64: How to Hedge Your Portfolio (TACK) w/ Katie Stockton

Robert Croak
All right, everyone, this episode, we're going to go a little deeper than normal. We've got Katie Stockton on here to go through technical analysis. So before you think about clicking away because it might be too deep or too technical, please, please, please get out that notebook. Remember, I always say take notes and take action. Well, this is the episode where you can really learn a ton in a short period of time.

And trust me, even I learned something today after 30 years of doing this. So this is a great episode for you to really step up your information and the learning curve. So follow along. And don't forget, if you missed the direct indexing webinar that we hosted with Freck, you can still watch the replay. There's gonna be a link in the show notes below.

Austin Hankwitz
It is right there. Go check it out. It was a wonderful webinar. We broke down all things direct indexing, tax loss, harvesting. It was literally the best webinar.

Cannot wait to have another one with them here soon. So if you missed that, go watch the replay. It's completely free. Hey, everyone, and welcome back to the Rich Habits podcast, a top ten business podcast on Spotify. My name is Austin Hankowitz, and I'm joined by my co host, Robert Croke.

Robert is a seasoned entrepreneur in his fifties with lifetime revenues of over $300 million. And I'm an entrepreneur in my late twenties with a background in finance and economics. Since quitting my full time job in corporate finance a few years ago, I've built a seven figure media business and actively advise some of the most well known fintech companies around the world. Now, as the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives, one from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out.

Robert, we're excited for this episode. We have a special guest joining us. So, with that being said, what are we going to be talking about in this episode? Yes, in this episode of the Rich Habits podcast, we're joined by none other than Katie Stockton. You might recognize her if you're a frequent watcher of CNBC or Yahoo Finance.

Robert Croak
She is what Austin and I would call and consider an expert on technical analysis. So we'll let her explain exactly what that is in a moment. But before that, we want to be very clear that you should not be buying or selling stocks and indices just based on technical analysis alone. But it is absolutely an important part of deciding what investments to make. We're all investors and have investment theses for our ideas, and Katie is here to help you better understand when it might be a good idea or a bad idea to buy or sell a stock that you may love.

Austin Hankwitz
Katie, we are so happy you're here. We can't wait to dive into technical analysis. I am still someone who's learning it. I've actually become a lot more excited about it, as you've probably seen on my newsletter. But one, who the heck are you?

And two, how are you so good at this? Well, thanks, Austin. Thanks, Robert. I'm so glad to join you both. The title of the podcast, Rich Habits, I like to try to contribute to that.

Katie Stockton
Of course, as mentioned, my discipline is technical analysis. So it's very specific, it's a narrow expertise, and it is incredibly valuable pertaining to investing and trading. So we focus all of our efforts there. But we see technical analysis as like the ultimate complementary discipline. So whatever you're already doing in terms of funding, fundamental research, macro analysis, political inputs, things of that nature, I think it's a great add on to that.

So hopefully we can add some value on that front. Today, my firm is called Fairlead Strategies. I founded it in 2018. So I too am an entrepreneur like you, Austin, and you, Roberts. So we've built it over the years, initially as an independent research provider, so we provide research to our clients, and then also as an ETF portfolio manager, external exchange traded fund.

Austin Hankwitz
I love it. That is a lot. And I can't wait to dive in. So for the people listening that are like, wait a second, what the heck is technical analysis? Can you give us the tell me, like, I'm five years old breakdown of what technical analysis is?

Katie Stockton
You know, in its simplest form, I would say that technical analysis is a study of price trends. We all know that securities have prices, and when they're trending higher, that's when we want to be invested, and of course, vice versa. So it's a great risk management tool in that it can help not only identify those trends, but also whether those trends have momentum. So the measure of momentum and other factors like whether something's overbought or overdone on the upside or oversold or overdone on the downside, plus relative strength analysis, we like to look at things relative to one another to find opportunities and also manage risk and identify shifts on the macro front. And all of these price trends are really a manifestation of supply and demand.

And that supply and demand is for the security. It's not even just for an individual company. Right. We have the sort of, I call it them top down influences from the equity market, for one, meaning that we really need to have an understanding of the broader market as we're investing in individual companies via their stocks. I love it.

Austin Hankwitz
That makes a ton of sense. And, you know, Robert and I. Well, me very specifically, I think Robert does this as well, though, is whenever I have a stock idea or whenever I'm looking to buy a new ETF or a new something or add it to my portfolio, it's like, okay, I have conviction. I'm excited about this. I know I want to own it, but now it's like, what's the price doing?

