Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we talk with Pete Carmasino of Chaikin Analytics.

Dan Ferris: And today Corey and I will talk about new highs here and new highs there and new highs everywhere.

Corey McLaughlin: And remember, if you want to ask us a question or tell us what's on your mind, email us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour. All right, my coconspirator. I have new highs for you. Are you ready?

Corey McLaughlin: I love new highs. Yes.

Dan Ferris: We all love new highs. It just feels so darn good, doesn't it?

Corey McLaughlin: Yeah. Makes everybody feel better.

Dan Ferris: I've got new highs. Yeah. I've got new highs in the equal weighted S&P 500 closing a two-year high after failing to do so for more than two years. This is the equal weight. The regular S&P 500 is cap weighted. So 30% of the index is in the top 10 stocks. With this way, all the positions are weighted equally from the smallest market cap to the largest.

That thing is making a multiyear high now, which it's not a new all-time high, but it's really sucked wind as the Magnificent Seven have taken over. That's not the only one. I got another one for you, which you already know about. You wrote about it in the Digest. It's something I've been talking about forever, as you pointed out, is how the Japanese market just went sideways and failed to turn to its 1989 high and it finally did it. It finally broke through recently. Yippee.

Corey McLaughlin: Thirty-four years later.

Dan Ferris: That's right. So yeah. There's that and of course Nvidia is making new highs too. It was down in the 600s and I thought, "Oh, maybe this is it. Maybe it peaked on the 14th of February and it's all over now," but nope. It just blew the lights out of its last earnings report and is making new all-time highs again. As we speak, I believe the market cap is pushing $2 trillion. I don't think it's there yet.

Corey McLaughlin: Yeah. It's up at $800 a share, around $2 trillion, back to third-largest U.S. company by market cap now. It had dropped below Amazon and Alphabet for a little while, but back above and it's interesting. So Nvidia, which I'm referring to it as Nvidia because CEO Jensen Huang, when I listened to the earnings call he was calling it Nvidia. I know we had some questions about whether it was Nvidia, Nvidia, whatever it is. It's Nvidia now and it's a household name.

Interestingly, the earnings report from Nvidia helped the Japanese stocks get over the top and make new highs because of the Japanese semiconductor stocks. It pulled the whole semiconductor industry higher with it and yeah. So we got the 34-year streak has Nvidia to thank for it for helping it finally end.

Dan Ferris: Right. It's funny that you mention the semiconductors because I was looking around. I thought, "Wow. Look at this," and they were all up, all the semiconductor companies like Texas Instruments, ON Semiconductor. And I noticed that the one that wasn't up was Intel. I thought, "Man, this stock can't catch a break." Nobody believes it.

They changed the management and they know – I think, I'm pretty sure they know the mistake they made and they're trying to rebuild the capacity to basically make their own chips again. It was a mistake to let anyone else do it, I think, just the way that company has always functioned. Even on the best day for semiconductors of ARCH it's not buying it.

Corey McLaughlin: Yeah. That's unfortunate for them. I'm not sure what's going on there because they are doing a lot of different things, I think getting investment from the U.S. government as well to get back to a leadership spot there. So – but yeah. The equal weight making new highs too is interesting because we've talked about, for a while, how the popular names were leaving the market higher, but the equal weight was still sideways and lagging. But now it's making new highs too. So that's a bullish sign, pretty significant one, I think.

Dan Ferris: Right. Just when it's a broad – narrower rallies are not as good, but broader ones are good generally speaking. They usually have more legs under them. So the broader it gets, the better it gets overall, I guess. I sound disappointed. I'm disappointed that things are going so darn well. Darn it.

Corey McLaughlin: Gosh darn it.

Dan Ferris: I've been squawking about the mega bubble for two years here and it doesn't seem to be cooperating.

Corey McLaughlin: Well, it's still just – maybe it's getting bigger and bigger. We're still not done with the – I don't know. To me it still doesn't feel like we're out of that pandemic stimulus era. We're still seeing similar behavior and this AI, we thought last year that it felt like it was a little bubbly. Now I think after this earnings report from Nvidia, even more so. It feels – I don't know. It feels like I'm starting to get comments from people that don't follow the markets daily about stocks again. So that gets me – my antenna comes up. There's some euphoria happening right now certainly around AI stocks.

Dan Ferris: Yeah. It's so crazy because the Japanese bubble that burst starting in, I believe, it was December, I want to say 18th, 1989 was the peak. That was a huge, huge bubble. The fact that it takes the AI bubble probably, as you were saying to return to new highs, I'm not sure how thrilled I am with that, but hey, I recommended a Japanese ETF. So I'm taking it. I'll take the gains. Also, Japan is still cheap. It's 13, 14 times earnings. So that doesn't bother me at all.

Corey McLaughlin: Right. I saw an interesting chart too that I didn't include in that Digest that I wrote last week. Toyotas versus Tesla performance recently.

Dan Ferris: Oh, yeah?

Corey McLaughlin: Yeah. Toyota has outperformed Tesla over, I forget the exact time period, but basically the story was Toyota is performing really well when Tesla is not, which is not what you would expect if you were listening to mainstream media or whatever. It's a Japanese company obviously. Japan has got this different – this is what I quoted from you in the Digest was cultural differences in terms of how their central bank is handling this inflation situation because they actually have inflation again, which is great for them because they haven't in a very long time.

