Will The A.I. Stock Juggernaut Run Out Of Steam Soon? | Katie Stockton
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But it's very very clear that the AI trade uh still has momentum and it still has relative performance and it's still allowing for breakouts to be generated in stocks that really appear overextended by other metrics um and of course probably are uh you know overstretched in terms of valuations uh based on history. So so the market's just telling us that there is momentum behind the trade. We want to respect that and it's our belief that you know there is the potential for that to continue in 2026 but not without some kind of pause. uh you know for some a pullback might look imminent based on our measures for others I think it will be delayed h but collectively there is enough of loss of breath so market participation and enough of a loss of leadership to suggest that we will get digestion [Music] welcome to fulfing of this video the S&P 500 00 index is trading at a new all-time high within less than 100 points of the big round 7,000 milestone and Nvidia just became the first 5 trillion market cap company in history. So the bull market in stocks appears to be doing just fine despite the skeptics's worries that current valuations are far too high when compared to fundamentals. So, will the party continue on from here into 2026, or will the new year end the current three-year streak of doubledigit returns for stocks? To discuss, we're fortunate to welcome back to the program market technician and portfolio manager Katie Stockton, founder and managing partner of Fair Lead Strategies. Katie, thanks so much for joining us today. >> Of course, good to be with you again, Adam. >> Thank you. And Katie, I want to note that we're recording this just minutes after the FOMC uh gave their uh latest guidance. Uh they have just cut the interest rate as expected by 25 basis points and they also did as largely expected. Uh they announced that the end of QT will be coming up here I think starting on December 1st. So um a lot of dust still in the air. I appreciate you sitting down with us, but I'm sure you've got a lot that you and your firm need to go analyze. Um, but anyways, we'll roll up our sleeves and dig into it. Um, I I did note this for you before we turned on the camera, but I want to note for the viewers the very cool Fair Lead Strategies print behind you. Very very tasteful and and very reminiscent of another print series that that you and I know um from a couple decades ago and I I just I love the aesthetic. >> Thank you, Adam. Yeah. No, it's good. It reminds me of San Francisco, too. >> Yeah. Yeah. Yeah, if any San Francisco if San Franciscans are watching, you probably remember the series of all the national parks and whatnot from San Francisco and the surrounding era that that are in a similar um aesthetic. >> All right. Well, look, um let's just start with this S&P 7000. When do we get there? Today, uh end of this week, next next month, what do you think? >> You know, things do happen quicker than we expect them to oftent times with this market. And um we had a summertime breakout. So when the S&P 500 cleared resistance back in June, we came to a measured move objective of about 68.880 and we assigned that objective for Q1 of next year simply based on the trajectory of the uptrend. So this is all based on technical analysis, all price based trend momentum. So those are our inputs and you know we felt like it was a pretty reasonable upside objective but maybe not for October but rather early 2026 but here we are and these aren't resistance levels per se but they do tend to see some consolidation. So I think it'd be natural to see the S&P 500 take pause here but so far we've just seen really not at all a meaningful loss of momentum. It's been remarkably strong and these pullbacks that last just two, three days seem to give way to like instant buying pressure. We thought we saw the 20-day roll over um a couple weeks ago and then it just resumed higher. So, um this this puts the market to us at a pivotal moment in a way as it absorbs today's FOMC announcement as it will absorb uh the earnings coming from the mega cap complex this week. So we want to see how we finish this week as a way to understand is risk somewhat heightened as we come into November or not. >> All right. So let me ask you this then. Um you you you said it should have shown remarkable momentum. Um, and in the intro I I I gave a nod to the doubters here who are just looking at the the multiples to earnings and saying, "Dear Lord, like these are some of the most stretched we've ever seen." Um, is is the current market momentum warranted? >> Well, that that's a bigger question, frankly, and when I hear five trillion on on anything, it it's just um astounding in terms of the the numbers, right? But you know that the charts are never going to answer that question. They won't tell you why something is happening or even if it's warranted, but they will tell you what is happening, right? It's very very clear that the AI trade uh still has momentum and it still has relative performance and it's still allowing for breakouts to be generated in stocks that really appear overextended by other metrics um and of course probably are uh you know overstretched in terms of valuations uh based on history. So so the market's just telling us that there is momentum behind the trade. We want to respect that and it's our belief that you know there is the potential for that