Has it gone up a whole lot over the last two weeks? Am I maybe buying the top? Is it really oversold? Is there very, you know, low sentiment about, like, what's going on with the price? And so that's sort of where technical analysis can begin to add some value to our portfolios, is we can take a step back and say, all right, is this price a good price to get in at?

As we holistically look at recent price action? So with that being said, I think, Robert, let's jump into this interview. I'm ready to learn more, and I'll. You kick us off. Yeah.

Robert Croak
I think one of the important questions for me to understand coming from you today, Katie, is, is technical analysis as important today as it was 20 years ago, as we discussed earlier on? You see so much activity now that is based on social media, news cycles, hype cycles. There's so much going on in the markets that I believe there is just a lot more to consider when investing into a stock and using technical analysis. And I know that back in my early days, let's call it 25, 30 years ago, when I was day trading and all I did was individual stocks, technical analysis was everything. Tell us all the listeners, what your thoughts are in today's market of the importance of technical analysis as an overall perspective of investing in a stock.

Katie Stockton
Yeah, you know, I think you sort of hit it when you said there's a lot going on in the markets. And that's why I would argue that technical analysis is more important even now than it was 20 years ago. We see so much volatility, both to the upside and the downside in this market. So I think technical analysis and the charts that are part of it are essential tools in navigating that volatility. So we want to make sure that we're not buying a stock or security, you know, into a breakdown as one example.

There's ways to understand that just that market timing is not right for positions. So we concern ourselves a lot with that market timing element. And, Austin, I know you've gotten to know the charts to some degree. My hope is that everybody on this, Paul, can say, well, I can't invest without looking at a chart, because I just think it is that important where they need to understand, okay, is this a countertrend position that I'm taking? And there.

And it's higher risk, because if you think about it, the market should reward the good stocks, the good securities, for their fundamentals, right? So those good companies should theoretically be trending higher. If they're not, well, maybe that's a message from the market, and it's a manifestation of market sentiment, and that certainly hasn't changed in the past 20 plus years since I got started. So a little bit, can we elaborate about price analysis, overbought oversold sentiment analysis, give us a little bit of breakdown of what those terms mean to the everyday investor that's following along the Rich Habits podcast and really just learning on how to do all of this. Because one thing that Austin and I always preach, and I'd love to hear your thoughts on it, is for most people getting started, they shouldn't even be buying individual stocks.

Robert Croak
They should be buying the S and P 500, buying, you know, QQQ and the Nasdaq and buying these products that they don't have to select these individual stocks. So talk about some of the different parts of this and what that means in each individual term, of course. Right. So for a technician, some of them are going to be just looking at price trends, just bar charts, right. Others might be looking at moving averages of price to look at sort of a smooth version of the trend.

Katie Stockton
Others, like myself, will be looking at technical indicators. And while a lot of them have fancy names, they're really very accessible, meaning that once you do a little bit of homework and pull it up on a screen with a chart, you'll start to get to know these indicators really very well. The design of the indicators is to take out some of the sort of biases that we all have as we approach different investments. We come into things, if we spend a lot of time researching them, with, of course, a bias that we want to own, that we spend a good amount of time researching that company or what have you, and we look at that chart and say, I'm going to make something good out of this, whether it is good or not. So the indicators, in a way, keep us honest as investors and as humans, by saying, okay, well, in this environment, sure, go ahead and take your position, but momentum is working against you, right?

So negative momentum, these binary takeaways that the indicators that we have give us are so valuable. We have momentum gauges. So those would be things that are often moving average based. We have one called the MACD, or moving average convergence divergence. See?

A fancy name, but it's really just derived from moving averages price. And it will give you actual buy and sell signals and crossovers that indicate whether something is shifting in terms of momentum. So that's really one great tool that people can access for free, really, anywhere online. So it's a very common technical indicator. We also have overbought oversold metrics, and those are typically oscillators.

And these oscillators will show you if something's getting a little bit overdone, potentially. And then when you have a downtick in momentum, if something's so called overbought, well, then that's something that maybe is a good sell indication. So that overbought condition in and of itself isn't necessarily bad, but when you see the downtick in momentum, it becomes a more vulnerable type of setup. And I think we all struggle, of course, with this sell discipline. So, great added value on that front with the overbought oversold metrics.

And we hear a lot of, I'd say, references to overbought and oversold in the media, but it is measurable. When I say overbought, I'm talking about a stochastic oscillator above 80%. So it is something that we're not just kind of pulling out of thin air. We're saying this security is actually overbought. So, and these things, as you can see, are mathematically based, so they are programmable, too.

