Hey, this is Steve Eisman and welcome to another episode of the Real Eisman Playbook. Today, we're going to be talking to Todd Sohn, who is the chief chartist at Strategas. In the world of Wall Street, chartists are like the video game of our world. You look at the charts, and they really, if you know how to look at them, tell you what's going on in sectors, the market, etc. We're going to have a lot to talk about, and I'll be back afterwards with some lessons learned.
Hi, this is Steve Eisman, and welcome to another episode of the Real Eisman Playbook. So, I thought today would be a good time, given how much has gone on this year, is to take a step back and look at charts and what charts are telling us. And so, today we have recurring guest, Todd Sohn, chief chartist of Strategas. Hey, Todd, welcome back.
Thank you. Always great to be with you.
So, before we even talk about any charts, for those members of my audience who are not as familiar with charts as others, what's the philosophy of charts? What are you trying to learn? What are they good for? What are they not good for?
The old saying is a picture tells a thousand words. If you were stranded on a beach island, let's just say for a month, maybe you're on vacation. You come back, you need to figure out what happened in the world in that last month, you look at 100 different charts, and you have the story right there. The charts will summarize everything you need to know very succinctly, efficiently, and they can also tell you when you're wrong or you're right about something. So, it's a great, great, great way to understand what's going on across all sorts of different asset classes.
So, let's start with some individual stock charts, and then we'll dig deeper into market stock charts, which are kind of more intricate. So, I'm looking at a chart, and we're going to put this on the screen for everybody, the semiconductor ETF, which is the SOXX index. And just to show everybody, you know, I'm going to again we're going to put this on the screen, but this is what it looks like. And the charts are also going to be in the attachments in the description for everybody to look at. So, this is the semiconductor, this piece of paper shows the chart itself. And then below there's a chart called momentum. So, here's the chart. Tell me what this is saying. And what does the momentum thing mean?
It's technically called RSI, relative strength index. That's the fancy word in the technical world.
It's literally just measuring how fast something is rising or falling, right? How overbought or oversold is something. It is a guideline. It's not a rule as to what it says. You know, you can try to gain some information about it. You know, something reaching a new high without being as overbought, that can be a little bit of a warning sign. Or something making a new low without being as oversold, that can be a perhaps change of trend that the pressure of selling is not as high.
What is the semiconductor chart telling you?
This is a market about semis.
The market's all about semis.
We have seen semis on a massive run, especially since March 30th. We're going on almost 3 months of that. We talked about last time. They're 18% of the S&P 500 now, going on 19%.
And where were they 10 years ago?
It's amazing. 2% to 18-19% in 10 years.
So, you have a group here and we're using SOXX the ETF. There can be other semiconductor ETFs. They're all going to be weighted differently. This one's probably the most even-footed. You're not weighted too much towards Nvidia or whatnot. Super overbought, perhaps consolidating, maybe a little bit of a crescendo as we just had a big IPO and some earnings. But nonetheless, they are in charge of the market right now.
So, the market, for lack of a better term, lives and breathes by this index.
If tomorrow, if something happened and this index, I'll just going to make this up, collapsed.
By definition the market would collapse.
Yes. On the surface indices would be very weak, right? Maybe there's something internally that's going on different, you know, you rotate away from semis, but on the surface for index-based investors you will feel that pain.
Okay. Software. Maybe this is the inverse of what semis has been. Tell us what this is, the software ETF.
What is this telling you?
A little messy. Could I make the case the worst is past for software stocks.
Well, the stocks have done generally terribly throughout the last year.
Yes. They have been a rough year.
Had a nice little rally. In the technical world they have what I would describe as mean reverted back to some moving averages, you know, your 200-day, your 50-day. It's not something I feel great about, right? If you want to take a flyer on them, you got to respect your stop-loss levels. That's totally the way I'd go for software stocks going forward.
So this chart is not telling you it's time to buy.
It's told you it was mean reverted back to a lower level.
From very negative sentiment.
Oversold negative levels, right?
But it's not telling you this is a great buy.
Do I think it's as what is defining as semiconductors? No. No. Could it be a great buy? Absolutely. I look at something like this, software, where it's a little bit of a mess and it's a great use of the options market where I can structure a trade and I'm going to pay my premium, however it is, and that's my risk.
So you're not a buyer of the group, you're a speculator.
Where I can only lose a certain amount.
Yeah. Yeah. Okay. Got it. GEV. One of my favorite stocks. I've owned this stock for a very, very long time. My viewers know that. This is GE Vernova, the power company.
And this ties in somewhat to the semiconductors, right? They're all kind of the same neighborhood.
If you showed me this ticker, this chart without telling me what the ticker was, I would tell you it's going to be a buy pretty soon, right? You have a great trend, you got very overbought. And now you're just consolidating, you're re-earning some profit taking.
And when you say it was overbought, is that when the momentum thing over here is above the red line.