to continue in 2026 but not without some kind of pause. Uh you know for some a pullback might look imminent based on our measures for others I think it will be delayed h but collectively there is enough of loss of breath so market participation and enough of a loss of leadership to suggest that we will get digestion. We see also the NASDAQ 100 index which is pretty techheavy. So heavy in exposure not only to the mega caps with exposure but also more broadly within the tech space. And it's this large cap technology segment of the market that has been such a persistent source of upside leadership. So as soon as that changes that will be problematic naturally with technologies big footprint in both the NASDAQ and the S&P 500. We noted that in our uh weekly report today that the NASDAQ 100 is about 18 19% above its 200 day moving average. That's not bearish. U but it does show an overextended market in its appearance relative to history. Right? So we had to go back to July of 24 to find a reading this high. And indeed, past readings that were kind of u parabolic moves like we've seen have tended to give way to pullbacks and and not insignificant ones at that. So, it we're not using that as a bearish input, but it does put us on guard for any meaningful loss of momentum. >> Okay. All right. Um so, you know, if I if I hear you're right, um this can continue for a bit. We can certainly blow through 7,000. Um but as we as we continue towards 2026, you expect sort of at a minimum um cooling off at least a pause that refreshes, you know, if not maybe more, you know, sure a correction could happen in there right now, but but sounds like your technicals are not really blinking any warning signs about that right now. Well, the momentum kind of faded earlier this month as we all noticed and uh did briefly impact some of our gauges enough that we have some overbought downturns on the weekly charts and those are for us as some of the best market timing devices. So, we do have some indications. We just don't have it really for the major indices and that's of course what most people care about, right? So, and we don't have it for uh some of the mega caps, some of the large cap tech names that have been driving the upside. So, until we see it for these broader market proxies and these large caps that mean so much to market sentiment, uh we're going to kind of just ride the trend, right, until it tells us otherwise. But indeed, it's it's already become much harder to find good setups from a bottomup perspective because of the loss of breath that we've had. and it's been with us really for a few weeks now. So, it's been harder to find good charts, ones that are actionable and don't appear overextended by our metrics. And we have, as we've discussed before, the demark indicators. Y >> the demark indicators are great way to understand trend exhaustion. And um you know, right now there's a lot of those signals to suggest that that there's a trend exhaustion underway, but again, not until you see the downtick in the momentum gauges like a 20-day moving average, like a MACD indicator, uh will we really react to that. >> Okay. And just to make sure I'm following, are are you seeing the uh the mark indicators, you know, starting to to trigger their warning signs? Is that is that happening kind of in this the the smaller cap and the other non- tech parts of the the market and it's just you can almost imagine it just sort of getting closer and closer to the center core of of big tech but it's just not there yet. >> You know it is there. Um we do actually have counter trend sell signals on the weekly charts of the major indices. We have them uh for sure from a bottom-up perspective in technology uh but none of them have been confirmed and we feel that they're higher conviction when they are confirmed and there are a couple ways that that can happen. It can just be simply a loss of momentum that we feel is significant or there is a qualifier from the demar uh people that that actually designates that confirmation. So they're not confirmed signals. So there's still not high conviction, but on the weekly charts, they're the first signals on the sell side that we've had since the April low. So it's not like they've been really noisy and uh you know, stopping us out all the time. That that's happened a bit on the daily chart, but uh on the weekly chart, these signals definitely have us paying attention. We also have them on a lot of the monthly charts, including for the S&P 500. That may not have any, you know, um, implications for a few months. That's often the case. These these monthly signals are really long in duration, but again, they give you that visual indication that we really want to respect any loss of momentum that does occur that's meaningful. So, we'll continue to watch our metrics like the 20 days, but as we see breakouts confirmed, like this one for the S&P above the 6765 resistance that we've just seen, if that confirms on Friday once we're through all of the mega cap earnings, well, we're going to have to believe in that, right? Because breakouts to us are among the most actionable takeaways from the chart. So when we see breakouts, breakdowns, >> it's a great way to understand how to be positioned and >> whether we like it or not or whether we believe in it or not, if we have a breakout, we will defer to that. >> Okay. Um yeah, and those breakouts are kind of like um you know, you if it if the market's got a lot of momentum, you don't want to step