And they can help you approach markets more systematically with the sort of next category, I would say, of indicators. I would put that as relatively strength metrics. So we're looking at price to price ratios, very simple line charts with price to price ratios. We're also looking at something called relative rotation graphs. Those are sort of a normalized view of rotations in underlying sectors and areas of the market.

All of these things taken together can be a valuable methodology and get you to a place where you're making decisions that are informed, that have less of your biases sort of baked in there and with less emotions. Wow. Okay, that's awesome. I think what I heard from that, that can really help everyone listening right now, especially if it's a single stock, or, you know, let's talk about Nvidia. That's a really good example, because Robert's been talking about Nvidia for a while, right?

Austin Hankwitz
Whenever someone is looking to buy a single stock, and Nvidia is a great example where it's up, it's ran a whole lot, and you're like, dang, is it too late? Did I miss the boat? Or you bought maybe early and it ran up, you're like, is it time to sell? So you're saying that technical analysis can be this tool that can help people who are existing investors figure out maybe it's time to get out and take some profits or two people who want to become investors saying, you know, maybe it's a little too overbought right now, I should give it some time to take a rest, and, you know, maybe it will come back down 510, 15%, whatever that might look like. Is that what I'm hearing about technical analysis?

Katie Stockton
That's a great way to think about it, especially pertaining to individual stock investing, as Robert mentioned, that is a higher risk approach to markets when you're doing this sort of bottom up investing without a good handle on the top down input. So with that, you, of course, want to have the momentum on your side. You want to make sure that you're not buying into a parabolic up move that's tiring out. You want to make sure that there is support, which is a potential sort of area of buying pressure not too far from the current levels. So there's definitely some inputs that will help you time that entry and also manage risk have, almost like a default find stop loss metric, too, perhaps from the charts.

So I think it's essential for individual stock investing. I'll give you a very simple metric that everybody can watch, which would be the 20 day moving average. It's a very tight moving average to price movement, but we have a lot of steep uptrends like Nvidia. And in order to navigate these uptrends, just a simple moving average, like the 20 day, can be added value in that it will tell you when momentum has shifted enough to maybe warrant some repositioning. It depends on your time horizon.

If you're super long term, well, you may be very willing to watch a pullback in Nvidia, just with the thought that, well, you know, in a year, two years, three years, it will be higher. So I'm not going to worry too much about that. But if you're really attuned to those short term swings, well, then you may take that sort of reversal in the 20 day as an indication that risk is heightened to the downside, minimize your exposure throughout that potential downdraft and have a way to, to get back in using the charts as well. So it's just a matter of navigating different swings, right? Navigating the volatility that is inherent to markets these days.

And Robert, to your earlier point about investing top down, well, maybe it's not as exciting as Nvidia, but it, diversification. There's a reason why financial advisors focus on diversification, right. We know that it helps give you a way to manage risk and get exposure to different, not only stocks, but asset classes can be essential to not just, you know, participating in a bull market cycle, but also managing risk through that environment because it all feels great when things are all going up. But, you know, we've all lived through bear market cycles because 2022 was exactly that. So we need to have some comfort level of being diversified.

Austin Hankwitz
Now, Katie, you said the 20 day moving average is something everyone can go look at. Where, where do they find that? Right. We're all about no gatekeeping, making sure everyone has the resources, what websites, what platform? Like, where do they find this information?

Katie Stockton
Yeah, you know what, a lot of platforms, fintech platforms. And you know, your, wherever you hold your, your account will often have charts. So I would start there with your existing account and, and see if they have some kind of charting service or offering, because many of them have actually very robust charting services. And I would, I guess, encourage investors or traders to have little, I guess, real estate on their screen dedicated to a chart. And it doesn't have to be a complex chart.

There's a big sort of mantra in technical analysis to keep it simple. The goal is to eliminate our emotions in that. So to have that chart, and then there are websites, you know, tradingview.com, comma stockcharts.com that have either free or very low priced services that give you access to these technical indicators. You don't have to have an institutional level program like a bloomberg, for example, to arrive at these indicators, which is really a gift because that wasn't the case many years ago. So I was hand charting point and finger charts at the beginning, Robert.

Yes, I know that equally with you, we don't have to do that anymore. And that gives us so much more capacity to consider different asset classes and investments. Yeah. And I wanted to rally this point before we move on. This really kind of highlights and illustrates all of the options you have when you're beginning your investment journey towards building wealth, but also, I think, kind of reinforces what Austin and I always tell people.