Okay. That was overbought, and so the stock has had a little bit of... Yeah, it'll come down here. I think expectations for power and semiconductors... still think the chart looks good.
Yeah, for now, in its current state, yeah. It's one that you would suggest as buyable. Now it's just a matter of, you know, what's the next catalyst to take it higher. Is it more CapEx? Is it earnings? You name it.
Okay. I don't think this chart looks so great. And I know nothing. And I own Amazon, so I wish it looked good, but this doesn't look so great.
There are a lot worse charts out there. Granted, but there's a lot better charts, too. I think it's pretty middle of the road.
A two out of a one, two, three.
Yeah. Yeah, totally middle of the road. Can I make the case? Again, I think it's a similar one where you play options on this, you know, do a straddle. I'm not really an options expert, but if you're skeptical on whatever their business is, buy some puts. If you think that this thing can rebound as it tests the middle of the range, call options again.
So, you call this chart an eh.
Okay. All right. Now, here's maybe a more important name in some ways. Meta.
Talk to me about this chart. What is this chart showing you?
I will admit I have been skeptical of this... Of the stock, of the chart, a few times over the last decade. And it's always come back. Right? I remember in 2022 I was like, 'Oh, this thing's done.' You know, it was down 60, 70 maybe from its high. I don't remember. Like there's no way this is getting back to now. It came right back. In its current shape, not great. It looks more like a short.
So, when the viewers look at it, when they look at this chart, like what is it about this chart that tells you this is bad?
So, there's a couple of tells. Right. One, you have a market that is making a new high. S&P 500, equal-weight S&P 500, small caps are making new highs. This has not made a new high in months.
Tell number one. Tell number two is we really like to work off of the slopes of moving averages. Everyone uses a 200-day moving average. That's just kind of been the bible of charts. When, like GEV, the slope of the 200-day is rising, it tells you the trend is higher. On a name that might be in an unfavorable group, the slope of the 200-day would be going down. When you start to see it flatten out and roll over, that's usually a tell that something's changing or the trend of that name is changing.
The 200-day moving average is beginning to slope downward.
It's flat to downward, which tells you something's different. And there's no great edge. I'm very curious to see how that one plays out, especially compared to its peers.
Oracle. This is a weird-looking chart.
Yeah. It's like software. I mean, it is software. Where I can again make the case the low might be in, but you have to respect it. Would I take a flyer on it? Perhaps, but I think there's a lot of better opportunities out there as well, whether it's hardware, semis.
And is the 200-day moving average rolling over in Oracle?
It also is rolling over. It's downward to flat, which again reflects messy.
And messy is super frustrating, especially in a market that is making a new high.
What's the matter with me that I own a stock that's messy when the market's going up? It's frustrating.
You're going to frustrate yourself, and there's nothing enjoyable about that while everything else is rising.
All right, let's talk about another iconic name. This is fun. This is fun by the way. Just for our viewers' understanding, on Wall Street, this is our version of video games.
Oh, yeah, totally. Listen, the most useful exercise I do, Chris Perrona does, even Jason Trennert at Strategas, is print out 100 stock charts.
Not even a day, a week, whatever. It's like a homework assignment. Print them out, just look through them.
And figure out what's going on.
And you can get the message of the market so quick.
Say, all right, these stocks are going down, these ones are going up, or the whole market's a mess.
Microsoft. What is this chart?
Similar position as Meta, if not weaker.
Yeah, you're already almost retesting the lows from earlier in the year, what, in the spring, in April. Right. Which to me, that's a little bit of a red flag.
Is the bar low for it? Maybe, but again, it all goes back to the... Yeah, it's ugly compared to again a market that's making a new high.
One that got very extended, super overbought. Think about you run a mile in 4 minutes, you're exhausted. You take some money off the table and revisit. It will likely be viable, I would guess. And if you just compared on one screen, Google, Alphabet, whatever you want to call it, Meta, Microsoft, Google would be the contrast there.
Google has the best chart.
Of those big names, yeah. I mean, it's most similar to GEV.
Yeah. And I, you know, they're probably in cahoots together, right? The power and the AI of Google.
All right. So, that was fun. Those were the ones that I actually asked you to print out to give me for individual stocks, because that's what I wanted to do. Then you have the book.
Okay. So, before we go through the book, give me a summation of the book.
So, the book is about how you can use ETFs to invest what we're seeing in the markets through the lens of ETFs. ETFs are a great measurement of investor behavior, right? I can see flows, volumes, and product launches every single day. And they are becoming more and more ingrained in the market. On an average day, ETFs will do about 30% of volume.
ETFs will do about 30% of US exchange volume on a given day.
So, in other words, total trading volume of stocks and ETFs is basically the summation of all the trading volume.
On a daily basis, ETFs are 30% of the total.
Yes. And stocks are the remaining 70%.
