ASH BENNINGTON: Welcome to the Real Vision Daily Briefing. It's Thursday, January 13, 2022. I'm Ash Bennington joined shortly by Katie Stockton, founder and Managing Partner of Fairfield Strategies. Welcome, Katie.

KATIE STOCKTON: Thanks so much, Ash. Good to be with you.

ASH BENNINGTON: Before we jump into the conversation, here's what's happening in markets right now. Ugly day, especially on the NASDAQ. Looks like it's still bouncing around a little bit but off 2.51% I see here on my screen. Looks like getting settled around 14,806. Dow, S&P, Russell 2000 all turned negative on the day.

Quite an unpleasant day, but great to have you here, Katie, so you can give us your analysis of everything that's happening, a fun day to have you on certainly in terms of understanding how you're looking at these markets. This is the first time you and I have done a show together. Tell us a little bit about what you do and how you see the world.

KATIE STOCKTON: Well, thanks for asking. I'm a technical analyst. And I'm really very much a purist in that sense. I only look at charts, I'm only looking at price as it pertains the supply and demand for various securities. I publish strategy research for clients and subscribers. And we focus primarily on US equities, but we also look at what I consider to be macro technicals. Things like 10 Year Treasury yields, and gold and crude oil and the dollar.

And we've added a couple of products focused on crypto and cannabis. And we do some sector deep dives. We really cover a lot of ground with our research. And we're looking for opportunities, first and foremost, but we're also trying to help our clients manage risk. I think the charts are really just so designed for that and that we can identify key levels, things like support and resistance levels.

And also, we have indicators that take out some of the emotion of trading and investing and help us understand when risk might be heightened. A day like today, of course, that I call it the inverse property of technical analysis, like demand for my services goes up when the market goes down. I'm hearing a lot more for my subscribers today than usual. But so it goes, and we just try to help them navigate the volatility.

ASH BENNINGTON: Yeah, as I said at the top of show, a great day to have you here. Much to get into. We'll talk about all that and more. But first, at the top of the show, I wanted to queue up a conversation between our co-founder and CEO Raoul Pal and Julian Brigden of Macro Intelligence 2 Partners. Very relevant conversation. This piece comes to us from the Real Vision Pro tier, Pro Macro Insiders talks for January. Let's take a look at the clip.

JULIAN BRIGDEN: I think the biggest risks to the bond market is really in the TIPS sector, which has been known as inflation hedges because I think there is a chance-- I wrote to my professional clients, institutional clients yesterday that I thought maybe the CPI number could peak. I was wrong this month, but I think it's coming in the next few months that the headline rate will peak. That will take some of the oomph out of TIPS.

And I also think that as the Fed starts to tighten rates, that will also take some of the oomph out of TIPS and this is where a lot of the money has been hiding. People have hidden in the bond market, in the TIPS sector. And it's also part and parcel of I think a broader theme where I think if I look at 2022, I'm thinking really that, to use that biblical expression, the last will come first and the first one will come last.

The trades that have worked extraordinarily well for the last year or so start to reverse. And you're seeing some signs of that in growth value. It's only embryonic, but I think it starts to reverse hard in 2022.

ASH BENNINGTON: Well, there you have it, a bit about macro talking about CPI and TIPS. But Katie, something that's right in your wheelhouse, Julian ends on this note, the last will come first and the first will become last. Do you see a broad risk reversal in the types of trades that have been working so far?

KATIE STOCKTON: Yeah, and I guess so far, if we draw that back to the COVID low in 2020, I'd say yes, we have certainly seen some shift when you're looking at say, as an example, defensive sectors and then having picked up a little bit of relative strength of late over the past two months or so. I would consider that to be one risk-off type of shift.

We're seeing it also in terms of market breadth or participation. And that means the number of stocks that are up on up days and down on down days and that measure peaked sometime towards the middle part of last year and we've seen a more trading range environment and fold for market breadth, even though the major indices have been trading higher. That's created a more difficult environment, and that more difficult environment is more likely a maturing uptrend.

We don't have a lot of pressing near term sell signals but definitely something to keep an eye on. We don't put a lot of weight into market cycles. We feel that it's a very difficult thing to leverage. But listen, there's definitely some truth to the fact that if you had a winning sector as one example last year, well, chances are pretty good it's not going to be the winner again this year.

We always keep an open mind as to those sector rotations. We know that the markets tend to be very rotational in nature, and that doesn't even just go for the stock market, but asset classes. There's some real rotations out there that we can leverage for sure.

ASH BENNINGTON: Yeah, well said. We're going to dive in and dig into those asset classes in just a minute here. But first, before we get into the details, I want to give you the opportunity just to give a broad context on what you see here today. I know it's a bit challenging. You've been in front of the camera here as we've been coming into the close.

But give us a sense of what we see on a day like today, obviously, some pretty significant downturns, particularly in tech stocks. What are you thinking about it? And how do you contextualize it?