Robert Croak
And that is, in my opinion, people should start out with the basics. We always talk about people building their base, get to that first hundred k maybe before they start investing in individual stocks, because so many people believe when they get that first five grand or ten grand or 20 grand and they're ready to start investing, they should immediately go to individual stocks and buying a real estate property. And I think that is a bad strategy. Starting out, you should get your bases covered, get those index funds, get yourself making some money, be before you do these other things, unless you have proper training to get there. I've been trading individual stocks for decades, but I also know what I'm doing and it's just something that we like to just explain to people.

Yes, it sounds way more fun to go all in with your five or ten grand on Nvidia and maybe, you know, AMD and Tesla and all that. But then when there's a 40% correction, people get scared and go, oh, investing isn't for me. And then they get out and they sit on the sidelines, sometimes for decades, because they got burned one time. That's why this is a really great episode for our listeners to kind of understand the cadence of the journey, to know how to build wealth the right way rather than taking big Yolo shots in the beginning. I love it.

Austin Hankwitz
And, you know, speaking of sort of having a measured approach to investing, Katie, you guys have an ETF called TAC. Tac is the ticker. So can you explain what tack is the strategy around it, how you built it, and who the target investor is? The person who wants to add tack to their portfolio. Right.

Katie Stockton
So it's the fairly tactical sector ETF. We call it TAC, as you know, and the design is as a core us large cap equity portfolio that has the ability to limit drawdowns through asset allocation. It sounds somewhat fancy, but in reality we're using sector rotation to our benefit to make sure that we're participating in bull market cycles. But then when the indicators aren't aligned, when the momentum just isn't there, which of course we saw as recently as 2022, we have the ability to move TAC from these sectors. We use sector ETF's as our positions into other asset classes, and that includes gold for one.

That's also via an ETF. Short term treasuries, which you can think about as somewhat of a cash equivalent. Very safe, but sort of muted in the returns, tends to outperform equities during downdrafts, and then also long term treasuries, which will sort of get us that lack of correlation as well with equities. So we're seeing the portfolio morph with the market. And it's that dynamic nature that I think there's real sort of, I'd say value in, and that we can limit the drawdowns while being there to take advantage of the market upside through investments in what our models are telling us are the best sectors from a momentum relative strength perspective, and also lack any of those big sell signals, those overbought downturns that we are concerned about.

We take a long term view in the TAC ETF, and it is very conservative. We're rebalancing that portfolio once a month using month end closing data. So it's designed to be something that you can sort of, I say set it and forget it because we don't want it to be a position folks will worry about. We want them to trust it to be there for the bull market cycles and to be navigating corrections, major corrections and major downdrafts in a way that limits the drawdowns versus a passive investment in something like the S and P 500, Spider, ETF or spy. That's the goal, is to limit those drawdowns and be there for the upside.

And we're doing it systematically, and we really are believers at Fairlead and systematic approach approaches to investing. And this goes back to Robert's point about you don't just start buying individual stocks because that can actually prove to be careless despite all the success stories, by the way, that we hear about. Well, oh yeah, I built my nest egg in one position, and, you know, maybe you'll get lucky, right? That does happen. But for every one of those stories I think we hear, we probably don't hear the ten that were exactly the opposite of that.

Right. So we feel like, you know, to have that sort of core portfolio is really important and applies to all investors. So it's easy for me to see as the manager of the ETF, right. But the application is really very broad to anybody who wants that us equity exposure, but who is sensitive to drawdowns. And it will help us really get back to that exposure.

That a very tough market might shake us during the COVID corrective phase is probably the best example of this in recent memory, where we had a major drawdown and yet a major and very swift sort of comeback from that drawdown. And I think folks were so shaken by the drawdown that it took them too long to get back to the exposure they should have had from a momentum perspective. So when you have a system or a methodology that can help you evaluate these trends without any real bias and, you know, not remembering that drawdown, you know, the market has its own memory. We don't need to worry about it. So, you know, to be somewhat reactive to these changes, I think is key.

Austin Hankwitz
So you mentioned that tack can also be thought of sort of this position in someone's portfolio that's more on the defensive side when they need to be. And so to add some more information and data around that, I just pulled up the TAC performance, total performance, when you guys. Right, the last time we had a bear market was in 2022. You all introduced tack to the market, I think the last week of March in 2022, and then throughout that, let's say March, late March, early April to the end of 2022, TAC traded down about 7%, compared to the S and P 500 trading down 17%. Right.

