The Charts Aren’t Buying It

The market may look resilient on the surface, but the charts tell a more nuanced story. David Keller of Sierra Alpha Research joins IBKR Podcasts to discuss momentum, market tops, sector rotation, and the technical signals investors should be watching as volatility simmers beneath the indexes.

Summary – IBKR Podcasts Ep. 413

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson: Today I’m joined by President and Chief Strategist of Sierra Alpha Research and host of his own podcast, Market Misbehavior. Warm welcome to David Keller. How are you, David? 

David Keller: I’m well. I’m well, Andrew. Good to see you. Thanks for having me on. 

Andrew Wilkinson: A first-time guest, and we’re gonna get into the conversations about the markets and technical analysis. And as a point of reference for the audience, we’re recording this on the last day of July. It’s July 31st right now. And before we go into a market overview, David, could you lay out for the audience your approach to technical analysis, please? 

David Keller: Sure. So my background is working with, you know, generally long-term investors. But earlier in my career, I worked with a lot of hedge funds, so I’ve sort of experienced the short-term sort of swing trading mentality, but also long-term position trading and sort of everything in between. 

So my technical analysis toolkit, I guess, has evolved based on a lot of those interactions I’ve had with different market practitioners. 

I would generally consider myself a trend follower or a momentum investor. So I consider my job is to consistently review the evidence and focus on areas of strength, try to follow those as long as possible, focus on areas of weakness, and try to lean away. 

So my technical toolkit is pretty classic, looking at price trends, looking at momentum, using a lot of moving average techniques to smooth out the noise, which is becoming very relevant here in recent weeks and months. And then especially focusing on relative strength, which is essentially how we determine how a stock or ETF is performing relative to the benchmarks, relative to the broader market. 

And making sure that we focus on outperformance is really essential to my own strategy. 

Andrew Wilkinson: Very good. And you’re a chartered market technician as well? 

David Keller: Yeah, CMT charter holder, and I would say that was a fantastic, if not annoyingly challenging experience. But by the end, it forces you to learn a little bit about everything, if not a lot about everything. And I think for me, I came out of that CMT process having a much more disciplined process of technical analysis. 

I find when a lot of people are just learning about charts, it’s very undisciplined, it’s very haphazard, and as a result, inconsistent processes often lead to inconsistent, you know, results. And so for me, coming out of that with a pretty clear sense of, “Here are the indicators I need on my own checklist to evaluate a chart and determine whether or not I want to deploy my capital,” that was one of the best outcomes of that experience for sure. 

Andrew Wilkinson: Very good. Now let me start off with a very blunt observation or question for you. Since the start of May and the end of July, when we’re recording today’s podcast, does it look to you like we might have carved out a market top? 

David Keller: Ooh, that’s the question, right? And I would say honestly, if you ask a lot of experienced market practitioners, you know, “Does the market look toppy recently?” I mean, it’s hard to answer anything but, “Yeah, it pretty much does,” right? But I would say, you know, let’s put a little more specifics on it, right? 

I would say the trend in April and May was an aggressive uptrend phase off of the March low. Big period of accumulation, strong leadership, strong performance kind of across the board. June into July has changed quite a bit, and all of a sudden we’re seeing the market really, you know, be in a neutral positioning. 

And I would say that the market’s in a consolidation phase or a sideways trend. Pretty clear support, pretty clear resistance. We keep retesting each of those boundaries. But I think the real action is underneath the hood, which is where you see a lot of individual stocks and groups having significant volatility and significant movement. 

So even though the VIX is, you know, still relatively low, still below 20 generally, you know, the volatility of individual stocks and sectors, volatility of a lot of technology, a lot of energy has been extreme. And so I would say while the indexes are generally neutral, while I would say there is a sort of toppy feel to it, and certainly would be very negative if we would break clear support, which I don’t think we have yet, I think the important data to gather right now is looking at the individual stocks. 

And that’s where we see a lot of movement and, honestly, concerningly, quite a few breakdowns of stocks breaking key support levels. 

Andrew Wilkinson: Before we come to that market of stocks rather than the stock market, let me ask you about momentum, which you mentioned earlier on. It really has been a momentum-obsessed market. So which are your favorite indicators to help you, first of all, identify and then, second, follow trends, and then identify when those trends might have petered out? 