They've had some here and there, but they've gotten inflation like everybody else. It's still a little above 2% on pace for right now. They still have easy monetary policy going because they've just been so depressed for so long and why would you be messing with a good thing right now if you actually have some inflation in your economy again?

At the same time – yeah. Their currency is still has been weakening versus the dollar for the last two years. So these companies are just making huge profits compared to what they used to. I think Goldman Sachs said they were making Japanese companies 45% earnings growth in the fourth quarter compared to the year before. So yeah. I think that's a reason for the new all-time highs like right now. Obviously it took 34 years to get there. There are a lot of different things between then and now.

Dan Ferris: Yeah. Some of those cultural changes, I wrote about them when I recommended the Japan ETF in The Ferris Report back in last June. The trend to fix them, to fix the problems, it was well in place since the 90s. It just cranks and grinds. It's ongoing and the basic thing that needed to wind its way out of their mentality was these cross holdings of other companies. They're basically fending off activists' investors by holding lots of each other's stock.

So if somebody comes after your company, well, I'll vote with you and we'll prevent them from changing your management policies and vice versa. You scratch my back, I'll scratch yours. That was a lot of the market was cross held like that. Now it's 10 or 11% or something. It's a small amount. I don't know what it is up to the minute, but it's still there and it's still unwinding. The idea that you can do activism on Japanese companies is in its early stages. I don't think it'll ever be like the U.S., but I think it will grow. The trend will continue to grow.

Like I said, a basket of these stocks is 14 times earnings. They've got great balance sheets because again, culturally, they just like to have a lot of cash on hand. It's a developed economy. They do all the same stuff as we do as a developed economy. So it works. Warren Buffett was earlier in this than I was. He bought a bunch of Japanese stock and that's worked out real well for him. I think you can stick with it for a while.

I think this is one of those things where I was saying in the past couple of years, a couple of times, how you take the previous 20 years and invert it. So previous 20 years, all you needed to know was U.S. stocks. That's all you needed to own. Big cap U.S. stocks, boom, you're done. You're rich. They just go up every year. Now I think things have changed and I think you need to know about other than U.S. stocks. I think Japan is a good first stop. The next biggest developed economy with lots of good equities to buy.

Corey McLaughlin: Yeah. The fourth largest economy in the world. It's benefiting from all the U.S. tensions with China too. China has got deflation in a lot of areas and Japan has got inflation. It's really flipped around there. It's fascinating reading – just reading that issue that you wrote with those details that you mentioned. I didn't know any of that. So just the limiting of the capital efficiency of it was an interesting point too I thought just like these guys, these companies investing in each other while you're limiting growth potential there too, which I thought was an interesting point.

Dan Ferris: Nvidia. That's what we're saying now.

Corey McLaughlin: Nvidia.

Dan Ferris: So I'm going to shift back because in a recent Stansberry Digest, at the time I submitted the thing for publication it was trading at 53 times sales and 100 times earnings. Then the report came out a couple days ago and of course they shot the lights out. So that brought it down to 32 times sales and 66 times earnings. Downright cheap. So I think what happens in these situations, and I sited RCA and radios during the 1920s and Cisco and Internet equipment and Dot-com era and there was another example in there somewhere.

Basically you keep getting this effect as they beat the expectations and then raise them and beat and raise and beat and raise until they don't. So you say, "Well, hey. It was 50 times earnings and 100 times" – I'm sorry, 50 times sales and 100 times earnings, but you see what the report did. Now it's only 32 times and 66. You keep – people extrapolate that. The kind of laws of large numbers will prevent it from being extrapolated out forever or even much longer probably. But along the way you can see the sucking in. You can hear the sound of so much sucking in when people look at this and say, "See, it wasn't nearly as expensive as Dan said it was." Thirty times sales and 66 times earnings is crazy.

Corey McLaughlin: Yeah. That's what I'm saying. It feels – I don't know. You've seen a lot more of this than I have. It feels like this is one of those periods where it's like, OK. The story has gone mainstream and I don't think it's quite totally mainstream yet. That's why I think this might still have room to go, the AI story. From the financial media and people who are watching this closely, I think, or closer than the average person, I think the story is obviously out there now. It's not catching anybody by surprise.

We're getting to the point where I was listening to Jensen Huang talk. He's using it as an opportunity to build up even more potential by saying, "We're creating it" – he said we're creating an entire new industry of these AI factories, these data centers that can be sold to all these different companies and they use them how they want. They can't even keep up with demand. They have to pick and choose who they're going to sell to. I don't know. Does it get better than that? I don't really know. Eventually the catch-up game will happen where chips are – these things are cyclical too. It's not like everybody is going to run out and buy the latest technology and then OK. Then everybody has it.

Dan Ferris: You're about the catch-up thing. I promise you, other companies have noticed that you're shooting the lights out every single quarter insanely, triple-digit year-over-year increases in sales. People have noticed. They've noticed that ever since you invented the GPU in 1999 you've just been crushing it. Now AI – first it was video games. Now it's like AI. So yeah. They've noticed. What they do about it, we'll see. That's yet to be determined.

