{"id":196724,"date":"2023-09-26T11:45:00","date_gmt":"2023-09-26T15:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=196724"},"modified":"2025-02-12T10:13:40","modified_gmt":"2025-02-12T15:13:40","slug":"fill-the-gap-episode-thirty-two-with-ari-wald-cmt-cfa","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/fill-the-gap-episode-thirty-two-with-ari-wald-cmt-cfa\/","title":{"rendered":"Fill The Gap Episode Thirty-Two, with Ari Wald, CMT, CFA"},"content":{"rendered":"\n

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Resources<\/strong><\/h2>\n\n\n\n

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@dlundgren3333<\/a> or https:\/\/www.linkedin.com\/in\/david-lundgren-cmt-cfa-63b73b\/<\/a>
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Summary<\/strong><\/h2>\n\n\n\n

Will value catch up to growth\u2019s steady trend, or will growth fall from its leadership perch? Can Europe finally accelerate after breaking through its year-2000 peak? Can Energy finally become an investable sector again? Find answers to this and much more in the latest interview from Fill the Gap<\/em>!<\/p>\n\n\n\n

Ari Wald, CMT, CFA<\/strong><\/a> joins us in Episode #32 where we explore the detailed and comprehensive market research behind Oppenheimer\u2019s head of Technical Analysis. Before getting into markets, Ari walks through the \u201cgenealogy\u201d of his career with influences from mentors like Andrew Burkly, Charlie Blood, and Sam Burns. These Wall St. veterans shaped Ari\u2019s research process from contrarian views looking for turning points and mean reversion in every chart, to the trend-following outlook anchored on the momentum factor which he delivers today.<\/p>\n\n\n\n

Throughout Ari\u2019s career the toolkit has been consistent and the focus on objective, quantifiable tools has been the hallmark. From Brown Brothers Harriman to Wolfe Research and now Oppenheimer, Ari has added tremendous value to his institutional clients and to the CMT Community worldwide. Most importantly, his thorough bottom-up review of thousands of securities combined with a historical appreciation for economic cycles and big picture view on the state of the investable environment provide clients with a repeatable disciplined process they can rely on.<\/p>\n\n\n\n

Enjoy the latest interview with your co-hosts David Lundgren, CMT, CFA and Tyler Wood, CMT.<\/p>\n\n\n\n

Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.<\/p>\n\n\n\n

For complete show notes of every episode, visit: https:\/\/cmtassociation.org\/development\/podcasts\/<\/a><\/p>\n\n\n\n

Transcript<\/strong><\/h2>\n\n\n\n

Tyler Wood, CMT 00:13
Welcome to Fill the Gap, the official podcast series of the CMT Association hosted by David Lundgren and Tyler Wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees investment philosophy, their process, and decision making tools. By learning more about their key mentors, early influences, and their long careers in financial services, Fill the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street, who discovered, engineered, and refined the design of technical markets. Fill the Gap is brought to you with support from Optima, a professional charting and data analytics platform. Whether you\u2019re a professional analyst, Portfolio Manager, or trader, Optima provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn more at optima.com. Welcome to Episode 32 of Fill the Gap, the official podcast at the CMT Association. Today, as always, I am joined by David Lundgren, CMT, CFA, co host of the show and Dave, what a phenomenal interview with Ari Wald, also a dual charterholder \u2013 CMT, CFA. Tell us a little bit about the standouts for you from today\u2019s interview.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 02:05
Well, I mean, I think there\u2019s a number of guests that we\u2019ve had on since we started the podcast that are just really pros at distilling complex messages and not getting excited when everyone\u2019s getting excited and just sticking to the routine and checking the ego at the door and just listen to the market and all these things. And he\u2019s consummate. I mean, he\u2019s, it\u2019ll come out in this conversation, people, our listeners will really come to appreciate how somebody who\u2019s been doing this as long as he has from the perch that he\u2019s on, which is head of technicals at Oppenheimer. And it\u2019s a big spot for him and for the organization, and he just keeps it real, keeps it down the middle. And I mean, he\u2019s just like a great person to have on your team. As a subscriber to his work, I mean, it\u2019s just, it\u2019s like higher, it\u2019s like having the market as an analyst and your team vis-a-vis Ari Wald, so it\u2019s great.<\/p>\n\n\n\n

Tyler Wood, CMT 03:03
You know, that came out in our conversation about what the role of a technical analyst is. And there is a lot of data to interpret, and in the hands of somebody as articulate and thoughtful, and, like you said, being able to distill very complex concepts or a ton of data into something that\u2019s really clearly articulated that anybody could take action on. I think that that really stood out to me. And that harkens back to the foundations of this whole organization, what Bob Farrell told all technicians about, you know, removing jargon and making sure that you can communicate your ideas as clearly and as simply as possible, is really a lesson that that we can all take with us. I thought our little dive into small caps versus large caps and Ari\u2019s comment about perhaps the new Dow Theory having more to do with the interplay between large and small than industrials and transports as it was originally thought of in the Dow Theory. I thought that was a pretty unique gem and certainly Ari\u2019s interpretation of what we\u2019re seeing in constructive evidence. And the Russell 2000 was a great takeaway, at least for those trying to figure out where this market is headed.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 04:19
Yeah, he definitely had a number of really interesting spins to share. As far as the Dow theory goes, I mean, obviously, the original Dow Theory is as valid as it\u2019s ever been. For those that are maybe still trying to figure out how to make use of it, what I do today is I use the capital goods index instead of the industrials because if you look in the industrials, the Dow Jones Industrial Average it\u2019s not it\u2019s anything but industrial. So I still use transports but I use the S&P Capital Goods Index and it\u2019s it\u2019s as valid\u2014it\u2019s called every major turn that I, pretty much, that I\u2019ve seen as a technician or a portfolio manager since I\u2019ve been in the business so, it\u2019s as valid as it\u2019s ever been in. Ari\u2019s spin on it was small cap versus large cap\u2014it\u2019s just another nuance of really good insight that\u2019s, you know, other ways to ask questions of the market and then just ask you a question and then listen. Right. Which gets me to one of the things that I thought was really profound that he said, and that was, how nobody knows anything. Yeah. Right. It\u2019s like, well, that\u2019s a that\u2019s a daunting statement. I\u2019m like, How am I supposed to survive in this world if I know nothing? I mean, isn\u2019t this all about informational edges and things like that? And it\u2019s in that moment that you realize that\u2019s the value of technical analysis, because he gives you a systematic rules based process to make decisions and manage risk in a world where you don\u2019t know.<\/p>\n\n\n\n

Tyler Wood, CMT 05:44
And nobody knows, not even Jerome Powell.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 05:47
Not even Jerome Powell. Right. Yeah. So I thought that was a really, really interesting part of the conversation as well.<\/p>\n\n\n\n

Tyler Wood, CMT 05:54
And the fact that, you know, all of us seem to need some kind of story behind what we\u2019re observing and leaning on fundamentals or trying to understand the company or the story that would support moves in price, and Ari\u2014I think it actually physically pounded on his desk\u2014he says, \u201cBut nobody listens to the story of price, which is the story that we all get paid on!\u201d So really, really, really strong technical views and really strong process, certainly, even in his preparation for doing this interview, it shined through, just that he\u2019s such a professional about everything he does.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 06:30
Yeah.<\/p>\n\n\n\n

