding down
06:31 The ball is the Fed if the Fed's ready to release that ball. I'm with you here
06:36 I mean there could be a catch-up trade 2024 the Fed gave you the green light
06:40 Right, that's why the violent rally in the IWM like I mean violent like you don't often see an 8% move in two days
06:49 And that's what we saw in the IWM
06:50 I cannot remember the last time I saw the IWM spike 8% two days off of a Fed meeting
06:56 I mean, that's an incredible move
06:58 just wait until you get the price action of breaking through this overhead resistance right here and
07:03 Watch this this index move very very quickly up to at least 21 32 and then probably more likely back up to 22 92
07:11 and when that happens all these small mid cap stocks are going to absolutely continue to
07:17 Be strong and they're gonna continue to keep pushing higher. And again, if the financials are working
07:22 That's a that's a positive and bullish sign for the market
07:26 And again, if you just come back and scrunch up this chart, look how long we've been forming this sideways consolidation action in the Russell
07:33 I mean, it's been it's been years in the mayors. Yeah years and you go back Craig you could even go back further
07:40 I mean IWM in
07:42 2018 was 173. That's where we were last month. You could argue that this is five years of really going nowhere
07:49 So, you know like obviously the range we're looking at the recent range and we had the 2020 breakout
07:54 But you know really, you know, you take out the Koba dip and then and then the subsequent rip afterwards
07:59 We kind of got nowhere for five years
08:02 correct, correct and and this this will finally I think be ultimately a
08:09 Catalyst for for equities to work with the Fed started coming back off
08:13 But you know the other thing that we got to take this shorter term
08:16 Perspective and then we need to put it into the longer term perspective guys and the longer term perspective that we've got to come back
08:22 To is we talked about it last time, but it's worth repeating. We had a 40 year secular change of interest rates
08:29 okay, and when you reverse a
08:32 40 year secular downtrend you always will surge through it and you'll have a check back
08:37 But the thing is I know this is a short-term trading show and a short-term sort of thought process
08:43 But it literally took seven years between the peak to the reversal to the retest back in the 1980s
08:50 This is what we're gonna have or we're gonna have some great trading coming up for people as we process our way through this
08:57 And people keep asking me how far our rates gonna go to the downside
09:01 Well rates to the downside are gonna probably trade down to I think it's gonna be
09:07 Kind of three and a quarter three and a half percent
09:09 But the cool part about this and the way to think about this is take a look at this chart
09:14 I pulled up right here you thinking about this all short term, which is great
09:18 Retracement levels and everything else broke the 200-day and now if we crunch this chart up and we think about coming off of the lows
09:26 back in the
09:29 2001 period of time if you do your fib retracements now look at where you finally broke below right here
09:36 1.6 retracement level we've broken that means the next level we got to get to is right here at a huge support level at
09:43 Around three and a quarter percent. We're gonna be there midpoint next year, which means equities keep working
09:50 Probably in a q1 get your HLTR go sideways wait for the election and then you finish higher
09:57 50/50 at year-end
09:59 That's what we're thinking. I
10:02 Like it I like your I like your thought process and I've been long IWM for a while waiting for this catch-up trade
10:08 So I hope you're right
10:10 Yeah
10:11 Now what could throw a wrench in this correct my question? Yeah. Well, I think I
10:17 mean the election
10:19 any sort of further conflict in you know
10:23 Geographical conflicts, you know, we got the Middle East. We've got Ukraine
10:27 We've got those issues that could certainly put some conflicts into it
10:30 Taiwan could put some a wrench into this process and you know if the government can't get the budget stuff figured out
10:37 That could certainly put a wrench into it. But overall this is going to be a very very
10:44 contentious election coming up
10:46 Left or right?
10:48 I just think everybody needs to sort of keep their heads on straight and sort of think about what is good for the country and not
10:54 necessarily for their wallets even though Dennis is asking for a pay raise and
10:58 Sort of put all these pieces together and figure out like this is the best country in the world
11:02 let's just keep it that way and
11:05 Everybody's got to sort of help in that sort of shared cause
11:07 What about looking other places Craig and we were talking about the leaders and laggards nothing has been
11:17 more of a
11:19 Laggard right then the Chinese market, right?
11:23 Yeah, let's talk to us about that
11:27 So as I come back and I look at some of those charts
11:30 I'm gonna stop sharing if you want to bring some of these charts up on your screen
11:33 So we could take a look at some of these things
11:35 second
11:38 So if we look at like, you know, Baba and some of these others like they're still in downtrends
11:43 I I have not seen a sort of on the charts inflection
11:47 For these names quite yet. So from my perspective more time is gonna be required for a lot of these Chinese stocks right now again
11:55 Firmly believe that what I'm seeing in the US is where we are the strongest deepest most liquid markets in the world
12:02 I don't think that's changing the reserve currency status isn't changing. So the US is the market to be
12:08 What would change your mind what would get you more interested I mean Japan's been doing pretty good
12:15 So if you break it down, it's just stay away from China. The EWJ has been constructive. I mean over 30 years
12:20 It's gone nowhere, but at least in the last, you know year at least from my Twitter feed
12:25 Everybody's been pretty going pretty good on the EWJ on Japan. So it can you separate it out?