I promise you they're doing something. They're all doing something. It's like Tesla wasn't going to be the biggest electric car company forever or maybe the biggest, but it wasn't going to be the only one forever. So capitalism works, which is part of the problem with all these enormous multiples. That's why there are tops in markets and that's why things don't grow to the sky.

Corey McLaughlin: Yep.

Dan Ferris: Yeah. All right. I think we have beaten this horse near to death, if not all the way. So let's talk with a guy whose mind is very good at thinking about trends like this and very good at thinking about market turns and assessing trends through a technical perspective. His name is Pete Carmasino. He's with one of our affiliate companies, Chaikin, and he's just a fun guy to talk to as well. So let's do that right now. Let's talk with Pete Carmasino. Let's do it right now.

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Don't wait until February 29 to get started. You can get a sneak peek when you go to ElectionSurprise2024.com. Again, that's ElectionSurprise2024.com. Don't miss it. Pete, welcome to the show. Good to have you with us.

Pete Carmasino: I'm so glad to be here. Appreciate the invite and looking forward to this. This sounds like a lot of fun.

Dan Ferris: It is a lot of fun, a lot of fun for me.

Corey McLaughlin: Me too. It's always nice for me too.

Dan Ferris: Yeah. We like what we do. We like talking with people like yourself. So this is your first appearance on the podcast.

Pete Carmasino: Yes.

Dan Ferris: So I always like to start out with the same question. I start and end with the same question. I don't know where I got this idea from, but here it is. I'm committed to it now. The question would be if you and I met in a bar and the subject of finance came up and you told me what you do and I told you what I do, I might ask you, "What kind of investor are you?" How would you describe yourself as an investor?

Pete Carmasino: Yeah. I get that question in a different format sometimes, but it's an interesting question because a lot of people ask me, "Hey, what's your favorite book," or "How can I learn what you've learned," or "What kind of investor are you?" It's blood, sweat, and tears over the course of many, many years. For me it's really about price. The price to me says everything. So I'm very technical from that standpoint. Yet at the same time fundamentals obviously matter because we're in earnings season.

So you can see that price might be trending in one direction, but if your earnings aren't being delivered properly the street will reprice you very quickly. So the price will change rapidly. So we saw a name that reported recently like Palo Alto and things of that nature. So these stocks will get well above their trading ranges where they belong. That really shows you some things as well. A lot of these were over bought. So price is already telling us that. It just depends on how long you want to stay in the game.

So for me, I'm a trend follower and I look for the specifics of what I call the turning point. It could be down or up and we want to avoid the ones that are occurring down and obviously try to get involved with the ones that are turning up. So trend following is really the short answer that I just made very long.

Dan Ferris: OK. No. I'm glad you made it longer because trend follower, it's a buzzword that gets thrown around. We all assume we know what it means. So how long is a typical trade on for you?

Pete Carmasino: Yeah. That's a great question too. Again, it just depends. Sometimes, I'll give you an example. One of the trades I called out I think was December '21 heading into '22 was to avoid bonds. Right now you could have used that to be short bonds. That trade lasted for a long time. That was well over a year. That's a long-term trade. Those trends could be in place for longer period of times.

Another one could be the recent tech rally. A lot of techs started to rally in October '22 and now we're starting to see the effects of when coupling of share prices at some point gets to a point where you have to start looking at relative strength, how is it performing versus the market. That trade lasted for over a year, but the typical trade is not that long. It's six to eight months, sometimes less depending upon again, the variables that come into play. It could be – for me there are some not hard and fast rules, but some mental rules that trigger once in a while.

Say you have a stock that you're in – maybe you're up 10 or 12 or 20% on and all of a sudden they have a great earnings report out of the blue and pop 20%. To me, that's the time to either shave it or say goodbye to it. It feels like it's too much too fast sometimes. So sometimes I break a rule on the trend side, but that doesn't hurt me most of the time if you're taking a big profit in a short amount of time. Yeah. I think six to eight months is a fair assessment of an average time frame.

Dan Ferris: OK. And you trade all equities? Just equities?

Pete Carmasino: Yes. Equity ETFs that might represent and fix the income or things of that nature. They trade like stocks. It's amazing how fixed income turned into equity. You can buy an ETF that trades like a stock and they're not supposed to. Remember bonds are supposed to be the save haven. They're not supposed to be volatile.

Dan Ferris: Yeah. All kinds of stuff turned into stocks, hasn't it, via ETFs?

Pete Carmasino: Yeah. Bitcoin. Yep. Exactly. Everything.

Dan Ferris: Yep. Bitcoin and derivatives and all kinds of things and strategies.

Pete Carmasino: Yeah. Even commodities. There are tons of commodity ETFs that look interesting. Some of those are starting to really trigger more inflation area pricing as well in some of those hard commodities like wheat, sugar cane, soybeans, coffee and cocoa. My gosh. Cocoa has been through the roof in the last several months.

Dan Ferris: Yeah. I've seen that chart and it's pretty spectacular. I think we should probably rush to where we always wind up anyway. Every time we talk to a trader who's been around the block, as you have, we always wind up talking about the most important thing is not how you enter a trade, but your risk controls, the position sizing, cutting losses, et cetera, et cetera. So tell me how all of that works for you.