in front of that freight train, more or less, right? >> Well, yeah. And the breakouts are, you know, if they're confirmed. So if you see price clear level like Nvidia just this week cleared final resistance just a minor level. It was right around 196, but still a bullish development. If it can hold up here for a few days, that does confirm a breakout. And as much as it's difficult to add exposure into strong up moves, it is often the right thing to do when you have these breakouts as catalysts because what the breakouts do, they remove the resistance from the chart, meaning that the sellers that were there, they're not there anymore for whatever reason and it tends to be a positive development. So it it's a tough thing to add exposure into strength. But indeed, these breakouts do sometimes warrant it. uh we just would caution people to make sure to wait for that confirmation and and confirmation can mean different things for different people. We just like to see it hold up there for at least a few days in order to confirm. >> Okay. And we we'll get to sort of allocations and strategy in a bit, but uh I I I I take it from you. Correct me if this uh interpretation is wrong. That right now um even though you're seeing some signs of of emerging concern um you you're not change you're not recommending a change of strategy yet because the momentum is still positive. Well, right now, so we we actually in the last two weeks did recommend to our clients to get partially hedged from a top down perspective, and we're not telling them to remove any hedges yet, but if we do see all of these breakouts uh that that just really unfolded over the last couple of days. If they hold through the the end of this week, we'll probably tell people to pair back those hedging strategies just because we don't want to fight against a tape for too long. Um, so we are somewhat sort of hedged, I'd say, in our bullishness. Um, and when I say hedged, we're not hedging a full portfolio by any stretch. We're talking about, you know, 10 20%, something of that nature, >> but something that can be additive, of course, when we do get into that corrective phase that has any significance to it. We're not talking about the three four day moves, but rather the more uh significant ones that end up showing up on the weekly and the monthly bar charts. So, we're bracing ourselves in a way for that. And yet, we just still, you know, are watching the momentum gauges and they really have not rolled meaningfully yet for the likes of the S&P, NASDAQ 100, Nvidia. Uh, so let's see if that changes. >> Okay. All right. Well, um I I do want to note that today I noted that uh combined Nvidia, Microsoft, and Thoughtful Money are now worth $9 trillion. >> I like that. Throw that in there. >> Yeah. Yeah. Um so, yeah, it's it's just amazing to me that these three companies can be worth that much money together. >> Yeah. There you go. >> Yeah. No, I'm stealing that line. I don't know who I stole it from, but it was a it was a game uh back during the Michael Jordan days where Michael Jordan scored 69 points and the guy said, "I'll always remember this is the game that Michael Jordan and I combined scored 70 points together because he had made one free throw." Yeah. >> No, but anyways, feel free to steal that line for Fair Lead Strategies if you want to. >> But the point is is really, you know, two two companies now worth $9 trillion, right? Um, and uh, you we've got several other three and four trillion uh, dollar companies in there, or maybe three trillion. I don't know where Apple is these days. Um, but uh, um, a stat I heard this morning was that I think 40% of the market cap of the S&P 500 is made up of 10 stocks, the top 10 stocks. And I'm sure for the the NASDAQ 100, it's probably a lot more of a percentage than that. >> Yeah. So, we have this I I'll call it a hyperconentrated market. You you you you don't need to necessarily agree with that. Um but um yeah, I mean when when you have a sector that makes up that much of the overall indices value, you know, breaking out, yeah, like I said, you don't want to step in front of that that freight train. It'll just steamroll you. >> Yeah, that's Sorry. Go ahead. >> Yeah, I was going to say you don't want to be short a bull market cycle just in general, right? But especially when you're talking about the leadership segment within that context, it can be really dangerous. And one of our rules of thumb is that it's just not a good idea to sell short anything that's at a new all-time high or close to it. And it's a it's saved us in some ways because when we do see the loss of momentum that's preliminary, it's really difficult to catch the pullback, right? Um, in the same way that if you're looking at the VIX, it's hard to catch those volatility spikes, right? >> When you're talking about like a counter trend position. So, we try to put more probabilities in our favor, especially on the short side, because for the most part, the market is in a bull cycle. So, we know that um, you know, even when we have a weaker tape, uh, that the bias over history is still higher. So, we're kind of fighting that bias. Wh what's the opposite of don't try to catch the falling knife, right? Like don't don't try to short a rising rocket or something like that. >> Well, and it's a great point. I even actually use this u phrase today with a client on the phone. We talked about a false breakout or like a whipsaw higher, something of that nature. We we always talk about