Tyler Wood, CMT 06:31
Well, without any further delay, we\u2019ll invite our listeners to enjoy this interview with Ari Wald, Chief Technical strategist at Oppenheimer and Company. Here on episode 32 of Fill the Gap, the official podcast of the CMT Association.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 06:49
Welcome to Episode 32 of Fill the Gap, the official podcast of the CMT Association. I am joined as always with my good friend Tyler Woods, CMT charter holder as well, this month, we are joined by none other than Ari Wald. Ari is the chief technician over at Oppenheimer. And of course, in addition to being a CMT charter holder, already also holds his CFA as well. So he\u2019s one of the rare birds that has both. I have them both as well. Don\u2019t use the CFA as much as the CMT, but I do have them both. I\u2019ve known Ari for many years, having the great fortune of being able to follow his work during my years over at Wellington, and it\u2019s really great to connect with him once again here on this podcast just to catch up, hear what he\u2019s thinkin,g and talk a little bit about a process philosophy, etc. So Ari Wald, welcome to Fill the Gap.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 07:41
All my pleasure to be here, Dave, Tyler, thank you so, so much for the invitation.<\/p>\n\n\n\n

Tyler Wood, CMT 07:47
You know, we need all of our listeners to know that Ari is the most prepared guest ever to appear on Fill the Gap. And I think that that shows up in your institutional research as well. You\u2019re such a thoughtful and thorough analyst. So thanks for being here, Ari.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 08:05
Yeah, it\u2019s my pleasure. You know, I joke around I still have nightmares about not being prepared for the final exam. So ever since college, I\u2019ve made it an issue to be much more prepared. So now, glad to be on Tyler. Yeah, let\u2019s, let\u2019s talk some technical analysis.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 08:21
Yeah, absolutely. So I think before we dive into philosophy, process, and everything else, let\u2019s talk a little bit about\u2014I think people are always interested to hear about how CMT charterholders not only get into the business, but what kind of swayed them towards technicals. What was that pivotal moment in your career where you, you said, I need to do this instead of look at balance sheets?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 08:42
Well, I wanted a job Dave. Is pretty much what it was. I was a math stats major from Rutgers. So I did always have an analytical way of thinking, but really, I had no awareness of the subject at the undergraduate level. Hopefully that has changed at Rutgers, I\u2019m unsure. But the opportunity came from a close friend of mine, Craig Siegenthaler, who was working in research sales at Brown Brothers Harriman, I was told there was an opportunity for an internship in the equity research department, but it would be unpaid. But I said, done, no problem. I\u2019ll be there. And that\u2019s how it started. I worked unpaid for two months at BBH. At first I was printing books for the earnings revisions product. And then the firm\u2019s Chief Technical strategist, Andrew Berkeley said, Oh, I could use some help printing my technical analysis books. And that was my introduction to TA. First exposure was simply making chart books of all the S&P sectors and industry. There was a price panel with a MACD and a relative ratio with a MACD and I learned all the Bloomberg codes for BICS Level One in three sectors and industries. I was so proud of that. And that\u2019s all I knew. And I moved back home to Philadelphia after my internship, but made my connection with Andy. And he offered me an opportunity about six months later, as his associate and that was 2004. And the rest is history.<\/p>\n\n\n\n

Tyler Wood, CMT 10:11
And now that did come with a paycheck, right? Are you you haven\u2019t been working for free since 2004. Have you?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 10:17
It did finally changed there. But whatever it takes to get into the industry, I tell you.<\/p>\n\n\n\n

Tyler Wood, CMT 10:23
So literally printing physical copies of the chart books.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 10:27
That\u2019s what it was. We would send out, you know, yeah, there was an electronic version, but we\u2019d print out these physical copies that we, the analyst would mark it with there and annotate them and mark them up.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 10:42
Yeah, I used to get them all the time, both at fidelity as well as Wellington. I love those books. Those things are great. Is Andrew still in the business? Is he still at BBH? What\u2019s he up to these days?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 10:51
He is. He\u2019s made the switch to the buy side. He\u2019s down in Franklin Templeton move down to the Florida area.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 11:00
Oh, good for him. Fantastic. Yeah, so, okay, so BBH\u2014you\u2019re obviously not there anymore. So something happened, hopefully it was all good. What what got you to where you\u2019re at now?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 11:11
Andrew Berkeley. Yeah, he was\u2014as I think about the guys that were really key for my career and where it got started, you know, number one, without a doubt, Andy Berkeley, he was the technical strategist, you know, took me under his wing and was the real driving force, in terms of me moving up the ranks. And fast forward years later, and he got me in the door at Oppenheimer, where I\u2019ve been since 2014, when my predecessor when the technical strategist left at Oppenheimer, who I had never had worked for him. But Andy was doing portfolio strategy there. And he said to the director of research, \u201cHey, I got a guy,\u201d and got me in there. And I\u2019ve been there for now nine years. Started there a week after my first son was born. So every time I forget how long I\u2019ve been there, how old my son is. But what, you know, with Andy, what he might have been best at and what I learned most from him was his ability to take technical concepts, and explain it in a very simple way that a fundamentalist would understand. So that was my sensei, in terms of the CMT family tree. That\u2019s, that\u2019s who\u2019s directly above me. Number two, who was above Andy, in the family tree was a gentleman named Charlie Blood.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 12:31
Yeah.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 12:32
The chief economist and strategist at BBH for decades, wasn\u2019t a CMT charter holder, but an affiliate of the organization. He was one of these old timers who was a student of market history, and appreciated the technical craft and its systematic framework. So I learned a lot about attention to detail from him the right way to create a chart and put together a dataset and how important both the accuracy and the aesthetic of a report was when sending it to an institutional client. Perhaps Dave has seen one of these before, but he was known for these large coffee table size chart books, which he called the guides to the financial markets. And there was just this amazing market breadth and sentiment data going back to the 40s and 50s in there that he bestowed on me when he retired, and I can\u2019t thank him enough for it. You know, everyone these days has a market opinion. But when you have data that not many people have, it\u2019s truly invaluable.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 13:32
Yeah, that\u2019s really fantastic. That\u2019s great that you had those early influences. I guess I had a similar experience early on in terms of having a sort of Sensei in my career, but, you know, the, sort of the Zen master for me was Frank Teixiera, in terms of being able to translate technical concepts into into, you know, phraseology that was consumable by the fundamental side. So we\u2019re all talking the same thing. It\u2019s just that we\u2019re trying to express the opinion of the market rather than the opinion of ourselves. And so if we can break down that translation into consumable bites that don\u2019t\u2014that are not offensive. In my career, that\u2019s always where I\u2019ve seen the best uptake with technicals. And you Ari, you\u2019ve always done a great job with I mean, I just watched a bunch of clips of you on CNBC. I mean, you just do a fantastic job of just keeping it down the middle. Keeping it consumable, and understandable, actionable, so kudos to you for that.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 14:29
Thank you. Yeah, I think it\u2019s, you know, what, you know, and you don\u2019t know what you don\u2019t know. And if you kind of kind of stick with what you know, it\u2019s helpful. Sam Burns, who came to BBH some years later from State Street and Ned Davis before that, had a shorter overlap with him. But what I learned became really critical to my research style. He taught me a lot of the basic ways to quantify the technical indicators that I\u2019ve been using for years. So that really became a backbone to what I\u2019m still producing to this day, you know, anyone with a Social media handle can flag when a certain signal is flashing and call it a Hindenberg death signal and freak everyone out. But being able to back it up and show how the signal has performed historically is really when clients pay attention.<\/p>\n\n\n\n