Pete Carmasino: Yeah. And I think it could be really defined as discipline to a process. That's what risk management is like a lot of things in life. Sometimes it's moderation. You can certainly have good wine, but too much good wine is probably no good at some point in one sitting anyway. It's just like I just mentioned. You might be in a trade that's working really well and all of a sudden you get this pop of 20, 25% on earnings or something of that nature. To me it's like man, money in the bank. Take some off the table.

So along the way there are areas in the chart that point out tactical moves. That could be tactical sales or tactical buys. If you're in a continuation of a trend and you've got to pull back for whatever reason, it could be who knows, Jay Powell sneezed at the wrong time in one of his press conferences and people took it as he's going to lower rates. That could be an opportunity to add to a position that's already working.

Again, for me it's about relative strength and on the Chaikin charts we have a nice indicator that's not the typical RSI. It's really a derivative of that that Marc Chaikin created and it really shows the strength of a stock over a period of time versus the S&P. So there were times in some of the Mag Seven. I hate to use that term, but it is what it is. Some of those names have pulled back, but the relative strength didn't budge at all. So those are great tactical times to add.

Sometimes you might see stocks break a long-term trend while relative strength is also breaking down. That's a really great time to either avoid the position or certainly not to get involved and potentially even sell or trim your overall exposure. So yeah. The sell discipline changes with the environment. I always say that. People say, "How do you know where to invest? Just tell me what the environment is. Tell me what the tenure is. What are we looking at from rates and unemployment?"

You got to look at the economic, the external factors first to tell you where you should be invested. So I think that it all encompasses the one word, which is process and the second word would be disciplined. So if you have a process, stick to it. That's it.

Corey McLaughlin: Related to that, one of the things you wrote recently in the Chaikin PowerFeed, the free newsletter, which I would encourage anybody to check out if you don't already, writing about overbought, oversold, particularly the middle of this month. Can you explain to people just because something is overbought doesn't mean necessarily it won't go higher? Just because it's oversold doesn't mean it won't go lower. What are the nuances there?

Pete Carmasino: Yeah. It's true. I always say Wall Street in general has created terms, a bunch of terms that mean the same thing just to confuse people and get people misunderstood, I think. I don't know if it was intentional, but I think so many practitioners came in, a lot of cooks in the kitchen decided what to call things. They might say you should be under weighted or over weighted. Well, how do I know – what does that mean? What does that actually mean? It's like overbought and oversold.

So overbought is tactical. Anytime you hear those terms to me, anyway, in my opinion, that's tactical. In other words, that's very short term. That could be a week to a month. It could deviate a little bit by a week or two on those two time frames, but at some point it really depends on the environment. When tech started to break down back in, let's say, 2022, beginning of 2022, which really the first week of January, if I recall correctly, and things were changing not so much rapidly, but people were in that buy the dip mentality.

So they thought it was oversold, but if you look at the way it was – to me the way we saw it playing out from a relative shrink standpoint, it was not a buy the dip. It was probably a hold and wait and see. Then obviously if the trend continued you started to see we're starting to see one fall after another. That's your time to start – you have to have peripheral vision too. You can look at your one position straight on, but look at the other – the peer group as well. If they're all breaking down, something is changing.

So that's another great way to look. Determine if it's oversold or a change in trend. That's two different things. As long as the trend is intact, oversold is really sometimes an awesome time to add to a position. Add to your winners. That's what you're supposed to do and sell your losers, right?

Dan Ferris: Yeah. There's more to it that meets the eye. One of the things that when I first met Marc and we started talking about his Power Gauge, one of the things that shocked me a little bit was I just assumed – I heard about this Power Gauge system and I figured it's a technical system. Then he said, "Well, it's mostly fundamental indicators." I was like, "Wow. Really?" I was amazed. I was like, "Hey, a man after my own heart." But you sound like your focused primarily on technical. So you – if the Chaikin world is this fundamental plus technical thing, you're strictly on the technical side. Do I have that right?

Pete Carmasino: Well, not necessarily. The one validates the other sometimes. We'd love to be able to marry both together at the same time, which we often do in some of the names that we're looking at our calling out in our various newsletters or even on that Chaikin PowerFeed, the free newsletter. It's like having a really beautifully fast built sportscar. The technical aspects there are fantastic, the engine running, the technical side, the price looks fantastic. But if you have the wrong tires on the car, you may not get to the best destination as quickly and safely as you want it.

Once, if you've got the car and the tires, you've got yourself a pretty winning combination. To me, the fundamentals keep the stock grounded and the trend intact. So it's nice to see both and sometimes and counterintuitively, the technicals will proceed the fundamentals. What I mean by that is we might see stocks that have, let's say by our standards what we call our financial category. Let's just price the sales, price the book, debt to equity, things of that nature the way we weight it.

That might be bearish on some of the names that we're looking at. A lot of people go, "Wow. It's bearish. Why would you want to be involved?" Well, the chart is telling me something different. You do have to do a little bit of look back and some homework and say, "All right. Are things changing in the financials as well?" If that's the case, that becomes the catalyst. So the technical side of the trade is alerting you and then the fundamental is almost like the wind at your back sometimes that there's the catalyst. There's where the upgrades come. There's where Wall Street jumps on board and the reverse is true.

