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00:00 Greg Johnson, Managing Director, Chief Marketing Technician at good old Piper Sandler.
00:08 Mr. Johnson, how are you doing today?
00:10 I'm doing wonderful.
00:11 How are you guys?
00:12 We're doing good.
00:14 So give us an historical reference on the Super Bowl indicator going back 50 years.
00:20 Tough first question.
00:22 I don't, I do not calculate those numbers because I've looked at some of those statistics
00:26 in the past and I've just not found them to be that helpful, to be honest with you.
00:30 So I did not calculate those this year.
00:32 I found it to be pretty much, shall we call it kind of a, kind of a coin toss at that
00:38 point.
00:39 There you go.
00:40 That's fun.
00:41 But what I did, what I did put out this morning guys to talk about, which I think is pretty
00:44 important is we put out our morning note.
00:46 We titled it, hold on loosely.
00:49 Don't let go.
00:50 Might be a familiar song for a lot of people.
00:52 Fantastic song.
00:53 Fantastic song.
00:54 But the most important point that I'm trying to get across this morning is that some of
00:59 the internal indicators that we look at have just given us a sell signal.
01:04 Okay.
01:05 And when we've seen this sell signal in the past, it's been a pretty good indication looking
01:09 out the next four to 13 weeks that you can see this market come in.
01:13 Certainly could be a pullback, could be a correction if you want to put it into that
01:18 sort of vernacular, but it definitely will be more than noise.
01:21 And to me, zero to five is noise and this can be a closer to it.
01:25 Eight to 10% type correction in the market.
01:27 Why do we make this call?
01:29 First and foremost, if you look at a chart of the S&P 500 guys, if you put it up, you
01:34 can kind of go back to the fall of 2022 and you've had this really nice upward trending
01:42 15 month price channel.
01:44 And we've gotten to the very upper end of that price channel.
01:47 Number one.
01:48 Number two, our 40 week indicator, which measures how many of our industry groups are
01:52 above a 40 week moving average that has been actually declining while this market has been
01:58 working its way to new highs.
02:00 Third, when we look at the number of new highs inside of the industry groups that we calculate
02:05 here at Piper, we're finding that that peaked at the end of 2023.
02:11 So this market is really going up on bad breath.
02:13 And we're saying to people, hold on loosely, you don't have to let go, but sort of be ready
02:18 for a correction here in this market that can probably take the S&P back to about 4600.
02:24 So Dennis, if you're thinking about setting up a trading strategy for that, this could
02:29 probably be set up over the next 30 to 60 days.
02:32 You probably make a low, I would think, just looking at the charts in the late March, early
02:38 April timeframe, and you'll get a better entry point at that point.
02:42 But right now, I think the odds favor a good old correction.
02:49 What kickstarts that?
02:50 Because people have been calling for the last month, everybody on Twitter hates Nvidia.
02:55 People have been calling for a correction for a while here.
02:57 It hasn't happened.
02:58 What kickstarts it?
02:59 What's the catalyst to get us, you know, just all of a sudden comes out of nowhere?
03:03 Does it need a catalyst?
03:04 And what about the timing?
03:05 Like is it today?
03:06 Is it tomorrow?
03:07 Like, obviously, I'm on a crystal ball here, but you're talking about, you know, being
03:10 down, you know, a month from now being down five, you know, five to 10%.
03:15 So what do you think the catalyst is going to be here, Craig?
03:17 Well, I think the catalyst is most likely the fact that we're done with earnings season,
03:22 and there isn't going to be a catalyst coming up, right?
03:26 Stocks need to go up for a catalyst for a reason.
03:31 And now we're going to be out of earnings season, you're going to be into the conference
03:35 season.
03:36 And I think you're just not going to have a catalyst here for a little bit.
03:39 You also don't have anything coming from the Fed.
03:41 The Fed is basically not going to tell you anything new.
03:44 You're not going to get any new data points from them until you get to the probably the
03:51 main meeting.
03:53 And that's at the earliest.
03:54 I know that in-house people think here at Piper that it could be perhaps the June meeting
03:59 where you get your first cut.
04:01 But there just isn't going to be a catalyst that is here for a little bit.
04:04 And again, this doesn't mean that we're bearish on the market and we don't like the market.
04:08 We like the market longer term.
04:10 It's just that the way things are setting up, looking at the charts, looking at the
04:15 internals, looking at where money's rotating, you're starting to see some trimming of these
04:20 FANG stocks, which have been great stocks.
04:23 But I'm also starting to see a rotation toward financials and also healthcare, which have
04:27 been laggers.
04:28 I mean, IWM actually has picked it up here in the last few days.
04:32 It was starting to look like, oh, here we go again about a week ago when we got down
04:35 to 190.
04:36 And now we're back up near the highs.
04:38 Wow.
04:39 Just like one of the year, like boom, boom.