So you guys outperformed, from a drawdown perspective by about 10% against the S and P. During this sort of bear market volatility. People were scared, not really sure what was going on there. How did you do that? What was tack invested into where they didn't see that extra 10% drawdown that the broader indices did see?

And that was just the S and P. The Nasdaq was probably another probably five or 6% on top of that. Since tax inception, as you mentioned, in March of 22, we've had, I'd say, three major drawdowns, including that bear cycle for the s and P 500 of more than 10%. And during those three major drawdowns, tax has outperformed the S and P 500, on average, by about 7.5%. And that's exactly what we intended the model to do.

Katie Stockton
So, in a strong tape, we start with really eight buckets, eight equal weighted buckets of 12.5% or thereabouts in the sector ETF's. Now, if those sector ETF's aren't qualifying because of the momentum metrics and the things that we track, we will take that bucket and divide it between the short term treasuries, long term treasuries, and gold. And that's exactly where we stood for much of 2022. We had very heavy, what we call risk off exposure, and that contributed to what we call a low beta for tech. As an ETF, that makes it a bit more conservative, meaning that it doesn't hold the same concentration risk.

I'd say that some funds do. And then when we see that the TAC ETF morph back into a more full equity position, if the market's on fire, that's when we are all about supplementing ATT and CK as a core holding with technology stocks, right? Because we know that technology stocks tend to be higher beta, meaning that they tend to outperform on the upside. So when we see a strong tape like we have had over the past six months or so, we are all about having TAC as a core holding and then going ahead and taking that position in Nvidia and the likes to supplement it. I love it.

Austin Hankwitz
And so what I'm hearing then is that for the average investor who is building that well diversified portfolio tack could be thought of as the position of black swans, right? It's like, wait, I do want to have something in the portfolio that if the markets go down 510, 15%, if we do see some new war or something with inflation or something bad, this position is sort of going to be that hedge, right? It's going to be a little bit more stability in my portfolio. Is that correct? Hedge is a key word there.

Katie Stockton
Hedged equity is where some financial advisors would categorize the TaC ETF. And that it does give you that sort of enhancement to the drawdowns, limiting those drawdowns. And it does so, though with a less complexity, I would say, than some of the options based ETF's and products out there, which we like, how understandable and digestible the strategy is for folks in that we have the sector investments through the ETF's. It's effectively a fund of funds, right? And then we can manage through these drawdowns in other ways by being invested in the other asset classes.

Robert Croak
Let's talk about the recent volatility we're experiencing. Let's touch on that for a minute, and how it's relative to TAC and the way you invest through that. So we did see a pretty good drawdown from the equity market in April, and we saw TAC move from a full sector exposure to one sort of bucket less than that, right? So we are seeing a morph that should be not full based on what we think and feel about the markets, but probably a partial move to this risk off stance, which is what we would expect in a correction, but not a bearish cycle where we would go to nearly a full risk off position. We don't want to, as investors, move fully out of equities during corrective phases, because we want to make sure that we have a substantial position to be there when the market resumes that long term uptrend that it has most often spent its time in.

Katie Stockton
So we want to hedge, but we want to hedge only. I'd say partial exposure through that volatility. And TAC can facilitate that, and it can do so without, really the taxable implications of moving in and out of these funds yourself. So I think there's a real nice tax sort of wrapper around a strategy like this. So it's dynamic, but it's not incurring those same taxable events as moving in and out of these sector funds.

Austin Hankwitz
Okay, Katie, so just so we're all on the same page on how TAC works, you can think of tacos as a bucket, and inside of that bucket are other buckets that represent the different sectors of the stock market. And you all have full exposure to those buckets of the stock market for upside potential. When things are looking juicy, strength is there and we're all having a good time. But you're also now using different types of technical analysis to identify weakness and sort of these other opportunities that say maybe it's not a good time to be in that sector. So you pull that bucket out of tax, and then you replace that bucket with something less volatile, which is gold, short term and long term us treasuries.

And sometimes all of the buckets can get taken out of tack and be replaced with these short term treasuries and gold and long term treasuries, which is assuming probably what happened in 2022 and why you outperform the s and P by that 10% or so during that drawdown. You've got it, Austin, you definitely are tuned into what we're trying to do here. And I think the point that we can take away from that is that, in a way, it's almost like the old 60 40 model. This hearkens back many, many decades, where financial advisors will often put you into a portfolio that is about 60% in the exposure to equities and about 40% to fixed income, and that becomes your so called balanced portfolio. Well, with the volatility that we have this day and age, that old 60 40 model just isn't quite as appealing.