David Keller: So I love that question, Andrew, because you’ve hit on, I would argue, the three goals of the trend follower, right? It’s identifying trends, it’s following those trends as long as possible, and then it’s recognizing and acknowledging when the trend is over, which is arguably one of the toughest things to do because we have to decide to unwind a position that’s been a really good one for a while. 

And so, you know, different indicators are helpful in each one of those goals. So in the first one, in terms of identifying strong momentum names as they emerge, for me, that’s a scanning exercise. So it’s routinely, for me, looking for stocks making new three-month highs. That’s a scan I run multiple times every week with different benchmarks. 

So my goal is not necessarily to say, “All right, anything that breaks out, that’s bullish.” It’s more to give myself a working list of ideas that are starting to show some sort of strength, and then I can, you know, do some further analysis to really differentiate what are the really strong breakouts for whatever additional qualifiers versus which ones may not be as ideal. 

And I’m always trying to look for that kind of ideal setup. So for me, just, you know, breakouts and looking at breaks above previous resistance is a really easy way to sort of catch those early emerging leaders. For following the trends, for me, moving averages are kind of the classic, you know, approach for this. 

So I use a combination of the 21-day exponential moving average, the 50-day simple moving average, the 200-day simple moving average, and I use the three of those together. And the 21-day exponential moving average has served me quite well as being sort of an initial warning sign, and it worked remarkably well with a lot of high-flying technology names, growth stocks, and even in other sectors like industrials and financials that had these really exponential rallies. 

Andrew Wilkinson: And you don’t wanna leave all of that on the table, but you wanna get a signal when things start to change. So as long as we remain above those moving averages, as long as the moving averages are sloping higher, the trend is still good. And so for me, it’s sort of a peace of mind of as long as the moving averages are in the correct order, I shouldn’t worry too much about that particular position. 

And then the third one is how do you identify when the trend is over? And I would say that’s the toughest thing of all and probably the thing that investors and traders don’t spend enough time on is a more thoroughly developed sell strategy. For me, it starts with early warning systems. 

So one of the things I will look for is with RSI, the Relative Strength Index. Look for bearish divergences, right? So look for new highs in price that are marked by weaker momentum, and that’s often a sign that even though the price is still trending higher, you’re starting to see some selling pressure. 

You’re starting to see some investors selling into strength, and that’s gonna cause the momentum to fade while the trend is still up. So that’s an early warning sign I often look for. Then I use that same indicator, RSI, and if it breaks below 40 on a drop, that would mean there’s enough selling pressure that it really indicates a new move to the downside. 

So, you know, I think a lot of, you know, technically oriented traders get into trouble when they think of each of those three different questions as the same question, and they use one indicator or one set of indicators for all this. For me, the reason why you have different indicators is to address the fact that we could be in an early trend, an existing trend, or the end of the trend. 

We need to think of those in three different ways. 

Andrew Wilkinson: Well, and do you tend to rely 100% or less on daily charts? Or I’m thinking more of the RSI and when to define the end of the trend? 

David Keller: It’s a really good question. I would say one of the great advantages of technical analysis is your ability to go across timeframes very easily, right? So if you think about analyzing a company fundamentally, you’re really limited in terms of your ability to think across timeframes. You kind of have one thesis, you gather the data, you kind of decide what makes sense right now. 

For a technical analyst, you know, we have the ability to bring in more data, bring in a lot less data, to zoom in or zoom out. And I was taught, when in doubt, zoom out. So I usually look at the daily chart for that initial warning sign. That’s where a lot of bearish divergences have been showing up recently, in recent weeks. 

And that has often provided a really good early warning of a trend exhaustion point, right? A major top of sorts. But when you sort of see those early warning signs, that’s when I think bringing in the weekly data is particularly helpful because a lot of turns will initially happen on the daily chart, but enough of a move that causes the weekly chart to rotate, the weekly RSI to pivot, the weekly stochastics or some other indicator that kind of gives you an idea of trend, that’s when you feel it’s more of a secular shift and not just a tactical move. 

So thinking in multiple timeframes, I would say, is the great advantage of technical analysis and looking at charts, and I always encourage people to look at multiple timeframes as much as possible. 

Andrew Wilkinson: So then let’s get back to this concept of individual stocks. Steve Sosnick, my colleague, often talks about this market of stocks rather than there being a stock market. What industries or sectors are you seeing strength in despite the generally sloppy broader market conditions? 