Tyler Wood, CMT 15:13
You know, that goes right back to the actual roots of the organization. Somebody like Bob Farrell, who would get up in front of a group of technical analysts and, maybe chastise is too strong of a word, but really encourage everyone to drop the jargon, to get rid of nomenclature that\u2019s not used widely by an institutional audience, to make sure that your message, first and foremost can get through the door that they\u2019re even receptive to hearing from you. As you get into more and more depth with your with your technical take. And so I certainly see in a lot of your work are the ability to convey a message very clearly, to articulate what can be often complicated ideas or complex takes on the market, but in a very simple way that everybody can process.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 16:06
Yeah, we\u2019re all reading lines on a chart at the end of the day, Tyler, but got to make it sound a little smart. There\u2019s a nice balance there.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 16:16
Let\u2019s not squander the opportunity to have Ari explain to us what his philosophy is, because at the end of the day, I mean, we have a lot of technicians listen to this podcast, but a lot of non technicians, a lot of fundamental investors listen as well. So this is an opportunity to both at the same time, explain to a technician Ari\u2019s perspective on how to explain technicals and trend following momentum to a fundamental investor. But on the other hand, we\u2019re actually have a number of them that are listening right now. So talk to us about your philosophy of technical analysis and what it means to you, and what do you think about fundamental analysis and things like that?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 16:52
Sure. Let me first explain how it\u2019s changed through the years and how I kind of have gotten to the point where I\u2019m at, because it really as has flipped since coming into the industry. You know, at BBH we were small, and we needed to be contrarian. It felt like if something wasn\u2019t coming off a 52 week low, it was too late already to buy it, the sales team was like, \u201cDon\u2019t waste my time with that.\u201d So I started off loving the idea of divergence, you know, I\u2019m screening through the sectors and industry, I see something that a new relative low with a bullish divergence in the weekly MACD and boom, that\u2019s my report. And I look back now, and even some of the great calls, and some that we hit out of the park. I would never even think about making those calls these days, because I soon learned that rather than focusing on finding the lowest cost possible, it was more important to help clients increase their probability of success, and that there was an inverse relationship there that you had to give up some cost to increase your probability that the idea was going to work. I recall one of the better learning experiences that I had was in January of 2010, we recommended selling the market based on an overbought MACD. And the worst thing that could have happened happened. Yeah. The market was down 2%. Bloodbath. I\u2019m feeling great sales are getting inbounds for our report. And I\u2019m like, \u201cMan, I can do this.\u201d But this provided this false sense of overconfidence, you know, the S&P sold off for a couple of weeks, and then it all changed, it swings higher, we stand by our view, and ultimately just had to eat it after a while. And it\u2019s experiences like that, when you step back, assess what went wrong, and use that to shape your philosophy going forward. And I realized that when the trend is higher, tough to make a call that counters that trend. So fast forward today. And over the last nine years, we\u2019ve shaped our methodology around the momentum factor. We know the history we show when it works, when it doesn\u2019t work and how to quantify it in the market. You know, we tell our clients no style of investing will always work, whether growth or value, but through various market cycles momentum has been an alpha generating factor and we\u2019re disciplined to it. And I recall Andy talking about Frank and Dave\u2019s technical team at Wellington, saying something along the lines like yeah, those guys just hit a button and buy whatever spits out and that always stuck with me. I love that unemotional approach. And later on I recall Dave presenting at one of the symposiums showing the number of funds with growth in their name, the number with value in their name and a number with momentum, which had barely any you know, later I hear Andrew Lo presentation on the factor. I\u2019m like, Okay, this, this is what I\u2019m doing. So I start reading all the AQR papers. I\u2019m researching on the Ken French site. And now everything I\u2019ve learned through the CMT curriculum starts to come together for me and it\u2019s like I\u2019m in the Matrix and I started disagreeing with the saying that fundamentals are the what and the technicals are the when and I realize technicals and price momentum are the what the fundamentals are the why. So money managers have a smart sounding story I get it, they can\u2019t tell their clients or their investors that they just bought a stock because the price is trending higher. I feel clients I speak with that have the best track record have caught on to this. They they know the fundamentals inside and out. And they want to own stocks pointed up, they appreciate and have respect for price momentum.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 18:12
The flash crash, right?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 18:22
That\u2019s really interesting, because I\u2019ve always said that\u2014not just me, but many, many people have said in this in this side of the business that the fundamentals are the what, and the technicals are the when and you\u2019re characterizing it as the fundamentals of the why. So why am I listening to the chart is really what you\u2019re thinking? Yeah, I j\u2014nobody knows the when. The trading, it\u2019s like a coin flip, you know, half the time, you know. Yeah.<\/p>\n\n\n\n

Tyler Wood, CMT 21:08
And more importantly, humans have to know the why. Right? We don\u2019t have enough faith in our process to just follow the rules. We have to have a story that explains it to us.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 21:20
Need the story, need the fundamentals. Yeah, yeah. So it works together.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 21:23
Yeah, I think it\u2019s also, Tyler, I love that you just said that. And I think it\u2019s also that, that if you\u2019re really truly going to be systematic in this, then you literally have to check your ego at the door, you can\u2019t be involved, you can\u2019t take credit, you can\u2019t take blame, you have to just like let the process run over time, and let it just play out. And this is a type A type of a business personality type of a business where we\u2019re like, we want to be able to say that we crushed it this year, because we\u2019re so smart. And so I think that\u2019s what really gives us a hard time, to allow us to just override our ego and just let the process work. Because we want to be able to look back and say, \u201cWell, I did so well this year because you know, I\u2019m I\u2019m a brilliant person,\u201d right? Of course when things don\u2019t go well the other way it\u2019s the you know, \u201cThe markets out to get me,\u201d and, \u201ceverything\u2019s rigged against me.\u201d But I think that\u2019s a big part of it, the behavioral end of it.<\/p>\n\n\n\n