Katie Stockton
Right? Especially if it is static. So TAC is sort of a dynamic version of the same where actually over history, if you back test the model, it looks something pretty close to a 60 40 model. If you can rope in gold into that 40%, it's about a 65 35 type of balance between the risk on categories. That is, the sector ETF's and then the risk off categories.

But it does so dynamically to, to navigate the shifts that the market is dealing us and dealing us today more frequently than ever. We have 2008 not too far in our memory. And that environment, I think is where technical analysis really started to shine and come to the forefront as a discipline. It used to be considered something that was more predictive. And now with these bear cycles having been so damaging to investors portfolios, I think people are really seeing the value in employing technical analysis to minimize those drawdowns.

Robert Croak
All right, that was an incredible answer. I'm learning so much on this and I am excited about this next question. So Katie, give us some of your breakdown on the S and P 500, the Nasdaq 100, and maybe some of the mag seven. What are you seeing from your technical analysis? Because I'm sure all the listeners are excited to hear what's next for tech.

Austin Hankwitz
But before that, Robert, I know we talked about Yahoo Finances website yahoo. Finance.com and their redesign last week, but I just can't get enough of it. Dude, it looks incredible. So here's why. I've been a user of Yahoo.

Finance.com now literally since college. Their portfolio management tool, Yahoo. Finance makes it incredibly simple to securely log into your existing brokerage accounts, allowing them to instantly pull your transaction data. They then present this data to you in such an intuitive way. I'm looking at my total investment portfolio right now and it's broken out by brokerage account and by asset class.

For example, I can easily see what percent of my stock investment are in technology, utilities and the other sectors that Katie was just talking about, as well as the different asset classes and their performance. So if I want, I can actually click into some of this information, see what those holdings are, as well as any recent news that might be impacting their prices. Yes, Yahoo. Finance is a resource every single listener should be taking seriously if you're trying to level up your portfolio management in 2024. I use Yahoo.

Robert Croak
Finance when I'm researching new stock ideas and their website offers key financial data across the income statement, balance sheet and cash flow statements. And if you're into trading options, they have a simple breakdown of every stocks option chain. So what's my favorite stock research tool? Their holders tab. I can see what investment firms and what hedge funds and how much of what stocks, allowing me to follow the big whales and what they're buying.

Be sure to check out Yahoo Finance.com dot. Not only is their new website awesome, but their portfolio management tool is top notch. Everyone should connect their brokerage accounts to this tool and unlock the insights. You need to stay on top of the markets. And all of this is free.

But you can also sign up for the bronze account for $8 a month. And I think it is the best deal there is. And again, thats Yahoo Finance.com dot. All right, now lets hear what katie has to say. Well, yeah, of course, I know we all care so much about tech and we should because it has such a huge footprint in the major indices for the equity market.

Katie Stockton
As mentioned earlier, we do like to start top down with our research. So we look at metrics like the S and P 500. Then we'll drill into the sectors, then we'll drill into the individual stocks for a more holistic view. There's something called market breadth. So when the major indices are going up and there's not a lot of participation, that can be a weaker tape.

That would mean that breath or participation just isn't there on the individual stock level. And that was very characteristic of 2023, in fact, where the Mag seven, the mega caps of the market, were really the primary source of upside leadership in that environment, which made it very difficult to navigate if you didn't have that mega cap exposure. So metrics like market breadth can be very helpful to that and to identify the kind of environment that we're in. And indeed, we have been in a very strong breath environment as of Q four last year. And that Q four bottom that we saw was October for the S and P 500 gave way to what was a very steady uptrend all the way through April.

And April's pullback was actually very orderly. We do think that the pullback will resume after this bounce that we have underway as of early May. And we say that not just because of the old adage sell in may go away, but rather there was enough of a loss of momentum that's reminiscent of the corrective phase that we saw in Q three of last year. And we want to respect that as increasing risk to the downside for the coming couple of months. And some investors may say, okay, good to know, and maybe I'll hold off on some purchases with that in mind.

Others may say, I think I'm going to get hedged. Maybe I'll buy an inverse ETF, maybe I'll use an option strategy, or maybe I'll simply tighten up my stop loss points for my existing position. So different people will handle that in a different way. But it is good information, in our opinion, to have to know that there is heightened risk of a deeper corrective phase from a momentum perspective. Now, we talked about technology exhibiting upside leadership and strong tapes.

Well, guess what? They also exhibit downside leadership during corrective phases and bear cycles. So that's when we actually see the more boring sectors of the market, or so called utilities and consumer staples and real estate. These are sectors that are never really that sexy to investors, but they really can provide a great safe haven place to hide during corrective phases for those that like to maintain full equity exposure. So we'll see the relative strength of those types of sectors improve through corrective phase, but it's often only temporarily.