Sometimes the technicals you're avoiding a stock. I'll give you a great example is Archer-Daniels-Midland, ADM, has been at a downtrend for the better part of a year and they didn't have their worst day in 99 years when they were in an uptrend. They had it when they were in a downtrend. It was at the end of the trend. That's when Wall Street started to downgrade it. We weren't even looking at it because it was already in a downtrend. So when the fundamentals and technics are intact together, man, it just increases confidence in what you're seeing on the charts.

Dan Ferris: Yeah. I've heard that, I won't say many times. I've heard it a few times over the years. The idea that the technicals will start turning before the fundamentals, which makes sense because at any given moment the fundamentals are minimum two, three months old, one, two, three months old.

Pete Carmasino: Yeah. It could be longer in some cases. That's really – it's that rearview mirror, but I think it can become the catalyst. I always say that fundamentals tell you what to look at. Technicals tell you when and the why will come out later. Why is it changing trend? Why are the fundamentals weak and getting better? I don't know why. Sometimes it takes a month or two before the why reveals itself. Now great fundamental researchers like yourself and other folks here at Stansberry can find trends in those numbers. For me it's the price that dictates the action and the directional change or trade that you want to take.

Corey McLaughlin: So what are you looking at really short term here from the price action and as we speak here, middle of February, a lot of people – I don't know. We keep seeing the same Mag Seven, Mag Six, whatever you want to call them, same story as last year, minus Tesla. I don't know. People are waiting – I think some people are anticipating some sort of a pullback or end to this, but hasn't happened yet. What are you looking at right now?

Pete Carmasino: Yeah. I think I'm always looking. Someone just asked me this question a couple days ago, do I have a specific sector that I focus on. I said not really. I'm looking at sectors to tell me what I should be looking at from an individual stock basis. So top down analysis, look at the sector rotation and see what's going on. I was just on a call. I was talking about offense versus defense. The three offense sectors are technology, discretionary, and communications. Very tech heavy. Discretionary itself I think is 50% Tesla and Amazon or something, right?

Those have dictated where the market goes. It gets a concentrated position and the top seven names that you mentioned and then all of a sudden the indexes are off to the races. So I try to find and I try to look at both the offenses sectors, which is again tech, discretionary, and communications versus the defenses which are utility, staples, and healthcare. The three main ones. Now people can look at subsectors and you can dissect this into many, many parts.

In general, when you're seeing – you can look at value over growth. It's the same chart almost. You're just seeing that defenses just aren't – they're just not on the field. Offense still has the ball currently. They're just not moving it down the field very quickly. So it looks to me like we're probably getting – we're overbought from a bullish-percent standpoint, which is one of the indicators I look at. A lot of things were telling us that. It wasn't just one indicator.

I think when you see multiple ones you start to see this could be a time to take your foot off the gas a little bit, tap the brakes, and look for that opportunity to enter either a name you've been watching or waiting for or one that just has such a high movement to the upside. Mentally you can't get there to buy a stock that's just – I think there's one stock that almost tripled in less than a month. I think it went from $400 to $1,000 or something like that. It's just crazy. You can't chase those things. If you're not in them to begin with, you can't chase them. So the environment is changing slowly, but rapidly on individual names.

Dan Ferris: Our colleague, Greg Diamond, was on recently. Also a technical trader, but he used a particular way of looking at markets, which emphasizes price and time, price over time. He named dates that he said would be important several weeks in advance. He said February 14 would be important and I noticed that for now it's Nvidia's high closing price. Nvidia has charged ahead and it doesn't – it's led the Mag Seven. It's the big one. If you look at semiconductors, same thing. Semiconductors to me look like 1999 right now. It's just –

Pete Carmasino: Oh, don't even say it. I'm having flashbacks.

Dan Ferris: Yeah. So does your outlook and the way you look at things, you mentioned looking for turns when we first started talking. And you guys look at fundamentals too. So how far do you go with this? Are you just looking to make trades and that's absolutely it or do you actually develop a medium-term bearish view or a medium-term bullish view? Do you have an idea of longer cycles, bull and bear market cycles? How far do you go with that?

Pete Carmasino: Sure. That's a great question. I think – and Marc has probably trained me on this as well not to be too bullish or too bearish at any given time. It's about the environment and waiting until because let's say in a bearish market there were ideas that, again, bearish based on what, right, based on interest rates? OK. Well, what's going to be most effective by interest rates? Well, tech. So we talked about that for – I can't remember how – it's been 18 months I think I've been talking about it, maybe longer about the interest-rate cycle and how things play out there.

I got my start on the fixed-income side of the business, thankfully. So I pay attention to rates and bond prices and the dollar and things of that nature. So in a pullback inside of a bullish environment it's not necessarily bearish. It's more or less a cooling off period. So where you get these big runs like we've had and I just did a short video just a few days ago where I said the Mag Seven is turned into the Fantastic Five because two of them are breaking trend on the downside and that was Apple and Tesla. Not only from the technical standpoint, but our Power Gauge were downgrading them as well. I think Tesla is "bearish" on our Power Gauge right now and Apple I think is a "neutral" or "neutral+."