Tyler Wood, CMT 22:15
You know, David, I had a great conversation with David Aronson. 5-10 years ago, I can\u2019t even remember exactly when he was trying to unpack that idea that we need the explanation. He said Evidence Based Technical Analysis, his famous book, was about making sure that you had a sound economic understanding behind what you\u2019re observing, he said, somebody might come up on a call that says, \u201cBoy seal populations in Antarctica are a direct driver of S&P, you know, forward returns.\u201d He\u2019s like, you know, maybe 50 years from now we figure out that, you know, oil tankers, shipping goods all around the oceans, create some blooms of algae, and that, that creates the food supply that then creates all these seal populations. He\u2019s like, that\u2019s just not going to work for most investors, at least for the next 30 years, until they, you know, figure out all the science about why that is the case. So he\u2019s very careful in in saying, yes, you have to follow those rules. If there\u2019s evidence, then you follow the rule. But for most investors, you\u2019re going to need to have a story that, you know, sounds believable within current economic understandings. And I think when I read your research, Ari, that comes through. So crystal clear, just the way that you can articulate what you\u2019re observing in the market, based on investor behavior, it based on you know, what we know about how portfolio managers position.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 23:48
And if you frame it that way, it helps out so much. And it really allows technical analysis to be usable in what is a fundamental community at the end of day, you know. And so for us, there\u2019s really two ways that come that we come to our investment conclusions from the top down and from the bottom up. And we combine these ideas and have the most conviction, when what we expect to happen overlaps with what is actually happening, you know, the charts. So first thinking in terms of top down the ideas based on the view that market direction and stock in sector and industry selection makeup, perhaps half of a stock\u2019s performance. I don\u2019t care how good the fundamentals are. If the market is tanking, more likely than not, your stock is tanking too. And personally, I\u2019m a big advocate for the idea that a rising tide lifts all boats. So in terms of the market, our first goal is try to understand where are we through, in history, what\u2019s been a four year equity cycle. Historically, there\u2019s been major market lows about every four years, consisting of about a three year bull market and a one year bear market. And with that said those cycles have been more condensed in recent years or have been shorter bulls and shorter bears. Rather than the often used 20% decline, we found that the best one rule definition of a major low through history is retracing at least 18 months of prior performance and 18 month low because it incorporates duration as well. Now, this is just for definitional purposes. And we\u2019re going to be watching for the typical signs that a market bottom has formed, and then for price to confirm by reversing higher. So while we\u2019re generally watching the slope of a 200 day average as a proxy for the trend, and we want to stick with the trend, we\u2019ll start keeping an eye on reversal signals like divergences, if we\u2019re at a stage of the cycle that potentially calls for a reversal. Last year was a great example. At the time we had showed bear cycles and a secular bull typically last about nine months, the S&P was down top to bottom for nine months into October, going into strong seasonals. The divergences were emerging. So we thought it was was textbook, and we were bullish, call it coming off that October reversal day. And I\u2019ll just finish in terms of the bottom up, you know, we do say that we\u2019re momentum investors that overlay technical analysis onto our process. You know, we have a broad universe of stocks about equal to the Russell 3000. We rank all those stocks based on their momentum. So similar to the academic definition of the factor, our scores are based on prior six, nine, and 12 month returns, we risk-adjust the returns with a three year standard deviation to help identify steadier accelerations, and we remove the most recent month data to consider the mean reverting tendency of price momentum over very short term periods. We aggregate these scores at the sector and industry level looking specifically at the weight of each group and quintile one minus quintile five. And this provides a look at where the factors located from the top down. Would note that we don\u2019t blindly buy quintile one. In short quintile five which is the unemotional, academic way of investing. We use the scores as a starting screen. And the visual technical analysis part allows us to identify emerging momentum that is just starting to break higher. So we provide market and sector neutral stock lists. And by this we say regardless of what you think about our top down views, we\u2019re trying to identify what\u2019s positioned to outperform and underperform versus their peer group. And finally, the rules of momentum investing, let your winners run, we cut our losers quickly making sure we have the big winners to offset the smaller losses, we have a report dedicated to what\u2019s going on and coming off our lists, we tell our clients there\u2019s value in what\u2019s going against us what\u2019s starting to break down use that as information as well. And the thought process all this is that conservatism bias supports the factor. Because rather than instantly pricing in $1 of earnings, the market will gradually price in 25 cents, 25 cents, 25, and then another 25 to create a steadily developed trend, rather than an efficiently priced market. And generally speaking, the stocks that go from the lower left to the upper right are the stocks that have good fundamentals behind them and are being sponsored by strong market players. So clients appreciate this and generally seem to like that we\u2019re strict around our methodology.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 28:38
I could keep you on the phone for another two hours with questions based on that last little bit, you just, you just gave us here. So thank you for that. But what you just described is very similar to what I do as well. And so I manage a hedge fund and I rank it by deciles, and then do technical analysis within the deciles, in essence. So my question for you would be if you\u2019re in that top decile, and you\u2019re not just blindly buying the top decile, What won\u2019t you buy in the top decile? What gets you to not buy something? If it\u2019s in the top decile?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 29:04
That\u2019s a great question. And it\u2019s always difficult to quantify. Because the easy answer would be oh, well, something that\u2019s too extended above its 200 day average. And then the the cap they give you follow up, oh, how do you define to extend it, and there really isn\u2019t a great way to define to extend it because a lot of those times, those are ideas that continue to work. To which I say, well on the sell side analysts. So I\u2019m at least looking for ideas where if it\u2019s already worked, you know, whatam I telling you to buy, you know, whatever it might be, that\u2019s already you know, 30% above its 200 day average, whatever it might be. I will say that that\u2019ll probably still end up working, let it run, but I\u2019m going to try to at least look at my tactical signals. What\u2019s just breaking out what\u2019s pulling back to support just in terms of new idea generation.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 29:57
Yeah, so you\u2019re not telling anybody to buy elf beauty today, but I seem to recall more recently you\u2019rewarming up, no pun intended, to energy. Right so that\u2019s just kind of made its way to the top decile, you\u2019re started to do a little bit of nibbling there. Is that how you think about it?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 30:11
That is how I think about it showing relative strength in it in a difficult market tape and retraced 38% of its prior outperformance from 2020 to 2022. I think this is fine in the lower end of the range, kind of how we\u2019ve been putting it, this is probably the leveling off. I don\u2019t think this is necessarily going to be a long term shift in energy. But I think probably some of the stocks, from the bottom up perspective, are showing that type of strength. You\u2019re looking at the stocks that have already cleared big resistance levels from 2018 and 2014. And so yeah, so energy screams well for us, industrials, and technology is still very high on our in our momentum score. So as we think abou,t what should investors be looking to buy on this q3 pullback, in anticipation of what we think is going to be a q4 upturn, technology and industrials still score high for us.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 31:06
Yeah, I definitely want to talk a little more about how you deal with the conversations that go around with respect to fundamentals that are oftentimes very contrary to what we see technically, like the message is the message of the market is one thing, but investor conversations and angst and guest speakers on CNBC and Bloomberg, which, which are great programs, but they just, they just reveal a disconnect between what the markets trying to get us to do, or what everybody else wants to do based on behavioral biases. So that\u2019s always true. But it seems to me to be more true today than ever. I mean, we have runaway inflation and interest rates going up this impending recession, you know, geopolitics, all these things that have investors really concerned and worried about dipping a toe into the market, and yet the market seems to be saying something different. So would you agree the market saying something different? There\u2019s a lot of things that say yes, some things, a lot of things say no. So where do you come down on that? Is the technical connected or disconnected with fundamentals right now and how do you think about it?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 32:11
Yeah, this this year, especially start of the year, there was a significant disconnect between what the charts were signaling and what the macro concerns were signaling. Y\u2019know generally speaking, I always kind of say consensus is always somewhere between being moderately bullish and moderately bearish. The contrarian call at any particular time is having a really bullish or really bearish view. And it really just comes down to confidence in your process, and discipline and tools. And at the same time understanding and acknowledging that no one has any idea. I recall coming into the industry and reading these 20 page, all text reports from the desk of the CIO, and thinking wow, how little do I know versus these guys, and then you\u2019d see how wrong their market forecasts would be. And if you can acknowledge it, no one really knows you can use that in your favor. You know, I always say one of the biggest hurdles we face is having to sit in front of a Bloomberg screen all day because it creates a need to have a call at all times. And then it\u2019s easy to get stuck in that call. So last year was a great example to your point. The market was putting in a textbook bottom. And I call it the bears worry go round. Bears were just finding new things to worry about. What if you were to back test what the bears had conviction about? You quickly saw that those worries were largely overstated. So hear me out. Worried about recession? Well, at the start of any given recession, the S&P was actually positive over the next 12 months if it was already traded lower going into recession, the market had already priced it in last year. All right, well, I\u2019m worried about earnings growth, then. Well, earnings growth has historically bottomed six to seven months after price bottoms. You\u2019re going to be late. If you\u2019re gonna if you\u2019re waiting for earnings to bottom. Okay, well, I\u2019m worried about valuation. Well, market hasn\u2019t bottomed a lot below its long term average in 30 years, so keep waiting. Okay, I\u2019m worried about the Fed. Well, you would have missed out on a two year bull market the last time the Fed committed to break the back of inflation in the late 70s. Yield Curve, yield curve. Well, actually been a Fed cut after an inversion that\u2019s historic lead to more imminent market selling as it did in 2000 and 2007. Worried about the economy not supporting price? Well, it\u2019s actually the economic data that misleads and turns up during a bear market rally. Well, market leadership stays defensive as it did in bear market rallies in \u201901 and \u201908. So these all become very convincing stories. Yet nobody wants to believe the story being told by price, which is amazing, because that\u2019s the story that investors are getting paid on.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 34:57
Yeah. Oh, So, you know, I think one of the the most critical contributions to the investment world of technical analysis is that it provides a very structured black and white framework for being able to make decisions in managed risk. In a world where we literally don\u2019t know it, like if you feel uncomfortable saying, Well, I don\u2019t know, well, let\u2019s not forget, not too long ago, we know inflation was transient. And that was a statement by that by a gentleman who had the best contacts in the planet, the most the most richest databases to make a decision and make a statement like that. And he didn\u2019t even know. You know, and so right now, we say that this possibility of inflation is going to run away again. And so we may have to raise rates, and he still doesn\u2019t know. So that\u2019s just the reality. Nobody knows. And technical analysis allows us to navigate this world, but we just don\u2019t know. And manage your risk. You know.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 35:59
Manage your risk, having process, having discipline\u2014there\u2019s a lot of different ways to make money can make money as a bull and make money as a bear. But as long as you\u2019re disciplined and knowing the constraints of what you\u2019re able to do short term trade better use of tight stop, you know, whatever it is, there\u2019s there\u2019s just have a process and a methodology, you could you could make it at work.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 36:19
Yeah.<\/p>\n\n\n\n