Correct. That's growing. And then during more stressful environments when everyone's freaking out, they'll go up to 40 to 45% because people are adjusting exposures. So, they're just great tools.
So they're selling tech and they're buying staples or whatever.
Whatever it may be. Could be used for hedging, shorting, whatever it might be. So, along with building charts, I handle all of our ETF research at Strategas as well. And so, I want to tell folks how they can... There's 5,000 of them, right? How can we...
ETFs. How many stocks are there?
There are more ETFs than there are stocks.
There are still more mutual funds than ETFs, but...
Right. But they're kind of passe.
They're kind of on their way out.
So, I just want to always provide what ETFs you can look at and all sorts of different information. I think the most interesting thing right now is this boom in leveraged ETFs.
Okay, so explain to my viewers what's a leveraged ETF.
So, a leveraged ETF gives you, depending on the fund, two to three times the exposure of an underlying asset.
So, if I'm... let's pick a stock, Nvidia. I'm picking a single stock. So, if I buy a two-times Nvidia ETF...
On a day where, in theory, Nvidia goes up 2%, my ETF goes up 4%.
Correct. That's what it's supposed to do. Now remember it's only on a daily basis. From point to point it doesn't necessarily do that. There can be some slippage. You know, there's also fees embedded into the fund that you're going to pay over time. And it's meant to be again daily. These are not buy-and-hold instruments.
Right. It's a trading vehicle.
Yeah. And so that space is absolutely booming. We just had a whole bunch of 2X SpaceX ETFs launch today.
Already. So I have to imagine those are going to be really popular.
Okay. That's a $200 billion category by the way.
Leveraged ETFs. Up massively since 2020.
All right. So let's go through this book. We'll start from the beginning. There's a chart here. High beta and top decile, low vol and bottom decile. Is that ETFs or just stocks?
These are stocks. So this chart, it's a little complicated. It's the rolling one-year performance of the beta factor, right? Of high beta stocks relative to low beta stocks.
So for viewers to know, what beta means is if the market goes up 1% in a day and a stock has a one-times beta, that means it goes up 1%.
If it's like Nvidia where it's almost a two-times beta, on a day when the market goes up 1%, Nvidia generally goes up 2%.
And Nvidia is a high beta stock. Semiconductors are high beta stocks. Staples are low beta stocks.
Exactly. And so the performance of say semis versus staples has gotten to historically extreme territory.
In other words, semis are up a gazillion and staples are barely up at all.
Staples have been forgotten. They're 4.5% of the S&P.
And so the point of this chart is not to say, 'Hey, sell everything,' because listen, it's still a bull market. But be aware that beta is getting extreme. Low vol, on the other hand, is an extreme underperformance and maybe you should think about...
It's basically looking at volatility rather than beta. They're kind of the same. They're cousins.
Okay. So, high beta working versus low vol is another way of saying tech is working and staples are not working.
And that's what's also reflected on this chart here.
Okay. And this chart is a similar scenario at the sector level. What is this chart telling me?
This is the rolling six-month performance of sectors relative to the S&P.
And I equally weighted it, too, just to put everything on an even footing.
And the point is to say tech has done great. We know that. If you're there, stay there. But if you're looking for stuff to hedge tech, look in healthcare, discretionary, financial, yeah.
Just people are wondering what is the next move, right? Because we're so used to this AI and power theme that's been going on and on and on.
Investors are looking for other stuff to buy. Page seven, you have a chart here that says ETF... This is a very... What's the right word for it?
Says ETFs are the market. What does that mean? And it's showing cumulative ETF flows versus cumulative mutual fund flows.
This is the chart why I think everyone should be paying attention to ETFs. It is the cumulative flows of both vehicles since 1984. Now, ETFs didn't exist...
ETFs versus mutual funds.
Yeah. How much money's going in and out on a monthly basis.
93. Technically, the first 10 years of this chart, there's no data, but that's just to make it pretty.
And I understand. So for the first 10 years of this chart, it was at zero.
Mutual fund flows peaked almost 8, 9 years ago, cumulative flows.
Cumulative flows. What do you mean by cumulative?
Just adding up month by month.
So, if it's gone down, does that mean mutual funds are in outflow?
So, the point of this chart is that mutual fund flows on a cumulative basis are now negative since 1984. The vehicle still exists. It's great for...
Say that again. So, in other words, if you take a look at the cumulative flows into mutual funds from 1984 to today, and you add it all up, that number is now negative.
That's a stunning statement.
That's a stunning statement.
The only reason why mutual fund assets are where they are is because of the market.
If we had a bear market, they'd be in deep...
Or just a disaster. Or just a market that didn't go up as strong as it did, the asset management industry would be in trouble.
It's all the money's going to ETFs.
It's all the money's going to ETFs of all various kinds.
Core, you know, passive, active, levered.
So, this talks about daily ETF volume as a percentage of total US exchange volume. What does this tell us?