KATIE STOCKTON: Yeah, I have gotten that question a couple times already, as you can imagine, and it really just makes me feel like the tape is somewhat fragile. It's been something we've been saying for the past week or so, maybe even the past two weeks in that we've seen that loss of market breadth or participation. And then we had that high growth corrective phase that started late last year.

All of that taken together just shows some, I guess, fragility to the market. And today's certainly exemplary of that. Today's action takes the NASDAQ 100 index as one benchmark back below support level that we'd been watching. We always make sure any breakdowns are confirmed though. And by that, we mean a couple of days, a couple of closes below key level. Our key level is 15,575 for the NASDAQ 100.

It did close below, so we would need to see a subsequent close below again tomorrow to then confirm that short term breakdown. We've already seen some short-term breakdowns, as you can imagine, in technology more broadly, including for Microsoft, including for Google, which of course have a pretty big footprint in the NASDAQ 100 and in the S&P 500 as well. These are all chinks in the armor of the market, and we move to a neutral long-term bias in October.

And yet we are short term bullish still here. The reason being our indicators on the monthly charts looking at the long-term gauges that we follow, we did start to see some signs of exhaustion starting around September and October, and now they're even more pressing having unfolded in more benchmarks. As an example, the NASDAQ 100 has a new sell signal for the Demark Indicators, if you know Tom DeMark's work.

There's a new sell signal based on one of his models this month for the NASDAQ 100. We already have active signals of that nature for the S&P 500. We have a monthly MACD sell signal and momentum sell signal effectively for the Russell 2000 index. All of that does create that backdrop that's just a bit more of a difficult tape.

ASH BENNINGTON: Yeah, MACD of course, moving average convergence divergence indicator. You talked about the key support level that you saw breached on the NASDAQ today and waiting for a confirmation of that. Give us a sense of what that means. How do you know when that's been confirmed? And if it has been confirmed? What does it foretell in your model?

KATIE STOCKTON: Yeah. For me, and I think everyone's different. What they should require, what they do require for a breakout or breakdown to look decisive. And we just find that to create some time qualifiers tends to be a good idea because you often get whipsaws, whipsaws or shake outs and that tends to be associated with emotional trading, of which you could certainly assign that to this afternoon's trading.

We make sure that we see the two closes below. Today would be one, DeMark would be another to confirm a short-term breakdown or breakout. And then on a more intermediate term level, we'd look for two weekly closes below or above key level. It just depends on the time frame that we have in mind and even if you're looking at intraday charts, a day trader might look at a 60-minute bar and say I need two hours above level or below level to confirm.

I think that time filter is really very helpful, and it's helped us avoid those shakeouts which is essentially a false breakdown below various support levels of which they're very, very common. Sometimes, it seems like it's just because so many people are watching a key support level. And all of a sudden, you see a bit of a flurry of activity around a level and yet we'd never see that confirmation of a breakdown, breakout because buyers are stepping in.

And also, we have to think about support and resistance levels not as precise points. There's just too many market participants out there to let that be the case, but rather questions. Think of them as something that we can come down to, dip below intraday, intraweek, whatever it may be, and still find that support roughly in that area.

ASH BENNINGTON: Yeah. We've just talked a little bit about the NASDA. Let's turn here to S&P 500. It looks like it's off. I'm looking at my terminal here, it looks like off year to date minus 2.3%. That said, up almost 23%, just a shy of 23% on a 12-month trailing basis. Give us your sense of what your thoughts are for S&P 500.

KATIE STOCKTON: The long-term momentum behind the S&P 500 and also just the major indices outside of the Russell 2000 is still to the upside, but it's definitely waned or fallen off since that October timeframe at which time we saw the overbought sell signals start to develop. We've seen a downtick in long-term momentum, that in and of itself is not a breakdown. And we certainly don't have a breakdown in the S&P 500 at current levels.

But it is something that we'd be really wary of, because we have those signs of upside exhaustion. And these are measurable things. When we say something is overbought, it's something that we're saying from a mathematical perspective. It's when those overbought conditions actually yield downturns in our indicators, things like the stochastic oscillator for one. That's where we start to say, okay, now is the time to put on hedges.

We'd like to look at that stochastics for daily, weekly and monthly bar charts to get that coverage of short term, intermediate term and long term. And for the S&P 500, the level that's equivalent to that 15,575 for the NASDAQ 100 is roughly 4546. And it's based on a previous resistance level, and also approximate short-term support by a couple other measures as well. Below these levels, the next support, at least as of two days ago, was about I'd say, 8% to 10% below.

What we can do is look at the secondary support level as a gauge of potential downside risk in the event of a breakdown. It doesn't mean that benchmarks have to go straight down to that level, maybe you'll get an oversold bounce first, and we'll try to help our clients navigate that. Do I wait for the selling opportunity? Do I sell into the weakness?