All that means is that the trends have changed and the outlook has changed. So for those two specific names, they're really an avoid at this point and the other one is in that – again, that complex of the Magnificent Seven look pretty strong right now. So we just had Amazon is being added to the Dow. They made that announcement the day we're recording here, but that's pretty interesting to me. The only reason that they're getting added is because Walmart split three for one because it's a price weighted index.

Amazon was already in a strong trend and that trend hasn't really budged since it started, which was for the better part of a year now. It's almost doubled since that trend started to the upside. Again, that was technical first and the fundamentals caught up to the technical. I will tell you this. To Marc's credit, the way he created this Power Gauge, and I'd say this happens at least for a better part of the names I look at, the fundamentals are turning prior to the technicals, which is really interesting to me. So that's what's really funny to me.

When I find a name that's changing trend I go, "Man, the Power Gauge beat me to it sometimes." There are instances where we're ahead on the technical side and then the Power Gauge catches up. So it's really – it's nice to have that outlook from the fundamental side and the technical side, but yeah. Being short-term bullish or bearish is, I think, just tactical is the best way to say it. The strategy is always to find the names that are moving higher no matter the environment. If there's an outside catalyst that's pushing a group to the downside, you need to be aware of it. If it's interest rates or the dollar or whatever the case may be or oil prices or whatever, if you're missing that external force in your process, I think you're making a mistake.

Corey McLaughlin: Jerome Powell sneezing or closing the door on climate protesters or whatever it may be.

Pete Carmasino: That's incredible. Some of the press releases are just phew. Man, I don't know how he does it.

Corey McLaughlin: Yeah. You mentioned a Marc a couple times, Marc Chaikin.

Pete Carmasino: Yeah.

Corey McLaughlin: And every time I hear him talk I learn something about the markets, something, multiple things usually.

Pete Carmasino: Oh, yeah.

Corey McLaughlin: How did you get connected with him whenever you did and what's it like working with him on a daily basis so closely?

Pete Carmasino: Amazing. Yeah. It's a great story. So someone told me that Chaikin Analytics was in Philadelphia and that Marc was doing some interesting things and looking at an ETF rating and things of that nature. That's where my focus was when I was a registered investment advisor since I'm not licensed anymore. When I had that firm, I was an ETF expert. I put those portfolios together. So when I heard that he was putting a rating together, we got together, we talked a little bit.

What was meant to be maybe a half an hour meeting I think turned into two and a half hours. It was really – we just hit it off. We were talking about our history in the market, what he saw over his years and what I saw. We overlapped many years in the business. So we shared a lot of war stories and really very similar experiences in the outcome of talking to institutions.

Marc basically built his – the thesis of the Power Gauge based on what he learned by talking to institutions ironically about technicals. But he said well, they're looking at all these fundamentals. So he wanted to combine the two. That's where the idea came from. When we got into that, we always talked about the technical side and when he told me about the ETF rating that was coming out we were both like, "Yeah. This is probably good fit." We hit it off right away. It was fun from the start.

Corey McLaughlin: Yeah. That had to be way ahead of most people's times in terms of putting ratings on – it sounds very common now, but back then was not, right?

Pete Carmasino: Yeah. I think – and the cool part about the rating and again, let's look at it from the standpoint from the ETF. An equity – a U.S. equity ETF has a component of U.S. equities inside of it. So it's really just a portfolio, but it's a sector based or concentrated portfolio. The cool thing about the ETF rating is it looks inside the ETF and rates the accumulative rating of the stock inside the ETF. So now you've got a fundamental look at the whole portfolio with a technical overlay on top.

I will say, the technicals outweigh the fundamentals in this case because the ETFs are trending and they're passive investments that constantly get money added to them on a monthly basis. So the technicals play a part in the trend of the rating, but it's a really cool way to really dissect an ETF. That's what helps us in finding ideas. Once we start to see changes in trends from the ETF standpoint we can dive into the ETF and then see what's going on underneath the hood, as we like to say, the whole time.

Corey McLaughlin: Yeah. Dan, this is another example. We talked about the Power Gauge before and just the different things you can do with it. We talked about it with Marc too. So it's just more of that. This is more explanation of that.

Dan Ferris: Yes.

Pete Carmasino: Absolutely.

Dan Ferris: So I have a – it's almost over the years it's become a program suite of questions about systems. One of the ones I learned to ask about 20 years ago, gosh, more than that now, 25, 26. Scary.

Pete Carmasino: Time flies.

Dan Ferris: So I've been through this experience where people say, "Discipline. Adhere to the system. Follow the rules and honor the signals basically." Then five minutes later that individual will say, "Well, we didn't do this signal because we're not going to do that." So then when somebody says there's no discretion, I'm like, "Yeah. Sure. Let's talk for another 10 minutes and then I'll reveal to you how much discretion you have." So how much discretion are we talking about here in the Power Gauge and your own trading?

Pete Carmasino: That's what's great about the Power Gauge. It's been locked up from the beginning. So no one changes the Power Gauge at all. So the Power Gauge is set.