David Keller: It has been a sloppy, choppy market condition overall, Andrew. I would say that’s 100% correct. Those are great adjectives to describe the reality. But at the stock level, there’s quite a lot of movement, right? And I would say, you know, the biggest question mark, right? I mean, earlier in sort of the AI euphoria cycle, which I think we’re definitely in, earlier it was kinda anything related to AI was a pretty good bet. 

All the AI-related names were, wherever they’re at in the, you know, sort of life cycle of AI, all were sort of doing well. Now we’re starting to get differentiation, right? Now we’re starting to get differentiation between the hyperscalers, right? In terms of individual names like a Microsoft gapping higher, a Meta gapping lower around earnings. 

And we’re seeing these really binary outcomes, and it really comes down to whether the incredible amounts being spent are adding value to the bottom line or appearing to take value off of the bottom line, and those are two very different outcomes. We’re also seeing differentiation across different parts of sort of the AI theme, right? 

So looking at chip makers versus infrastructure names and equipment names, and all of those are starting to be differentiated as well. So I would say the days of any hyperscaler spending, you know, gargantuan amounts of money is a good bet, I think those days are probably behind us, really starting to differentiate, and this is where I think charts are quite helpful, recognizing the ones where there’s still an accumulation, showing that investors are still optimistic about their ability to generate these revenues down the road. 

I think that’s where we wanna be. In terms of interesting ideas, energy remains a very volatile but, I think, a very compelling opportunity. Given the fact that there’s still a lot of uncertainty with the, you know, conflict in the Middle East, given that there’s a lot of volatility in those names, it still would seem to me that given what all is going on, a lot of the energy stocks still appear to not be in as strong of a trend as I would have expected by now, which makes me feel like there may be a catch-up trade of sorts with energy. 

Within technology, I think things like software, which have been some of the more beaten-down groups, but a lot of those names are really starting to show these rounded bottoming patterns where they’re starting to rotate from distribution into accumulation. So I think that’s an interesting area to be, you know, thoughtful and intentional, but maybe looking for some ideas. 

And then finally in financials, and I would say the interest rate environment is one of those macro themes that I think is gonna be a good tailwind for financials. Some of the larger banks have done quite well. Some of the regional banks will do well because of a steeper yield curve. And the charts of all those groups that I just mentioned show signs of accumulation, and that for me is really the most important factor to look for. 

Andrew Wilkinson: So David, let’s get into both energy and financials. I always start when I’m looking at the energy sector with crude oil, right? But true to say, it’s very clearly driven by the headlines surrounding Iran, Israel, the war in the Middle East with the US. Beyond the price of oil, dig into what the charts are telling you about those energy companies now. 

David Keller: Right. So within energy, right, we’ve got different parts, kind of the upstream names and midstream names and the downstream names. And a lot of times we think of energy as one group, you know, simplistically, and I don’t think that’s generally a bad idea because you’re right, most of them are tied to crude oil. 

But what we saw earlier when crude oil prices initially spiked earlier this year as the conflict in the Middle East, you know, really began, and so crude oil prices spiked aggressively up, you know, above $100 a barrel, and then kind of came back down. And there was a subset of names, and it was a lot of the retailers, right? 

Sort of the gas station names that did quite well because those are names that actually do just fine even if crude oil prices are not high, right? So thinking about which areas of the market of that sector do better or not with crude oil prices, I think is one way to, you know, sort of differentiate. 

Same thing, like pipeline and infrastructure names are often moving a little differently because, you know, for a number of reasons. I would say with energy stocks in general, this is an area that’s consistently been an underperformer with some exceptions, right? Earlier this year, as crude oil prices spiked, we saw a pretty good run. 

But a lot of those names have come back and retraced a pretty significant amount. So a big part of the technical approach is after you’ve had a big run, like we saw with an Exxon or Chevron type of stock, and then you have these big pullbacks, we’re trying to identify where some potential support could be, and then we’re trying to see if we start to see signs of accumulation and a sign that there’s a rotation from selling pressure to buying power. 

And that’s where I would say just in the month of July, we’re potentially starting to see those in some of those different groups, maybe even the big integrated names as well. With those types of charts, though, that have been retracing, I think keeping fairly tight stops is a really good idea because of the volatility and because of the fact that the picture can and certainly has changed quite often recently. 