shakeouts on the downside. So the the word shakeout stands for shaking out the weak holders of that security. >> Right. Right? So it's almost like the reverse of that would be, you know, it's the buyers that are kind of too late piling in and then all of a sudden they just get burned. Right. Um so so the phenomenon happens on both sides of the market. And what tends to characterize those false breakouts would be non-confirmation, right? So we that's that's our essential uh tool is to wait for the breakouts to be confirmed. But also if you see gaps up uh later in a rally like it's a strong rally and you get a gap up after a couple weeks uh that tends to be exhaustive. They call them exhaustion gaps. That can be a setback too. And >> because gaps like to be filled, right? >> Yeah, they do. And uh especially if you see that security fall back into the gap really quickly, that tends to be another setback. So there's nuances and there's even and we don't use them ourselves, but if you are a technical analyst who's using candlestick charts, there's candlestick price patterns that are only one day in duration. And what they're usually identifying these reversal patterns would be basically a weak close relative to a high low range. So, if you see a big run up and then you see like a terrible close, >> um, that can be indicative of of a change of hands, too, in the same way that it is on the downside. I mean, go back to the April low and look at the the price bars around there and you'll see, I don't know what you would call it necessarily in the candlestick world, uh, but these sort of hanging price bars that look like they are, uh, you know, exactly when demand shifted. >> Yeah. Yeah. uh where they that the the day hit a big range but ends up closing up way near the top. Right. So you have that really long tail. Yeah. >> That that climactic behavior. Um you could argue that we have some climactic action right now with these headlines that you've been citing. So I would say that the there's some um you know exuberance out there. We we see it in some of the investor polls. Um but it could be crazier honestly. We've seen it ourselves. you know, if we're talking about San Francisco in the late 90s, um I I saw it then and it can get more exuberant, right? So, um you know, we we are just going to wait for that momentum shift. >> Okay. So, let me um let let me ask a potentially uncomfortable question and feel free to pass on it, but um as I understand you are a technician's technician, as you said, you know, you you you're dealing with the market we have, not necessarily the market you think we as it should be. Um AI uh is just such a monster uh trade right now and it it has pulled the market along for now many years several years and we're getting to these valuations that I got to think you and I would probably not have believed if we had been told this a you know a year or two ago right um back to my point about um the skeptics's views of the valuation right of of of how stretched they are from fundamentals. Um I guess two questions for you but they're really the same question is you know a is AI in a bubble but but what I the maybe more more sensitive question is is putting aside her technical hat for a moment how much does Katie Stockton believe in in these AI valuations today? Um yeah so that that well and that's completely a fair question by the way because it is so topical and uh even in our uh one of our newsletters today we have an idea generator on substack uh we talked about uh trying to find an idea outside of the AI trade is something that's interesting and it's not that easy frankly so so we're looking for momentum um but when you can find it um you know it's obviously compelling right when it's X AI because you do feel like AI is so overdone in a way in terms of the the followrough that we've seen and yet um you know the trends aren't all parabolic across the space. There's definitely some that look really overdone without question. uh you know, when you have a really steep up move that's nearly uninterrupted, uh well then you just better be careful, right? Because um if you were to wait for the moving averages to roll over, you're probably already uh pretty deeply in the hole. Uh so we would just make sure uh you know, if we're investing in that space to have some kind of way to manage risk, right, of a of a big retracement. It could just be a trailing stop-loss or you know, using the demark indicators, whatever it may be. Um, but I don't think it's a bubble. It doesn't feel to me like it did feel um before the March 2000 peak. Um, and that was the.com bubble of course and that's when I feel like I would come into the office every day and stocks would be up three, four, five% even in a day and it happened for a long time. So while we are getting big gains, it doesn't seem quite as explosive nor necessarily as parabolic from a top down perspective as it did back then for me. So I just that's just based on a feel. Um I'm sure we could run some numbers on that and some analoges, but it it just doesn't have that same feeling to me. >> Um you know, talk to me when momentum shifts. you know, if we have some kind of inverted V to talk about, then maybe I'll change my mind after that. Um, but as it stands, it doesn't have that that same technical characteristic, I feel like. Um, in terms of valuations, honestly, I have no idea. Um, I don't study the fundamentals of these companies. I see the use cases. I'm like really excited and intrigued