Tyler Wood, CMT 36:20
But just before we move off of that, I wanted to ask: is there is there still relevance to the visual? So obviously, we\u2019re all looking at price charts all day long. But in a world of of AI, and more and more quantitative computing power? Could Is there any reason to still look at the chart? Couldn\u2019t you pull your list of momentum deciles without ever even seeing what price action had showed you? And if you can, why do you still use data visualization? Why do you use a price chart?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 36:59
That\u2019s a great question. And that is the part that\u2019s a little bit more difficult to quantify the breakout, and it\u2019s, you know, the the ultimate question to that that\u2019s always difficult to answer is, well, why do I care\u2014if you\u2019re looking at a 30 year chart\u2014why do I care if price is breaking through a level from 20 years ago? Is there really going to be the same memory and the players that are involved have changed, and there is something\u2014but when you, I think, the data visualization, it helps to show when your story is starting to play out, you know, again, it gets to this idea of when what you expect to happen based on what you\u2019ve quantified, then overlaps with what is happening. And the data visualization shows you when that is starting to happen when price is starting to move, consistent with the thesis that you have played out. So again, I think there is, kind of navigating that divide and using it in together I think is the most powerful combination.<\/p>\n\n\n\n

Tyler Wood, CMT 38:07
Yeah, really well said.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 38:09
Hey Tyler, can I jump in on that?<\/p>\n\n\n\n

Tyler Wood, CMT 38:10
Please.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 38:11
First of all, there\u2019s a fantastic question. We don\u2019t pay you enough. So I think the question you just asked actually really gets to something I alluded to earlier, which is bias, not bias, but ego. And I want to be able to tell you that I killed it this year, because I identified this chart, not my systematic program. But that\u2019s just wrought with bias. But the corollary to that is that systematic investing just does not work in a bear market, or in a range bound environment. So what I\u2019ve come to appreciate over the years and you know, Ari I\u2019d be interested in your thoughts on this, but when you can identify a bull market is underway, you\u2019re actually better off not looking at charts, you\u2019re actually better off just going with what the momentum factor is saying. And then when you can identify that the markets transitioning into an environment where systematic investing doesn\u2019t work, that\u2019s when you take out the chart book, that\u2019s when you draw your trend Lines, because if you\u2019re worried about stocks going from 50 to 20, well, they can\u2019t go to 20 unless they go through 49. Right. So if you\u2014that\u2019s that whole enviable rules of trend following. So in that world, in a non trending non bull market environment I use discretion with with traditional charts and technical analysis. In a bull market. I lean heavily because it\u2019s so hard to beat momentum in a bull market. It just is. You just got to quiet your mind. Almost close your mind. It just listened to what the market saying vis-a-vis momentum and then just let it go.<\/p>\n\n\n\n

Tyler Wood, CMT 39:40
Is that why Frank called you his quant guy? \u201cThis is my quant guy, Dave\u201d<\/p>\n\n\n\n

David Lundgren, CMT, CFA 39:47
What do you think Ari?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 39:48
Yeah, that\u2019s it. That\u2019s blending the top down and the bottom up. If you can, when you get the if you get the top down right, you know, half your half your jobs done, right? If you can identify from an early phase especially when, you know a lot of consensus hasn\u2019t figured it out yet that we are in a bull market. You know, that\u2019s the time to make some money, you know? And yeah, the rising tide lifts all boats. And understanding well, what do I, you know, I\u2019m not buying consumer staples and utilities if that\u2019s the case, I want to buy those big highfliers.<\/p>\n\n\n\n

Tyler Wood, CMT 40:19
Yes.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 40:20
Understanding the environment that you\u2019re in, of course.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 40:22
So when you\u2019re asked the question, are we\u2014which, I\u2019m about to ask you so I\u2019m giving you a bit of a prep here but\u2014when when you\u2019re asked the question, are we in a bull market, or a bear market, range bound, whatever? What tools do you default to in order to make that assessment? It\u2019s okay, if they change from cycle to cycle, because not every cycle is the same. But what tools do you lean on to answer that question? And then when you do that today, what is your answer?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 40:46
Well my answer is history. You know, we kind of go by the assumption, the four year equity cycle is really the basis to what we do and trying to understand where we are in that cycle. You know, looking back, historically, we have a way to quantify those market lows, I discussed the 18 month low. And then, of course, you\u2019re looking for confirmation by the market, that where we think we are, is actually playing out. And so you know, that gets us into kind of our outlook. Looking ahead, you know, we came into the year, making the case that the S&P would climb the wall of worry to 4600, for those reasons. New bull market, we broke out. And so fast forward to today, our target has been reached. But it\u2019s more important with how the market is behaving. And the market is behaving in a manner consistent with a trend that should continue. So if you look back, historically, the average bull cycle rises about 70% over a two and a half year period. Now, let\u2019s assume this is going to be a below average fullcycle, let\u2019s say 50%, over one and a half years, you know, the market is still conservatively, undervalued based on where it should ultimately top based on this assumption. So it won\u2019t be a straight line higher. But new cycle highs over the next nine to 12 months is reasonable to us. And that\u2019s the roadmap that we\u2019re following, you know, and of course, always important to be watchful for where can we be wrong, you know, going into any assessment. That\u2019s the question, one should be asking: Where am I wrong? And so it\u2019s going to be important to us to be ready and acknowledge the point, which our argument that internal breath is improving, versus 2022 no longer applies, because that\u2019s the key positive for us. We\u2019ve said that while the market is missing, the broad base Breakaway, that typically confirms the start of a new advance. Breath is at least showing directional improvement. It\u2019s been narrow but not narrowing. In fact, it\u2019s not that buying has been concentrated. It\u2019s that selling has become concentrated versus last year\u2019s broad base selling when nothing was working and pockets of the market have started to work. So first of all, the argument hangs squarely on the Russell 2000. It\u2019s been a proxy for internal breath. When small caps were working in January. And then again in July, participation was working. And now as the Russell has failed again, and it\u2019s August 2022, peak participation is under pressure again. So despite the renewed small cap weakness our take is that the year long base in the Russell 2000 is intact. Conversely, new small cap lows would derail the base and pressure our bull market thesis. So it\u2019s important to note here that we are watching areas of weakness rather than strength as a market warning. You know, we\u2019ve done work on this and shown that forward market returns don\u2019t turn below average when one sector shows very strong returns. But they do turn below average when one sector has already shown poor returns. We call it our sector culprit. Not only does breath narrow into a top, it\u2019s typically concentrated in a sector that breaks down ahead of the market. So this or this time around, it\u2019s not technology. Tech isn\u2019t the issue. That\u2019s your strength. It\u2019s there\u2019s a lot of support underneath that group, it\u2019s if the weak get weaker, and drag those leaders lower. So for us market risk is more in small caps and small cap value specifically.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 44:27
So when you say breadth has been improving, or at least not getting worse, right. So it\u2019s stabilized. Is that the right way to say it?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 44:36
I see an advanced decline line making higher lows since the last year net new highs making higher lows stocks above their 200 day average great example got above 60% both more recently and at the peak in February. What we found is that at a market top you\u2019ll typically see a new S&P high undermined by reading below 60%. So this has been stronger than a bear market rally moving in the right direction. To confirm the breakaway, you\u2019d really like to see that reading above 70%. So we haven\u2019t had that either. So breath is kind of stuck between a bull and a bear. I would argue again, though, it\u2019s the directional improvement versus last year and why we think it could just be a matter of time, until he gets a breakout<\/p>\n\n\n\n