Andrew Wilkinson: That kind of preempts a follow-up question I have on energy. Is it possible for the broader market to start breaking, yet the energy sector continue rallying? 

David Keller: So that is 100% a possibility, and I would say that is probably going to continue to be one of the key themes of 2026, right? What we’ve seen, the difference between April and May to June and July, has been the benchmarks have essentially been sideways to slightly lower. The benchmarks feel fairly weak, right? 

They don’t– You don’t feel that there’s this great bullish trend happening in the S&P, but a lot of individual names and groups have been making new highs. A lot of market breadth indicators are actually remarkably strong, right? We’re still around 65, 67% of stocks in the S&P 500 above their 50-day moving average, above their 200-day moving average, which means most stocks are actually still pretty good, even though the S&P and the Nasdaq have been sideways to slightly lower. 

So I would say for stock pickers, this is one of those environments that’s incredibly tempting because there are individual groups. There’s definitely a scenario I could see where crude oil prices continue to push higher as energy stocks recover. The benchmarks are flat, which means you have a fantastic opportunity to generate alpha, generate opportunity, generate returns in a period when a passive investment would be much less profitable right about now. 

So I think this is, you know, not always an environment that’s great for stock picking, particularly when it’s more of a macro move and kinda everything’s going up or down. The correlation between different stocks and sectors is remarkably low right now, and I think that means opportunity. 

Andrew Wilkinson: Well, let’s go back a little bit. You picked up on the financial sector. Let me ask you about that. The likelihood of an interest rate increase seems to have dramatically increased over the last quarter. And I think three FOMC members, for the end-of-July FOMC meeting, voted in favor of an interest rate increase. 

So it was a 6-3 vote against holding rates steady. What do the technicals look like for the different areas of the banking sector in an environment that has shifted from lower interest rates ahead to potentially higher yields? 

David Keller: That’s such an awesome question. I don’t know if you can see the chart off my left shoulder, but this is a long-term chart of interest rates in the US, and I have that on my wall literally so every time I come in my office, I see that chart, and it goes back, like, 50 years. And that shows the huge run higher in rates up into the peak of the, you know, 10-year, the 30-year yield around 1980, and then a big downtrend in interest rates in the US to the low in 2020. 

And after that chart, rates have basically been steadily climbing, right, with the 10-year yield kind of getting up to 4.5% to 5%. To your point, I think this is a larger secular shift, right, away from a lower interest rate environment, a zero interest rate policy kind of period to now a period of rising rates. 

And it’s taking time and, you know, it’s not just a straight line. There’s some movement. But generally, you know, rates are trending higher. And so I think that is one of those kind of backdrops to this market that probably investors are underprepared for because quite simply, most of us have not been investing much during a rising-rate environment. 

We’ve got a ton of experience when rates are going down or low. So I think that’s gonna change the picture a little bit, and I think that’s gonna change which areas of the market potentially can lead. Financials have been struggling certainly at times on a relative basis, which, as I mentioned, is one of the most important things I look at, is how is it performing relative to others. 

We’re seeing a larger rotation from growth into value, which I think is part of that story, and we’re seeing sectors like financials actually do remarkably well. From a technical perspective, what’s so funny is if you look at the chart of Morgan Stanley or Goldman Sachs and cover up the ticker, you’d probably guess it was a semiconductor name or some sort of technology play because of these nice, consistent uptrends coming off of new all-time highs already in Q3 and, you know, having some movement, having some pullbacks, but generally in a pretty constructive structure. 

So I think the rising-rate environment, the steeper yield curve, which is what we’re just seeing, more of a normalization of a yield curve. We had more of an inverted and a flat yield curve that’s normalizing, which should be good for definitely regional banks, for larger banks, and so forth. 

So from a technical perspective, I would say, as always, we want to look for emerging opportunities. So the money center banks, the larger names, are where I’m continuing to see some pretty strong technical profiles. Bank of America, others like that, all with pretty constructive patterns, all holding key moving average support. 

And for me, as I mentioned as a trend follower, as long as those moving averages hold, those charts are still in pretty good shape, and I think they’re there. 

Andrew Wilkinson: But what was the number one question that a hedge fund trader comes running to you looking for the answer for? 