by AI and we're already using it here in house, not not for writing yet, but more for back testing. Um, so it's been a great tool for us. Um, so I, so I see the upside. Um, but of course, you know, in terms of monetizing that, that that's another question, right? Are the companies doing a good job? There's so much more to it than just AI and its upside, right? It's it's how are the companies navigating it and actually generating revenues. So, so that's not my area of expertise, but I I will say, you know, my guess is same thing that did ultimately happen with the dot bubble was that it, you know, there were survivors, right? There were very strong companies that survive that and came out the other end and we're still talking about them today, right? Like Amazon. Uh whereas there are probably a lot of names that we've already forgotten as well. And I think that that's probably the case here too with the the AI trade in that there's a lot of names that will just not be around um in a few years if not less. Right. So it's a matter of kind of separating out the quality players in the space. I think that's going to be increasingly important with the gains that we've seen. >> Yeah. Well, I think the the question that's on the mind of a lot of my viewers is I mean, I'm sure you can have a debate, but I think most people probably say, "Yeah, AI is there's real there there just the way there was there there in the internet during the dot boom." But the.com era just went bananas and pulling tomorrow's value into today. And we needed a long period of time before, you know, the market really realized that value, right? And uh you know NASDAQ famously what was took 15 years or so to get back to to to break even right? >> Yeah. >> Um so I think >> yeah so I think the fear that people have right now is twofold. Um it's one a lot of people think that that's going on right now. Is it to the.com extent or not? No nobody knows right. um but that there could be a pretty big you know correction in AI when people realize you know it's going to take a lot longer for companies to start really monetizing this to justify you know their current market values but secondly tied to that is unlike the dot bust which was kind of largely contained to the NASDAQ and and in those companies there's just so much of the indices now that are made up by these companies and there's so many ETFs out there that no matter what the ETF says, its main holdings are MAG7 companies. And so it's a sense of just the collateral damage that a material correction in the AI space could wreak across, you know, portfolios of almost every stripe. Um, and I'm not trying to say that this is definitely going to happen and I'm not trying to spook anybody, but I do see it as a really valid concern. And of course, the big question is, well, if it is going to happen, when? and nobody knows that. So, I'm not going to ask you that because it's just not knowable. But, but how much of a concern do you have for for that concern that a lot of my viewers have? >> Yeah, I think I definitely share the concern and and we're already in a way kind of spooked by the action because we haven't seen a pullback of any magnitude since April and that's a a very long duration. So it certainly feels like there's a dynamic at work here, something that's more related to market structure uh than it is just simple uh you know price momentum or market sentiment. So without question there there's some dynamics that we probably can't measure all that well but we know that the ETFs out there the passive ETFs especially are exacerbating uh the momentum and behind the biggest players mo most obviously and that can be problematic when it does pivot of course because when they pull they have to pull all at once they have to stay aligned with the the uh price action so that can be really detrimental to people's portfolios. So the way we um rather than being fearful and trying to predict exactly when that happens because as you said nobody knows we are all about uh building a portfolio that can withstand it and also as we recommend in our research at times being hedged to that exposure. So there are ways to navigate uh you know a big corrective phase or even a a bare cycle which if it is a bubble and that that's unfolding then then yes we will have a bare cycle uh whenever that that unfolds you know we want to be ready um you know from a I guess portfolio management perspective to navigate that and not you know lose half the value of our portfolios. Mhm. So okay and I I from my take here in the cheap seats at fair lead you you kind of take a twofold approach one is okay let's construct a portfolio that is riskmanaged right so that we can absorb any catastrophic failure in any one part of that portfolio but then also your your bread and butter is watching the market technicals and so there's a sense of like okay we're going to kind of know as we're going into some sort of big correction or something like that. So we'll be able to start making real-time portfolio adjustments to minimize our vulnerability to it. Am I capturing that correctly? >> Yeah. No, it's right. So we're almost like adaptive or reactive in how we are positioning. Um but we do that in a systematic fashion. So it's not us sitting here and saying like I you know it feels like momentum is shifting. It's it's actually measurable for us. We're using technical indicators that are mathematically based and they give very clear signals especially when you combine them as