David Lundgren, CMT, CFA 45:25
For our listeners, and frankly, for myself, because this is something I wrestle with as well, but the aspect of what you\u2019re seeing with respect to small caps in IE, I guess, broad market breadth, that is telling you lean in, getting you to lean towards the idea that will eventually go higher, as opposed to this just being a sideways range before it goes lower, again, is what what is it the four year cycle? Is it because we know that most of what\u2014I was looking at a stat the other day, and if you look at system, since the peak in 2022 every sector, except for one is, on average is still quite negative relative to that 22 peak. So the only sector that\u2019s way above that level is energy, which I think is interesting. And we maybe we should talk about that a little bit more. But what is it about what you\u2019re seeing it breath that tells you that although it\u2019s not good, your expectation is that it will be?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 46:15
It\u2019s the visual aspect of what I\u2019m seeing in the chart of the Russell 2000. So for me, the Russell 2000 is a proxy for market breadth, what what average stocks, I mean, if you line up the Russell with a lot of these breadth indicators, they kind of swing pretty closely together. And the leading is that the new Dow Theory is really large caps and small caps, you know, rather than what has historically been industrials and transports, I would argue the relationship between large caps and small caps are really is really the key relationship and the Dow theory that that I watch, particularly of course, at a new high, you\u2019re looking for new S&P highs undermined by fewer stocks, the Russell 2000 failing to confirm that this time around what I see in the in the Russell 2000 is an index that was down sharply last year that is beginning to stabilize that it\u2019s been making a series of higher lows since October of last year. But it hasn\u2019t broken out either it\u2019s in a base it\u2019s been in this, it\u2019s been range bound for much of the last year, you see it in the slope of the 200 day average, it\u2019s starting to flatten out even perhaps begin to take a positive tilt, which is again, the directional improvement that we\u2019ve gone from down to sideways. That\u2019s the second derivative change, that we\u2019re keen on that why we think the next likely step would be the breakout in the Russell, which lines up with our overall views, but you want to see it. So we\u2019ve laid out what we think should happen. Now we actually have to see it. So there still is some risk on the table. And if the until the Russell breaks out, that\u2019s going to be where we\u2019re wrong. And that\u2019s why we\u2019re watching that index so closely.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 47:55
Yeah, you know, I was thinking as well that oftentimes, the better information is what\u2019s not happening, as opposed to what is happening. So we\u2019re sitting here waiting for something good to happen. And it\u2019s not happening yet. So therefore we can be concerned about it. But we can also say what\u2019s not happening. And at the end of the day, I mean, we just had three of the four largest bank failures in US history. And the Russell 2000 is laden with banks, and it didn\u2019t break support. And then we had another we had another deck downgrade. And we haven\u2019t gone down we had all these other geopolitical things. So we\u2019ve had all these reasons to take the market down in the market hasn\u2019t gone down. So it\u2019s good enough that it hasn\u2019t gone down as opposed to maybe it\u2019s not going up yet. But it\u2019s the fact that it hasn\u2019t gotten that down. It\u2019s probably means the markets looking out and saying, I like what I see.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 48:37
Credit spreads relatively stable through that through the through the banking crisis as well. Right. The bearish response, or excuse me, the bullish response to these bearish news is very telling, and it would suggest a lot of that bad news has been priced in and why the market to your to I think we\u2019re looking at a lot of the same charts, Dave.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 49:04
We may well be.<\/p>\n\n\n\n

Tyler Wood, CMT 49:05
You know, I think that was Ralph Acampora\u2019s comment. When I was first starting to figure out what technical analysis was about 13 years ago at the CMT. And he was looking at this chart of the IWM that you were just talking about, can\u2019t get above 200. And yet we have this series of higher lows and so Ralph explaining everything in behavioral terms. He\u2019s like, every time you pullback lower buyers are stepping in at higher and higher prices. So forget what\u2019s happening at that top resistance line, that\u2019s a very constructive environment, that people, that investors, are continuing to step in at higher and higher prices, and you\u2019re making this series of higher lows. I just think like the simplicity of some of those classical Edwards and McGee concepts, how could they possibly still hold true in 2023, 100 years after these folks were observing and figuring this stuff out, it\u2019s amazing to me.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 50:06
Well they have to, right? Those are concepts that have to be true. That\u2019s the value of technical analysis. It\u2019s like there\u2019s a stock can go from 20 to 40 in one cycle, and then do the same thing again in the next cycle for completely different fundamental reasons. And oftentimes, there are fundamental reasons that we argue about we don\u2019t even agree on it, and it still happens anyway. So therefore, what\u2019s the net? What\u2019s the value of, of opinion anyway? But what we can say is a technically, every single time the stock went from 20 to 40. It went past 21 first. That\u2019s true all the time, and that will be true forever and ever. And as long as it\u2019s freely traded markets,<\/p>\n\n\n\n

Tyler Wood, CMT 50:39
Yeah.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 50:39
technical analysis will be more the the most valuable, most consistent, most usable form of analysis.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 50:44
And all this consistent with history as well. If you look back, you\u2019re right. There\u2019s an expectation. Well, if it were in a bull market, everything should be working. But if you were to really look back, some of these markets, just require a little bit more time to get going. And we\u2019ve done kind of studies on when does breadth finally confirm after market low and sometimes think on average, it\u2019s about eight, nine months. And we\u2019re kind of right there. But you\u2019ve seen episodes, of course, that could be up to a year later until you get that breadth confirmation. So again, it is still consistent with this bull market thesis that we\u2019ve laid out as long as we don\u2019t see those breakdowns. And we haven\u2019t seen those breakdowns yet.<\/p>\n\n\n\n