04:40 You were talking about a little bit of a catch up trade last year.
04:44 Is that what you think might happen?
04:45 Is that we just get maybe some rotation out of these tech winners and into some of this
04:49 beaten down value that really hasn't participated as much?
04:52 Well, it hasn't participated so much this year.
04:55 I do think throughout the course of 2024, we will see these small mid-cap stocks pick
05:00 up.
05:01 I think by basic definition, this has to happen because if the Fed is going to start to cut
05:07 small mid-cap stocks, do better when the Fed is cutting.
05:10 Number one.
05:11 Number two is that if we're going to see small mid-cap stocks work, the financials need to
05:16 work.
05:17 And if the Fed is cutting, the likelihood that we're going to get a normal sloping yield
05:20 curve will probably be quite high.
05:22 And under that sort of scenario, that should help the net interest margins fundamentally
05:26 for those financial companies.
05:28 And that is one of the biggest parts of the IWM.
05:31 And then lastly, healthcare.
05:33 It's been a huge laggard.
05:34 And if there's going to be some profit taking out of the Mag 7 type stocks or the Fantastic
05:39 Four, excluding Alphabet and excluding Tesla, then you're going to be at a point in time
05:45 where money needs to go somewhere.
05:47 All these institutions have to be fully invested at all points in time.
05:52 And the money needs to go probably to the most beaten up part of the market and laggard,
05:56 which would be healthcare.
05:58 And what about your year end target for the S&P?
06:02 No change at 50/50.
06:03 This is where I think we get into this trading position.
06:08 And you sort of, you know, Joel, you get into the trading position, you correct this back
06:13 into the July time frame.
06:14 And if I can show my screen here, I'll show you this.
06:18 So this is what I'm saying to people right here.
06:20 And let me zoom into this.
06:21 This is what I think is going to play out.
06:23 And think about what we got coming up soon, right?
06:26 People are going to have to start to look at their tax situation.
06:29 You know, like great gains in the NVIDIA's, the Microsoft's and the Mag 7's.
06:33 But this is not technically, I'll be very, very clear.
06:36 This is not where markets break out with a 15 month trading range and you just start
06:41 shooting through the upper end of this range.
06:43 That doesn't happen.
06:44 And on top of it, every other time that we've gotten to the upper end of the range, we've
06:48 watched the percent of stocks above their 200 day declining.
06:52 You ultimately saw this sort of pullback play out over about a 60 to 90 day window.
06:57 Again, I suspect that will probably be the case again.
07:01 And you probably won't get this done and over until people get done paying their taxes.
07:05 People are going to have to sell stocks to raise money, pay taxes.
07:09 And then you rally off of these lows.
07:11 Probably by the time you get just past the 4th of July, you make a new high.
07:16 You correct it back again, probably not as deeply.
07:18 And you build this great looking consolidation throughout the year.
07:22 Get done with the election and then move higher.
07:25 Again, this is sort of what I'm thinking.
07:27 If I got to polish up my crystal ball, call this my base case is what I'm thinking.
07:32 And now I'll be looking for the supporting technical evidence along the way to confirm
07:37 what I'm seeing.
07:38 And if I need to make some mid-year course corrections, I will.
07:41 But I think the biggest risk to my scenario is just, you know, if the market wants to
07:45 keep going, but man, that's a pretty tough argument technically right here.
07:50 It needs some consolidation to really like go higher here is what you think.
07:54 And this could be a year of consolidation.
07:56 Like you're not just calling for a month of consolidation.
07:58 You're really calling for a year of consolidation here, which is an interesting call because
08:02 everybody likes to call the market up, you know, it's going up 50 or down or, you know,
08:05 they want to make, you're calling for just maybe a little bit of chop.
08:08 I'm just saying they need to tune into the, you know, the, uh, the free market prep and
08:13 Zynga show to understand where they need to be.
08:15 You're going to have to trade them.
08:18 You're not going to just buy them.
08:19 You're going to have to be on board here with, with you guys trading these things up and
08:23 there's going to be these turning points in the market.
08:25 And again, this is a, this is sort of a trading range that could be nine to 10% sort of trading
08:30 range.
08:31 And again, there's going to be great opportunities.
08:34 I just don't think today is where you put the pedal to the metal.
08:37 I think this is where you sort of pull it back a little bit and wait for this market
08:40 to come back to you.
08:42 If you ain't fading, you ain't trading right.
08:45 That good old symbol.
08:46 Uh, going back like over the years, I mean, here we are, uh, mid February, we've already
08:52 hit your price target.
08:54 So I, I mean, you're giving us some of your bearish sentiment here going back or not bearish,
08:59 but at least a pause in the action going back over the years with your, you know, with your
09:03 price projections and stuff.
09:05 What, what has been the result when you, I mean, 50, 50 for the year, we're there in
09:09 a month and a half.