Dan Ferris: Right, but you get the question though, right? The Power Gauge – I'm not saying the Power Gauge changes. I'm asking you about what you do with the signals.

Pete Carmasino: Exactly. So the nice part is if – as the signals come in, they're basically, for me, they're a multitude of things, but really the king signal is relative shrink. So if that's not signaling or triggering, I don't even look at it. So it's more or less, "Sure. I can put it on a watch list. I can put it on a wait and see list," that kind of thing. I'm not wasting time until I start to see the trends change.

Now here's probably the discretion from the signal. So when you start to see a group of names, let's just say any sector or semiconductors, whatever you want to call it, paper makers, whatever. Software is a good example. You start to see a specific piece of the software complex starting to change trend. One or two laggards haven't changed yet. Those are probably ideas that you could maybe act on a little sooner, but you know that you're doing it.

You know that you're probably taking the risk there to get a better gain because the price hasn't moved rather than taking the actual signal on the stocks that are trending higher, you might still get a nice gain, but it may not be as good. So I think it comes from the greed side of the fence of you're trying to outsmart the signal by maybe doing it slightly early. Sometimes it works out. Sometimes it works out. There it is.

Corey McLaughlin: Sometimes it works out.

Dan Ferris: That's right.

Pete Carmasino: So look, we talk about a lot of things in the markets and for me, we've always said I follow the interest-rate market. I follow the bond prices. We follow the dollar. A lot of that is really what's weighing on stocks one way or another whether it's borrowing costs, whatever the case may be. You see the trends change when those external factors start to change. So I think it comes down to the process and all of that. I call it like auto pilot. At some point, the pilot takes the control. You don't auto pilot land and take off. You got to take the stick. I think sometimes the process might be too automated sometimes, but you still need a pilot to jump in and get control of the plane sometimes.

Dan Ferris: I know you might not necessarily want to give away all your best picks or whatever. You have subscribers to think about, but what can you tell me about right now about what you like and don't like or maybe are avoiding or not avoiding?

Pete Carmasino: Again, I think what we're seeing is – and to use a jargon term, sort of a blow off top. We start to see some of these names run in and then guidance changes a little bit, but it's not like there's not growth behind some of these names. It's just not the expected growth that the market wanted to see. I think it gets too quick too fast. I've said that a couple times already today. I think at the same time again, for me it's about rates.

I think I'm watching the unemployment rate. To me, if I look back and I had an overlay of fed-funds rate and the unemployment rate, the Fed doesn't really cut rates until unemployment starts to move higher. At what level, I don't know. I wish I knew. I wish I could say at 4.6% this is going to happen on unemployment. I don't know. I don't think anybody does. When they say they're data dependent, I think that's part of the data. Actually, I know it is.

So when if you look back at the chart, the chart doesn't lie to you. Every time the unemployment rate started to move higher, Fed cut rates. Now somebody says, "Well, how do you predict the unemployment rate?" I don't know. There's maybe one or two other indicators out there like ISM PMI, Purchasing Managers Index. I think that is a really good predictor of the unemployment rate. So one begets the others. In other words, if the PMI starts to get to a certain level, say 45 or so, you might see an uptick in unemployment, which then could trigger the Fed.

So at that point, things might change. Initially, and I haven't done a deep dive into this, but we all know this. This isn't a secret that when the Fed is cutting rates it's not for good reason. There's typically something wrong. So the market, I think, takes a knee jerk, takes a gut punch when that happens. They take a knee jerk reaction to the downside, potentially sideways action, and start to look forward and see who's really supplying them again, to your point, with good fundamentals, good cash flow.

The fundamentals, I think, become very important at that stage and then I think it's technical time after that. So when rates, if they even get cut, they're going to be cut for some reasons that don't look good from the economic standpoint so the economy could be slowing down at whatever measure or speed it could be. And at that point the market pulls in a little bit, absorbs the punches, and then starts to reassess some of the names that might just be all fluff or all talk or are they actually delivering earnings, cash flow, and potentially even better profits going forward.

I think that's where you're going to see the second stage of what I would think is the continuation of the bullish trend. So when is that going to happen? I don't know. I wish I did, but it seems to me that it should happen pretty soon.

Dan Ferris: Fair enough. Let me ask the question from a different perspective. If the answer is no, that's perfectly fine. I totally understand. You got any names for me?

Pete Carmasino: When I look at our – I just said we talked about the ETF ratings. We looked from a top-down setup. So when I look at either of the sectors, they're pretty broad. There's only 11 of them. You are stuck with what you have. So I like to look at the subsectors. There are a set of subsector ETFs that we track as well. Our top three or four – I'll give you our top four right now, actually top five are the number one subsector is insurance. The number two subsector is home builders.

The next one is innovative tech. That's – there's a lot of cybersecurity and semiconductor names in there. So that's one that's maybe potentially stalling right now, but not changing. The next one is just your typical technology. A lot of overlap in those two. The last one is software. So from that standpoint, there are two maybe more solid sectors that most people could rely on like insurance and home builders and maybe ones that are a little bit more growth oriented like the tech and software subsectors. Inside of those, a name we talked about back in December like Travelers from the insurance standpoint has done extremely well. I think it continues to.