Tyler Wood, CMT 51:23
Yeah. Looks a lot like the Russell in 2011-2012.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 51:26
Yeah,<\/p>\n\n\n\n

Tyler Wood, CMT 51:26
Before we finally broke out in \u201913.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 51:29
Yeah.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 51:30
Ari. you\u2019re a student of the markets, the history, and all in all, I\u2019m curious what kind of work you\u2019ve done. On the relationship between the dollar in the market, obviously, it looks like the dollar really kind of wants to go higher here. Is that good or bad for stocks?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 51:45
We\u2019ll talk about a relationship that changes through time. My take on the dollar is this and right, anytime I\u2019m asked about dollar, or fixed income commodities, I\u2019m always thinking in terms of the relationship to the equity market, I would argue for my view, it\u2019s not strong dollar. It\u2019s not weak dollar. It\u2019s not high rates, not low rates. It\u2019s stability\u2014stable dollar, stable interest rates that have historically aligned with strong run ups in the equity market, these secular bull market periods. And I think that\u2019s what we have. So the dollar is starting to strengthen again, it had\u2014after a significant decline, it fell below its February low, then snapback above it, it indication a false breakdown an indication of selling fatigue, and now has moved above its 200 day average. Pot carving out of bass in line with there\u2019s some very long term support levels that are also that also line up there. So finding the lower end of the range, I just don\u2019t necessarily expect significant upside either. I think this could be a point where the dollar is range bound, it creates price stability, it creates a range bound commodity market, which we\u2019ve seen historically through these, you know, secular run ups in the equity market, which is the framework that we\u2019re, you know, thinking in terms of,<\/p>\n\n\n\n

David Lundgren, CMT, CFA 53:15
So do you have a\u2014I know you\u2019re turning more positive on energy? Do you have a view on oil itself? I mean, do you need it to, to do something positive? Or is it just more as you say, just be stable, if it goes up, that\u2019s even better, but just don\u2019t go down?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 53:30
Range bound, exactly. Finding the lower end of the range. And even for energy. This is I think, in terms of, you know, underperformance in the sector, well, that that 2020 low in energy, you know, we have the sector going back a century, that was below its the lowest relative levels, since we have data going back to 1932, there was a 1932 relative low in energy that was below there. So that was victory long relative low, then we had this significant turn. And it looks like the downtrend turned after this, you know, a decade long period of underperformance. And you think back to how technology performed coming out of its collapse in 2000-2002, or even financials coming out of the great financial crisis. And there was a significant rise coming out of that major low point. And then those sectors previously were range bound, you think a technology had a big run from 2002 to 2004, then it was generally range bound on a relative basis for a number of years before taking on its leadership role, again, more so in an a\u201908 and coming out of the financial crisis. And that\u2019s the roadmap that we\u2019re following for energy. That I think this is a leveling of that trend changes don\u2019t necessarily have to be from down to up can be from down to sideways. And I think this is the leveling off that we are seeing in energy and some of this fits into\u2014We\u2019ve had a bit more of a differentiated take on the growth and value divide that\u2019s developed over the prior decade, we\u2019ve agreed that the divide between the two parallels the divide from the late 90s. We\u2019ve disagreed on the driver, saying it hasn\u2019t been driven by outsized returns and growth like it was in the 90s. And instead, it\u2019s been been driven by how poorly value has performed this time around. So if you look at a long term rate of change on the NASDAQ 100, we\u2019ve argued the pace of gains is actually underappreciated, and is a key difference between now and then. The NASDAQ was up close to 1,000% in the final five years into its year 2000, peak returns haven\u2019t been close to this this time around. And there\u2019s been check backs along the way. In fact, the rate of change is now turning up from sub 0% print, which makes it look more like 2010, or 2003, and is why we\u2019re making the case that this steadily paced, secular ascent is resuming. Conversely, we showed a few years ago in 2020, that the performance of value over a five year period was the outlier, rivaling major low points in 1974, 2002, and 2008. So if the bifurcation in the 90s was corrected by growth catching down, we think the setup is such that this time around, it\u2019ll be based on value catching up with growth steady trend. And that\u2019s our thesis for the second half of this secular bull. Can Europe finally accelerate after breaking through its year 2000 Peak? You know, can energy finally become an investable sector? Again, these are all trends that we\u2019re rooting for. We would argue, though, from a risk reward basis that the long term trends still favors growth and why we do still side with that technology trade.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 56:59
Yeah, so you\u2019re saying with expansion in maybe even rates going higher, inflation turning higher. That\u2019s all indications of growth. It\u2019s not a bad thing. It\u2019s indications of growth, so long as it\u2019s not runaway, it\u2019s indications that the economy is heating up globally. And so therefore, that means to some of these massive 20 plus year bases in Europe, Japan, other other parts of the world that have just gone nowhere, because of this deflationary impulse, this wave could actually start to work.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 57:29
Great point. Yeah. Last year, it wasn\u2019t that rates are moving higher, it\u2019s that you had a near doubling in the tenure through the first four months of the year. It\u2019s how quickly they\u2019re rising. But to your point, for the most part, rising rates is indicative of growth coming back to the market. And this time around, we\u2019d almost be more worried about a breakdown in interest rates. Imminent recession risk. Alright, so listen, there was a big breakout and rates, you broke a 40 year downtrend, made a significant higher high but prior peak levels. But that\u201440 years of down doesn\u2019t mean it\u2019s going to be 40 years of unrelenting move to the upside, we think there\u2019s going to be a leveling off period. I think that\u2019s what we\u2019re in. We\u2019ve called this the year of consolidation and interest rates. And again, I think it\u2019s that stability, not too hot, not too cold, that should be a positive backdrop for equity prices.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 58:20
Yeah, I remind folks that I speak to you about the bond market, rising rates, etc, in the period from 1942 to 1966, or 68, where that was a pretty persistent, run higher in rates. And the stock market just kept going higher, and I kept getting push back that it was a different demographics, different growth cycle for the country and all these things. And I think that like in that moment that that was happening, I have to believe that the there was pushback on the fact that stocks are going up with rates going up. And we can fast forward. It\u2019s only because we can fast forward to today\u2019s Well, that\u2019s we now know why that happened. Because demographics and you know, the growth cycle, the structure, the economy, and all these other things. So it\u2019s happening again, today, maybe stocks continue higher, with rates going higher, we\u2019re have our hands on our hips going this can\u2019t happen, because rates are going up. And maybe we\u2019ll find out 10 years or 20 years from now why it happened together again, you know,<\/p>\n\n\n\n

Ari Wald, CMT, CFA 59:12
Right. Technology sector outperformed during that period as well. Dave, I mean, again, the push back as well\u2014was it as more of a value sector then? or growth sector?\u2014but nonetheless, right, there\u2019s always reasons to say this time is different. But a lot of times it\u2019s still the same trends that do play out.<\/p>\n\n\n\n