So it's just a matter of keeping those long term trends on your side and then navigating the drawdowns when they do unfold. So we do think that technology has the potential for a deeper corrective phase and downside leadership during that environment. Well, I'd love to know. To touch on that a little further. What is your overall view of, let's call it the Nvidia tech boom of AI?

Robert Croak
Where do you see it going for the next two to three years, even through these corrective phases? Yeah, the long term uptrend is still very much supported by our long term momentum metrics, or trend following gauges. To that end, let's take the monthly MACD indicator. For one, it is positive not just for even the S and P 500, but even for the small cap Russell 2000, even for the FTSE 100 index in the UK. It's broad based, it's global, this positive long term momentum.

Katie Stockton
And so we've had a bull cycle within what I would call a secular bull trend. So we're going to assume that that trend will remain in force until it tells us otherwise. So while we can't be sure where the markets will be in two years, or whether AI will still have that kind of momentum, we at least have ways to measure it. Right. And as it stands, so the current environment is very conducive to that long term upside follow through.

And if that changes, well, we'll change with it. Regardless of how we feel about the markets, we have to respect the price action, respect those shifts and trend, just knowing that there are points at which market psychology can contribute to overvaluation. Right. We have market sentiment from a technical perspective, as often the driving force behind some of these moves. So if we can measure market sentiment in a reliable manner, that can be added value as well.

Austin Hankwitz
And so you mentioned that Robert and I actually, we just posted our episode a couple of weeks ago talking about, you know, the stock market might have some volatility in Q two and Q three. So that's pretty timely there that you would agree with us on that. And we said it's because obviously what's going on in the Middle east, the reacceleration of inflation, the Fed going from, yeah, we'll cut rates like, you know, a couple times to maybe not even once this year. So that's sort of what we're coming from. But it seems like that is even also reflected into some of the technical analysis you're seeing.

So you mentioned utilities, consumer staples, some of these other types of sectors of the stock market that might have some strength over the coming months. What can people do to learn more about those, to keep tabs on them, and maybe even they want to add them to their portfolios. How can they learn more about that? There's a lot of ways, of course. I think that defensive sectors of the market often are interest rate sensitive.

Katie Stockton
So an understanding of the direction of interest rates, of course, is going to help you succeed in investing in high yielding sectors or high yielding stocks of the market. We, of course, in the TaC ETF, we're not discriminating for sectors, whether they're super exciting or otherwise. We are just respecting the price action. So we're still sitting with a pretty risk on stance at this time on the sector positions. And yet with the breadth having improved, we would expect to see movement ultimately into these more defensive areas of the market.

So to have some kind of mechanism to evaluate the sectors from a relative perspective, I think is a good thing to do. We can take ratios, some of the sector ETF's or sector indices, throw them up against the s and P 500, and you'll see trends there that are actually very clear. For example, utilities have been downtrending for some time, relatively, of the s and P 500. But just recently they've become more topical because we've seen this turnaround in relative performance, still seemingly in this early stage position. But it's garnering interest for just that, the relative performance.

And you could imagine that utilities, for one, would become more attractive as treasury yields come in, right, because they're higher yielding types of security, an understanding of the macro environment, what we consider to be macro technical. So anything that would influence the equity market is of interest to us. We've published in our research on a weekly basis charts of treasury yields, gold, crude oil, the dollar, knowing that a lot of our readers are not investing necessarily too much outside of the equity market. But those are really very strong influences to have a good handle on. Oh, my gosh.

Austin Hankwitz
I feel like I've learned so much on this episode of the podcast, and that's what this whole thing is, right? Like, we want everyone to be learning not just alongside of us, but bring in the experts. I can certainly talk toward the things that I'm interested in. I would imagine a lot of our listeners are, too, except I'm not the expert. Right?

Katie is, and she's got the decades of experience. So, Katie, this has been such an awesome interview. We're so grateful for your time here, and hopefully we'll have you back very soon. Thanks, sir, much. Austin.

Katie Stockton
Thank you, Robert. It's been great to join you guys. It was definitely great to meet you. Thank you for all of the insight. Our listeners are going to love this episode, and it's just so important to just really find the best information out there.

Robert Croak
And that's why I love getting to do this each and every day and to be able to have interviews like this to help our audience understand all the complexities of the market and help us break it down for them in bite sized chunks. So then we can keep analysis paralysis out of everyone's lives and help them understand the importance of being an investor. Now, Katie, before we sign off, everyone's probably thinking, how do I learn more about tack? How do I learn more about Fairlead strategies? Where do I learn more about Katie?