That type of question we try to help them answer, but the increased risk does dictate some hedging if and when we get these confirmed breakdowns or just a reduction in exposure, maybe you want to get more defensive, increase your gold exposure, increase your exposure to cash equivalents, or Treasurys if you're so inclined. There's just ways to navigate that and the support levels, we never recommend buy stop orders.

We never say, okay, S&P 500 at 4200, that's where you want to buy. And we can say with some level of confidence that we have a sense that it should bottom at or above that level. But not until we see the turnaround in indicators to the upside will we feel confident that we have an entry point at hand. We rely not only on the levels for a gauge of risk, but also our indicators.

ASH BENNINGTON: Yeah. Katie, we've been talking about these markets principally, in fact, exclusively from the context of technical levels, technical trading, technical analysis. Obviously, the big stories over the last two days have been CPI inflation peaking at around 7%.

This is the highest in 40 years, and some murmuring from Federal Reserve officials, particularly Loretta Mester from the Cleveland Fed, President of the Cleveland Fed I should say, and Raphael Bostic at the Atlantic, Fred, President of that bank, who were talking about the need to potentially signal rate hikes as soon as March. How do these types of macro signals play into your models, if at all?

KATIE STOCKTON: Well, I don't really have models per se, but rather technical indicators. And what I care most about is market sentiment coming into these types of potential events. If the markets are characterized by extreme greed, which we have ways to measure, then that creates an environment that's very ripe for a correction and vice versa. Folks are really bearish coming into a Fed meeting.

Then of course, it tees up for a relief rally of sorts once that news finally is absorbed by the marketplace. We think about it more in terms of market sentiment. A couple of ways to measure that would be using the fear and greed index. It's a pretty popular gauge offered online, and it incorporates seven different components that are reflective of how folks are positioned.

Are they exposed to junk bonds? What are high/low relationships telling us? That type of thing. Put/call ratios. Those can tell us if people are positioned in a way that they feel really confident in the market or not so much. And then also the VIX or the volatility index, which I consider to be a transactional gauge of market sentiment.

When the VIX rises, especially if it's spiky, and that, of course, is associated with increased downside volatility for the major indices. We give a lot of weight to the volatility index, and we're expecting the VIX to clear resistance level just below 28. Of course, we're hoping to get ahead of that breakout in terms of the S&P 500 call. But if we do see that level cleared, it would suggest that we have gotten out of this low volatility cycle that I think has characterized the market for more than several months.

If you look at the VIX, it does have a cyclicality to it. And when you get these big spikes above key levels, the last time we really saw this, based on the model that I'm looking at, or the indicator that I'm looking at was early 2018. It put us in that environment where if you recall in 2017, we saw a nice move for the market into that period, a good prolonged, not parabolic but nice, deep, solid uptrend that was then followed by these same sell signals that we have now.

And then that VIX climbed above a key threshold and got us into what was a more range-bound environment overall for 2018. But within that range, we had two pretty major corrective phases. It just required a bit more risk management and more attention to the short and intermediate term indicators. We suspect that we could be getting into that environment.

But as it pertains to those macro types of events, we really give a lot of weight to market sentiment and are always adhering to momentum indicators and support and resistance levels to judge reactions. I'd say almost the same thing would apply when we get into earnings season. The charts aren't going to add any value or color as it pertains to anything fundamental or related.

But what we can at least judge is whether something's running into an earnings report somewhat hot, i.e., financials, or is it coming into that earnings report and more oversold, which would tee it up for a relief rally. We can look at market history and see how the past reactions have unfolded for that name in particular. But earnings season, as we all know, does tend to create a little bit of volatility typically. I think this time will be no different.

ASH BENNINGTON: Yeah. I'm curious at your thoughts. You mentioned bonds there. Let's talk a little bit about cost of capital, US 10 Year Treasury yield, I think just as we were speaking here, dipped below 1.7 on a yield basis. What are your thoughts on the 10 Year Treasury Note? And how are you looking at it?

KATIE STOCKTON: If I could, I'll share a chart on this one. I think the charts sometimes speak louder than my words, as you can imagine. And as mentioned, you did see a pullback today in yield terms. But the thought here on 10 Year Treasury yields which are loading on my terminal here slowly, is that we'll expect some short-term consolidation over the next week or two. And it's a very natural place for that to happen.

Because if you look at this weekly bar chart, there's a resistance level. It's roughly 179. It's based on a 50% Fibonacci retracement level, and it also approximates the high from last year. It's a very natural place for this steep up move that we saw at the start of the year to take pause. We are looking for some consolidation but notice here that this shaded area on the chart, this is called the cloud model.

And this is showing that 10 Year Treasury yields are in a gradual uptrend. It's providing support repeatedly. And our intermediate term gauges, you see here on the chart, something called the weekly Stochastic Oscillator, that's pointing higher. And if you look at the trusty MACD, that's also pointing higher. Those intermediate term gauges suggests that we will get through that 179 resistance level following some short-term consolidation.

And