Tyler Wood, CMT 59:30
You know, that concept of time being just as important of a factor as the absolute price move. Not that I listened to all the Fed governors, but the Kansas City Fed chief after Chairman Powell speech last Friday, just said look like we don\u2019t have to raise rates to have an effect on the economy. Just sitting here with the 10 year at 4% has an effect, right? It\u2019s it\u2019s elevated and sustaining it there would would be would be to keep pressure on the economy running away or inflation running away. So that, you know, that range between three and a half and four on the 10 year looks looks really nice and stable after that extreme run up. But it has its own effect on cooling the economy.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:00:18
And that\u2019s\u2014and I\u2019d be much more worried about the other scenario, right? If volatility caused by Fed hiking, monetary policies, volatility historically that should be bought. That doesn\u2019t mark end of cycle conditions necessarily. There is a marginal difference, the returns are better, we\u2019ve seen, when the last cut, when the last policy move has been a cut rather than a hike. It does exemplify more late economic cycle conditions. But the worry and the market sold off last year, because the risk of runaway inflation through the first half of the year. And that\u2019s the word as long as it\u2019s almost the Feds commitment to fight inflation that I think is going to support a continued move to the upside. That was their mistake in the 1970s. They cut too quickly. And it wasn\u2019t until the commitment to to fight in the late Paul Volcker in the late 70s, when they when they kept the Fed funds rate well above the rate of CPI and inflation that the market was able to take off again. So yeah, for all those reasons. If that\u2019s your biggest worry in the market, you know, you\u2019ve got bigger things that you should be worried about.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 1:01:27
Yeah.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:01:28
And what was the final point to that? Yeah. So you\u2019re thinking about, yeah, it is a late economic cycle, but equity markets can move higher to this, you know, you could call out the late 1980s. Coming out of the 87, crash, non recessionary bear market, your rally from 88 and 89. And, you know, again, there\u2019s there\u2019s been this discrepancy between the market and the economy. But by the time\u2014when does the market peak, Dave? When economic conditions are pretty strong. Again, don\u2019t forget the stock market is the leading indicator, it\u2019s, I could I\u2019ll tell you where the economy\u2019s going based on the stock market, not the other way around. I see and ISMPMI print stabilizing below 50. I see runway to the upside there.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 1:01:34
Exactly. Yeah. You know, let\u2019s not forget that the stock market is in the index of leading economic indicators. So for all the pushback from academia and practitioners on the fundamental sides, saying that technical analysis and trend is late to the party, if not voodoo in and of itself, they did put the trend of the S&P 500 in the index of leading economic indicators.<\/p>\n\n\n\n

Tyler Wood, CMT 1:02:37
Market knows all. Ari Wald, my goodness, we could, we could keep you here all afternoon. And I\u2019m sure that our listeners, they probably finished their commute 30 minutes ago, but they\u2019re still listening.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:02:49
They\u2019re sitting in the car.<\/p>\n\n\n\n

Tyler Wood, CMT 1:02:50
They\u2019re sitting in the car, that\u2019s right. They\u2019re just hanging out in the parking lot waiting to go to the office. But this has been just an incredible masterclass. I wanted to finish by asking you a question that was brought up at a CMT chapter meeting. I want to say this was probably a decade ago. You were pretty new to the game. And and the question was from a very well respected veteran technician, he said, you know, what I\u2019m seeing here is not new, it\u2019s not cutting edge. It\u2019s not, you know, you\u2019re not developing a new indicator, you\u2019re just using the same stuff that has always worked. And, you know, why is that? Why aren\u2019t you pushing the envelope and inventing something new? And so I think in summary, what I\u2019ve heard from you in this last hour, is that the stuff that has worked, why would you stop using it? Right? You might remember that night differently than I do.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:03:47
What an amazing memory you have there. Yeah, you just pulled that from my subconscious too. I recall that question.<\/p>\n\n\n\n

Tyler Wood, CMT 1:03:54
Ari\u2019s got a little twitch for the rest of the afternoon.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:03:56
Yeah.<\/p>\n\n\n\n

Tyler Wood, CMT 1:03:57
It was kind of a hostile question, but I thought you handled it well that night.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:04:01
I thought you were gonna\u2014usually in those chapter meetings, it\u2019s like, don\u2019t you see a Jaws of Death pattern developing that and you score along those lines. But\u2014<\/p>\n\n\n\n

Tyler Wood, CMT 1:04:11
Yeah, but I just think\u2014<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:04:14
That\u2019s\u2014it works to your point there. Yeah, it\u2019s\u2014history doesn\u2019t repeat, but it often rhymes. And listen, and there you can\u2014I think since then, I\u2019d like to think I\u2019ve\u2014you take things like that and you want to create your own thing and do something a little bit different. And everyone\u2019s got their own special sauce at the end of the day.<\/p>\n\n\n\n

Tyler Wood, CMT 1:04:34
Of course, of course. Any advice that you\u2019ve got to the next generation of technicians Ari? Where they should start?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:04:42
Got to go through the CMT curriculum. That\u2019s where I usually\u2014the whole the Matrix thing, that\u2019s what I tell anyone that\u2019s going for it. I say, as soon as I started studying for the CMT curriculum, it was like entering the Matrix. Everything just started to come together there. Listen, it\u2019s a Make-your-own-path. Sometimes it\u2019s not necessarily going to be the opening that\u2019s out there. It\u2019s about creating your own opening, you know, getting a job on a trading desk and being the person that incorporates technical analysis or on a fundamental research team and adding one page at the end of doing technical analysis is great way to do it. I think that\u2019s any before after BBH. Before I started Oppenheimer, I worked at Wolf Research for about a year.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 1:05:30
That\u2019s right, yeah.<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:05:32
And that\u2019s what I did. I created demand for myself. I emailed the managing partner directly about bringing technical analysis to his firm because they didn\u2019t have anyone at the time. And he emails me back right away saying, Yeah, let\u2019s grab lunch. So it was interesting, I come to find out that the sales guy at Wolf used to work with John Roque, and they wanted him. The issue was John was still on the buy side at the time. So I had about seven interviews at this place, homework assignments and everything. And for one of them, because they didn\u2019t really have expertise in the field as a favor. They asked John to come in and interview me one of their clients. So he did. And you know, I got the job. And that\u2019s also how I ended up meeting Roque, who, as we all know, is a technicians technician. Absolutely, yeah.<\/p>\n\n\n\n

Tyler Wood, CMT 1:06:25
Do you do you ever incorporate brobdingnagian basis in your research?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:06:29
I don\u2019t that is John\u2019s that. Is John\u2019s there. Yeah.<\/p>\n\n\n\n

Tyler Wood, CMT 1:06:34
The great John Roque. Oh, my goodness. Well, Ari, from all of us: the Association, the global members, and I\u2019m sure every client who\u2019s reading your research, thank you very much for continuing to put in the countless hours you do to articulate this message so clearly and so well. This has been such a pleasure. Looking forward to seeing you out on the road and at CMT events all around the world over these next few months, and give my best to the family as well, okay?<\/p>\n\n\n\n

Ari Wald, CMT, CFA 1:07:04
Will do. Thank you so much. Love the work that you two are doing for the Association. Overall, I am always there for, thank you so much for having me on the program today, David and Tyler.<\/p>\n\n\n\n

David Lundgren, CMT, CFA 1:07:16
Thank you. Thank you very much, Ari. Great to see you.<\/p>\n\n\n\n

Tyler Wood, CMT 1:07:23
Fill the Gap is brought to you with support from Optima. In addition to candidates study of the official CMT curriculum. Optima provides a full video course on all of the material that candidates need to know for each level of the CMT exams. Each course is broken up into modules ranging from 15 to 45 minutes depending on the complexity and length of the topics being covered. Learn more at Optima.com<\/p>\n\n\n\n

—<\/p>\n\n\n\n

Originally Posted September 20, 2023 – Fill The Gap Episode Thirty-Two, with Ari Wald, CMT, CFA<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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