Austin Hankwitz
Where is she on Twitter? Does she have a newsletter? What's Katie up to? So breakdown for listeners where they can learn more about all the things you do. A great starting point, of course, would be our website.

Katie Stockton
So fairly, strategies.com or fairleadfunds.com for specific information about the Tac ETF, we are on Twitter. We are on LinkedIn. It'stocktonkatie on Twitter. Beware of imposters, of course. And we also have a sub sac newsletter and we publish new ideas there, new ideas that have a technical origin.

Great places to start with your fundamental research. I love it. Awesome. Thanks so much, Katie. Man, what a wonderful episode with Katie.

Austin Hankwitz
Robert, that was intense, don't get me wrong. Definitely intense. I had to turn my thinking cap on for that one, but I learned a lot. And I think that's what's so cool about Katie is she's not only an expert, but she's able to sort of break things down in a way that's a little bit more approachable to the everyday person who's not an expert like her very much talking about myself here. And I think her attack ETF is very interesting.

Right we always talk about building out these well diverse, diversified portfolios and having some of this money in the t bills and the bonds and things like that. Right? Call it five or 10%. I think TAc is something that could fit in a portfolio at that same 510, maybe 15% weighting, depending on someone's risk tolerance, I'd imagine. If someone's on the older side of the spectrum here and they want to really preserve wealth, they don't want to have so much of their money invested into the ups and the downs of the indices like we've seen so far in April.

You know, Tac could very well be an ETF that they might want to have a little bit of exposure to, to what Katie said, act as that hedge against volatility. So I think it's an awesome sort of ETF she's built. It's a very interesting strategy regarding the different sort of sectors of the markets and the gold and things like that. It's really cool, man. And I'm really glad we had her on.

Robert Croak
Yeah, that's why I love what I get to do every single day with you. And the Rich Habits podcast is being able to really uncover the best information out there to help people build their wealth and do it in a systematic way. You know, so many people haphazardly invest over time and don't really have a handle on what they're doing. And that's why with us being able to break down all the complexities of the different markets and diversity and different ways of investing, it's just really fun for me, because even though I've been at this longer than you've been alive, Austin, I really enjoy learning from other people, because bringing these extra experts on just really extends our reach of giving the best information to our followers and our listeners. So it's a great honor for me each and every week to do this with you, and I just love it.

And it's really enjoyable that so many people out there enjoy it as well. And that is why we've maintained such a high ranking with this podcast, and it's just such a blessing to be able to do this every day. Well, speaking of bringing experts on, that brings us to our next webinar that we're hosting. Our first webinar was all about the covered calls, right? We talked about that.

Austin Hankwitz
Y'all ate it up. We had Troy and Garrett on from Neos, and it was a blast, but that sort of opened up Pandora's box to all the other different strategies with options. I'm talking long calls, long puts, long strangles, call debit spreads, call credit spreads, long call calendar spreads. Right. There's a lot to cover here as it relates to trading options.

I'm certainly not the FBI expert here. Robert knows more about that than I do. But we do have an expert coming on. Her name is Emily Kurtz. She's the director of product@public.com dot.

She built the options trading platform inside of public. She knows how to trade options. She knows how to make money with options, and more importantly, she knows how to make those hedge strategies that we're talking about in today's episode. So listen, our next webinar is taking place on June 4 at 04:00 p.m. Eastern time.

That's a Tuesday, and we want all of you there. We are going to break down every single option strategy that the experts, the hedge funds, all these smart people that are been doing this for decades are using today. And we're going to break it down in a way that everyone can understand. So be sure to join us. Save your spot.

It's completely free. There's a link in the show notes below. Again, that's June 4 at 04:00 p.m. Eastern time. And as always, we thank each and every one of you that follows along, listens, shares with a friend, gives us those five star reviews, news you can help us that way.

Robert Croak
And we're so excited to finally launch the newsletter. The feedback has been incredible. So please join that if you haven't yet. And we are so excited with so many great things that we're launching in the rich habits community coming up. Thanks, everyone, and have a great start to your weekend.

Austin Hankwitz
Thanks, everyone, and have a great start to your weekend.

64: How to Hedge Your Portfolio (TACK) w/ Katie Stockton

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1: Introduction to Technical Analysis

2: Deep Dive into TAC ETF

3: Market Trends and Indicators

4: Future of Technical Analysis and Investments

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