David Keller: Oh, what an awesome question. What happened? That’s probably one. The panic, you know, “What happened?” If you imagine– No, what… I mean, to be honest with you, I think a lot of times when I get questions, it’s trying to get a read on the market. And one of the things I’ve learned over my career as a technical analyst, you have the ability to look broadly way more easily than other types of investing, right? 

So if I’m trying to evaluate a company fundamentally, I’ve got to dig into financial reports and read a bunch of news, and think about the management team and the, you know, valuations and all this stuff. As a technical analyst, it takes me a fairly small amount of time to look at a chart of a bank and say, “Is this a good chart or not?” 

And I can look at a lot of them, and I can scan for charts that have a particular configuration that show me it’s starting to show signs of accumulation. So the questions I often get are trying to figure out, you know, where is the opportunity? And so a lot of the discussions I have are thinking about routines and how you spend your time every morning, how you spend your time every day, and kind of coaching, you know, traders to have a more disciplined process of gathering evidence. 

Because if you don’t do a good job with the evidence-gathering process, you end up with an emotion-based investment process as opposed to an evidence-based investment process, which is what we want to do. And then I would say the second bucket of questions are all selling questions, right? 

I think we spend a lot of time thinking about our buy strategy and how to get in, and it feels good when we buy something and it goes up. Selling a lot of times is not that glamorous. Selling hurts, right? Selling is when something’s not working anymore, and you have to admit a lot of times that this position is no longer working for me. 

And there are a lot of behavioral biases that try to prevent us from making good decisions on those types of charts. So for me, it’s a lot of times thinking about managing risk and thinking about how much of a pullback is just a brief pullback that is probably a very buyable dip versus something that’s more significant. 

So that’s why we use things like moving averages. That’s why we look at a lot of breakdown strategies to make sure that we stay with trends until the trend is ended, and then we want to make sure we leave quickly and gracefully. 

Andrew Wilkinson: David, final question. What keeps you awake at night? 

David Keller: Ooh. A lot of things outside of the financial markets, Andrew, but that’s probably a separate podcast we can talk about. What keeps me up at night? I mean, to be honest with you, I would say that, you know, there’s just such an uncertainty, there’s such a volatility of the markets. 

I mean, if I explained to you, “Here’s everything that’s gonna happen in 2026. Here’s all the macro forces that are going to be at work,” I would probably tell you we’re probably in a painful, struggling bear market and/or volatility was extremely high, and we’ve seen the complete opposite, right? 

We’ve seen the market for much of 2026 be in a low-volatility uptrend. The VIX, even though the emotional VIX of investors is very high, the actual VIX is very low. And so for me, I would say there is an anxiety, I think, underlying a lot of the conversations that I have. And for me, the problem with that is, going back to our first discussion about the major benchmarks, it wouldn’t take much for the S&P to break down a pretty clear level for me, like around 7,300. 

When that happens, I think there’s a lot of anxiety that will bubble over very quickly. So what concerns me is that a sell-off is probably not a slow, gentle grind lower. It’ll be quick and severe, so it’s not a time to be complacent. I wouldn’t say it keeps me up at night, but it’s definitely something I think about, you know, in the mirror in the morning. 

Andrew Wilkinson: Yeah, but as an analyst, as a technical analyst, you’re not necessarily in love with the market and you’re just rooting for it to shoot higher. You’re making those objective assessments all the time. And I assume you’re saying, “I’ve made this decision. This is what I predict,” isn’t, “Oh, this is what the evidence tells me, and it’s going lower or it’s going higher.” 

Fascinating. David, where can listeners read more of your analysis? And I mentioned the Market Misbehavior podcast earlier. Where can they? 

David Keller: No, it’s a pleasure, Andrew. Thanks so much for having me on the show. Yeah, marketmisbehavior.com is my website, and I have a Market Misbehavior podcast where I interview different market practitioners and talk to them about their routines and their strategy and how they make decisions. And then I do a daily market recap show as well on that same website. 

Andrew Wilkinson: Excellent. So for the audience, thank you very much for joining me. Don’t forget to subscribe wherever you download your podcasts from, and look out for David Keller of Sierra Alpha Research, available at marketmisbehavior.com. Thanks, David. 

David Keller: Thanks so much, Andrew. 

Andrew Wilkinson: All right. Bye for now.