So property-and-casualty names like Travelers or W.R. Berkeley, those are really – they look excellent right now and look like they're continuing on the trends. Then if we do see rates start to pull in a little bit, it looks like home builders might be anticipating that. They've been on a tear even in the changing in the trend from where technology took off in '23. A name like Toll Brothers wasn't far behind some of these names. You got D.R. Horton that looks pretty good and some other names here that you could – that could be pushed higher or the catalyst could be lower rates for their top line revenue growth.

So I think insurance. I think home builders are maybe the ones that people aren't thinking about right now. Obviously from the tech sector and software sector, there's plenty of names in that group that I think a lot of people could take advantage of, but none that right now look like they feel like the right tactical time. So that's the best way I can answer that.

Dan Ferris: Fair enough. No. Great answer. Great answer.

Corey McLaughlin: Yeah. That's great.

Dan Ferris: We've actually come to our final question, which is the same for every guest no matter what the topic, even nonfinancial guests, same question. If you've already said the answer, by all means feel free to repeat it. The question is simply if you could leave our listeners with a single thought today, what might that be?

Pete Carmasino: People ultimately ask you, "What do you do for a living?" When it comes up we talk about finance and things like that not without getting into advice giving, which we don't do. Somebody always says to me, "How do you invest in the market when it's so high?" I said, "Well, the answer to that is to never not be invested over time." I think that's really the key is to eliminate FOMO you already have to be there.

So you're never going to miss out if you're invested over the long term, but you should have buckets of money, long-term money that you're not touching, medium-term money that's maybe a little bit more liquid, but maybe a little safer, and then obviously shorter-term money for whatever else may come up. I think it's to avoid FOMO is to never not be there. So be invested over a long period of time. Dollar cost average, whatever the case may be, whatever makes you feel mentally good, but you should never have to worry about the markets at the highs. That means you didn't invest at all if you're worried that, to me.

Dan Ferris: Great answer. Thanks for being here, Pete. I really appreciate it. It was really a lot of fun talking with you.

Pete Carmasino: A lot of fun. Yeah. This was great. I appreciate it. I hope I did OK for you guys.

Dan Ferris: The Fed wants you to believe they've got inflation under control, but I believe we've only seen the beginning of a devastating new crisis. If you don't prepare now you can see your savings evaporate as inflation and interest rates soar even higher over the next two years. It all traces back to a golden thread that ties together the biggest financial calamities in America's history. But it seems the entire financial world is falling into the very same denial trap that led to massive devastation the last time this crisis played out. If you know your history, you know there will be winners and losers and now is when you decide which one you'll be.

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Well, that was a lot of fun. I like talking with Pete. He's a really just nice guy to talk to besides being smart, technical guy.

Corey McLaughlin: Yeah. I agree. He's just easy to talk to. A lot of great knowledge there too with how he goes about making trades and his approach to things. One of the bigger points I think is marrying the technicals with the fundamentals, which isn't necessarily a new idea around here, but the importance of it and how he does it using the Power Gauge and his experiences is just something that I think new investors can just knowing that fundamental itself – well, fundamental. You have the fundamentals and then use the technicals to either do an entry or an exist or whatever is helpful.

Dan Ferris: Right. Or like he was saying, to anticipate fundamentals, technicals anticipate fundamentals and then he said how unusual it was that they had the situation where it was reversed, which I totally agree. The idea also, I like the fact that when I was asking him about – well, I forget exactly what I ked him, but he said something about RSI. He was like, "If RSI isn't" – oh, we were talking about the discretion. Remember I was like, "All these traders, they say they're religious and highly disciplined. If you don't trade the signal as its spit out by the system you're fired or whatever."

He's like, "Yeah. Well, we have discipline, but if it looks pretty good, but I don't see RSI." He's like, "RSI. Relative strength. If it's pretty good, but I don't see RSI, I'm not biting." So I was happy to hear that because we all know that maybe there are systems where the system actually puts in the trade or whatever. We know there's a lot of human discretion out there with people who are allegedly trading systems and I always like to hear – it's rare for me that I get to hear the exact point of discretion if someone says RSI.

Corey McLaughlin: Exactly. He was talking about that in reference to RSI compared to the market, the S&P 500, which makes a lot of sense. If you want to beat the market you want to look at that indicator that is literally beating the market, I would think. So I'm sure he came to that point of why that is so important over a period of time. That was nice to hear too because that's an insider. He uses the Power Gauge all the time. So that's somebody who uses it all the time, how they use it. The one thing that needs to be there. Again, that goes to just having a strategy and no matter what it is, just having a set of criteria that you can believe in over time, that you believe in enough to make decisions with no matter what it is.

Dan Ferris: That's right. You know the tool. So you can use it better than other people. It's like you use the same end of the hammer all the time. Every now and then you just need a handle to just tap something. So he knows when to turn the handle around and tap. Smart guy, fun guy to talk to. I thought it was a great conversation. I'm sure you'll be happy to hear that Pete will be coming back. Guaranteed we're going to have him back. Good resource. Good guy to talk to. Great trader. Great knowledge of the stock market. All right. Well, that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really, truly did.

We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want us to interview? Drop us a note at [email protected] or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week I'm Dan Ferris. Thanks for listening.

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