12:31 Is there some countries you like better than other countries? Like could you get interested in Japan?
12:35 well, I mean it's starting to get interesting, but I was kind of hoping that they were sort of getting back to more of a
12:40 Normal environment and moving away from some of the easy money policies and they started this through that right back
12:46 They can't seem to quite get off of that. So yeah, you pull up the EWJ, you know Joel if you're running the controls
12:53 Yep, EWJ it is. Yep. And as you go through and you look at this, it's kind of like
12:58 Alright, you got your 30-minute chart. Where's your daily chart right here? Yeah. Yeah, I'll make it big for you
13:06 Yeah, so you look at the daily chart. We're kind of like just sort of consolidating still, right? I
13:11 Mean have it broken up above those highs on the EWJ at 60
13:16 64 up there. So yeah, I think the monthly is a little bit more telling here to show the
13:22 consolidation because this
13:25 $64 area has been going back to the middle of the year like
13:29 6407
13:32 6405 so there you look in and
13:35 Yep, that would that would be a break. It looks about the 50% retracement to here on
13:40 the EWJ
13:42 Just go on just stop before we let you go
13:45 Just metals and Bitcoin. I mean
13:49 Obviously, I know you've been a long time bull and in Bitcoin metals have been you know, very volatile as of late
13:57 Where do the you know the commodities metals? Where do they fit in in this scenario?
14:01 It's just gonna be the buy everything kind of market
14:04 Well materials are a neutral for me at this point in time when I go back and I look at our total return relative
14:09 Strength charts that being said take a look at like XM e you pull that up on your chart
14:14 XM e. Yep, and this is where you got to sort of break out the difference of
14:20 What's actually in some of these?
14:23 You know ETFs and stuff coal is a huge component inside of the XM e and that is not going away anytime soon
14:31 The country needs to figure out a more sustainable value of the country the world a new base load driver for electrical generation
14:39 And it's can't be coal. But for now, that's all we've got
14:43 So take a look at a chart of like a BW XT a little hot special for you guys
14:49 Take a look at this chart, right?
14:51 These guys are making the small nuclear reactors and I know that Microsoft has come out and said hey
14:57 we're gonna go power the cloud on these small nuclear reactors and
15:01 That's what they want to go and do so pretty good-looking chart on a monthly basis there guys
15:05 Just completely breaking out buy it on any pullbacks
15:09 Looks like a good-looking chart. You're getting a little pullback here right now. So maybe this isn't a bad idea here at the BW XT
15:16 I just wrote it down
15:18 Then I had a successful event
15:20 But you know think about all those names and then also think about in in consumer land if these rates are coming down consumers are
15:29 Gonna have more money dollars come down. You've also seen oil come down in price
15:33 Look at consumer spending like something like Skechers. Take a look at that one. What a great-looking chart set up on Skechers. I
15:40 Mean we've been running we've been running on some of these things
15:44 Have we run a little bit too far too fast?
15:47 Are you waiting for a pullback on some of these things because even the IWM I look and I think man
15:51 It's been a pretty big move though here. We were
15:54 165 or 161 two months ago one or now or 198. Do we need a pullback before or can we just chase here?
16:01 I
16:02 Think you're gonna get a chase into your end for sure because so many people are mispositioned
16:07 So many portfolio managers have been on the wrong side of this particular trade
16:11 So I think Dennis to answer your question that chase is gonna happen and then you could get a pullback perhaps into next year
16:19 also think about the Santa Claus rally discussion to last five trading days first two trading days according to Yale Hershey's work and
16:26 When you do those statistics and numbers you can get another two or three percent in here
16:30 I mean, I'm hoping for it. Are you in price objective for 23 is 48 25
16:35 We started the year at 20 at 46 25 bumped it up in July to 48 25
16:40 Thinking it wasn't done and now we're one and change percent away. I
16:45 Think we're gonna be there. We're gonna be on the mark fingers crossed guys, you know, yeah
16:50 Craig Johnson
16:52 managing director
16:53 Chief marketing technician Piper Sandler, but got in us through these markets for years now
16:59 I was the coven and pre coven and Craig we appreciate your thoughtful
17:04 analysis and the time that you spend with us and
17:07 Have a good good new year good vacation time and we'll be we'll be dialing you up early in January
17:14 I'm sure about that.