09:10 Do you have a, can you give us any perspective when the market is at your price target in
09:16 such an early part of the year?
09:18 Yeah.
09:19 I mean, usually what ends up happening is when you start getting new highs, you start
09:22 getting more and more new highs coming into play.
09:25 So if we go back and we look at, uh, Oh, I don't have it at my fingertips here, but if
09:32 I go back, let me just hang in one second.
09:34 Okay.
09:35 Switch to a different computer.
09:37 If I go back and I look at, um, a study we had just put out, let me put this over here
09:43 so you guys can see it.
09:46 Now you see that.
09:47 Yeah.
09:48 It's a little bit of a mess, but when I, we did a study this, this most recent month with
09:52 our informed investor publication guys, that when we start getting new highs, you tend
09:56 to get, you know, oodles of new highs in a given year.
10:00 And I'll be watching this very carefully.
10:03 So to answer your question, Joel, you know, we could see a market that could continue
10:08 to keep making these new highs.
10:10 I mean, clearly the risk to my forecast is that this market keeps going.
10:15 I think it will work for the year.
10:17 I just don't think this is a spot where you make it work.
10:19 And in fact, if I look back in the past, when I've had these cell signals with our 40 week
10:24 technique, you know, we have typically seen them in the zone where we are right about
10:28 here.
10:29 We've seen them.
10:30 And if we go through and we sort of look at some of the forward returns, uh, when we're
10:34 in this zone, you know, these are some of your forward returns.
10:37 They're not great.
10:38 And these are on average.
10:39 Okay.
10:40 So I'm not taking into consideration the absolute lows and everything else, but the odds, I
10:45 think favor that we're going to get this correction and Dennis, what's the exact catalyst?
10:50 Well, again, I just don't think there is a catalyst.
10:53 The catalyst is lack of a catalyst.
10:55 Yeah.
10:56 I mean, stocks need a reason to go higher.
11:00 And if we don't have that fundamental reason for them to go higher, and yes, I said that
11:03 as a technician, um, we need to see that.
11:07 And I'm not sure what it is right now.
11:09 What about rates?
11:10 We got to CPI on Tuesday, PPI on Wednesday.
11:14 I mean, I don't know if, uh, you know, that the Fed pivot when it came, uh, from, uh,
11:20 Powell last year, I think caught a lot of people off guard.
11:24 Now they put that, they talked about March now, maybe May here.
11:29 Uh, do you think maybe, I mean, you talk about a catalyst or lack of catalyst is, you know,
11:35 is inflation, is it really, is it whoop and whoop for good here?
11:39 Or is that still something that investors need to keep an eye on?
11:44 Thinking about this really, really straightforward.
11:47 What is the reason for the Fed to cut right now?
11:50 Inflation is coming down and you've been watching that happening over the last several months
11:55 in here.
11:56 Second, we've got the economy.
11:58 You think about the GDP growth rate, that seems to be doing quite well.
12:01 It seems like Fed has an okay balance and it's probably on their side.
12:05 Just to sit here and wait and just wait for this market to, uh, show signs.
12:10 But it's interesting also to Joel is that the correlation right now between the S and
12:14 P 500 and the 200 day, excuse me, between the S and P 500 and 10 year bond yields has
12:20 gone from negative to slightly positive.
12:24 So I don't think if we even see rates go up, that's going to be a reason for this market
12:28 to come in right now.
12:29 I think the market is squarely entering digestion mode and the biggest macro change I see happening
12:34 in this market right now is that the Fed is probably not going to need to cut because
12:40 the economy's weak.
12:42 The Fed is probably at the opposite of this and therefore the message we should be concluding
12:47 is that a stronger economy is probably going to be good for stocks.
12:51 Whereas in the past it was the opposite message and that's really started to change.
12:56 And interesting just looking at the chart of the TLT and Joel, you could probably bring
12:59 that up here too.
13:00 I mean, we've kind of, you know, on rates here we were obviously, you know, coming in
13:05 here November, December Powell does this big, you know, statement that, you know, yeah,
13:10 we're going to, you know, maybe cut, you know, in 2024 and the pivot happens in late December
13:14 and TLT bounces up over a hundred.
13:17 Well we've just leaked here now and it's actually interesting that like IWO and TLT were linked
13:21 it seemed like nonstop, but that linkage to what your point was just saying a few minutes
13:25 ago is kind of broken apart here now where we've got TLT going down, I mean, rates, long-term
13:31 rates starting to climb here again, but IWM has had a pretty good couple of days.
13:36 Can we get a decoupling here from this TLT IWM relationship?
13:42 It seems to be what is kind of starting to happen.
13:46 But again, this is probably a sign that the economy is a lot better than people think.
13:50 And there's still some thinking out there that the, there's got to be a recession coming.
13:55 I don't know.
13:56 I look around at some of these things and I think that's starting to get questioned by
13:59 investors.