we do in our models. So it it's um a systematic approach to risk management but also to leverage the momentum and the relative performance in certain segments. So it can serve both of those roles at you know at the same time. We often are differentiating between uh like core long-term holdings and portfolios. We we have been saying because we've had a long-term bullish bias in our work. We've been saying for uh a long time just, you know, stay with your core long-term holdings, especially the ones that have not seen a meaningful loss of momentum. You know, look beyond any corrective action for those. Whereas for the more opportunistic and/or higher beta positions, right, that that are there to supplement those core long-term holdings, those are the ones that we're more inclined to address in our positioning, right, when when we feel that there's a corrective phase. So, uh, we're pretty clear to to keep that core as long as we feel that we're not in a bearish cycle. And um even in a bare cycle, there's portfolios that are designed to manage through that, right, with either alternative asset classes or ways to navigate the overconentration that you highlighted in the the major indices. So, so there's ways to get around it. Um you know, some of those ways may limit your upside if you have hedged equity products. Sure. Uh but listen, if you're a long-term investor, we're we're more interested in uh you know, not the high-flying moves necessarily, but but steady gains and limiting draw downs. Because if you limit the draw downs, not only are you digging yourself out of a less deep hole when you come out of things, uh but you're impacting your portfolio favorably over a long period by just, you know, not letting that equity curve dip dip dip, >> right? So, so we're big believers in long-term investing if you can. >> Okay. All right. Well, look, um, given all this, um, where kind of are you right now on an allocation basis? >> So, we have one ETF that we manage. It's called the Fairle Tactical Sector ETF or TAC TACK. It is long-term in focus. It is treated oftentimes as a hedged equity type of product by advisors. uh but its design is exactly to follow long-term trends and momentum on the sector level using an equal weight bias but then also to use asset allocation to manage drawdowns and rotate into other uh areas of global markets that are doing better than equities especially during those really big bare cycles. When we launched the ETF it was in 22 which ended up being a pretty big bare cycle for the S&P 500. We spent most of that year in just one sector which was energy and it was really kind of the only sector that was substantially in the green for the year. So there are years like that and we had the flexibility to leverage those. We've been mostly full in our equity sector exposure of late. We actually have only one slice of our pie which we have uh equal positions eight of them at about 12 a.5%. So, one of those 12 a.5% buckets that we have has been designated um currently for short-term treasuries, long-term treasuries and gold. And those things can serve as a buffer, right? If you see a corrective space and um and then, you know, attack will adapt if the long-term momentum deteriorates further behind more sectors, >> meaning that they get kicked out of the portfolio. But for now, it's pretty riskon. um with that one sort of piece there there's probably um the obvious sectors that aren't included like energy would be for one now. So to contrast 2022 energy just hasn't been great. You know it's been trending uh sideways to lower when uh of course technology and others have been trending very much higher. So it's just rewarding those long-term trends and with through the equal weight positioning and uh through also that asset allocation the TAC portfolio tends to be quite low beta meaning that it's not you know going to be exceptionally volatile on the upside or downside and then also it's maintained a low correlation to both the S&P 500 and its proxy which is the Russell 1000 equal weight index. So, it's a a pretty unique product in that sense and it it serves a very good role in a portfolio as one of those core long-term holdings that hopefully you just don't have to worry about. Um, but then in a very strong tape like we have had, we have been telling advisers to supplement, right? You want to supplement with the AI trade with things that have been working, so those higher beta positions until they stop working. And then you want to make sure you build some cash to put back to work uh when you know the consolidation or corrective phase uh you know seems to be mature. So we like to have a piece of a portfolio that is reserved for that more opportunistic positioning but a good core long-term uh you know portfolio like attack to serve as a foundation. >> Okay, great. And just to make it practical for the viewers, um, if you basically want to have a portion of your portfolio managed the way that Katie manages, uh, at Fair Lead Strategies, you can just go buy TAC, uh, you know, through your brokerage and, um, just let it ride. >> It's a good way to put it. Yeah, we >> Yeah, it's it's easy to access, list it on the NYSE. >> Great. Yeah. And now obviously higher net worth family office type clients can reach out to fairly strategies for more customized uh management. Correct. >> Yes. So we do actually have a a great research business. We do research and consulting for individuals all all the way up to the biggest institutions. So anyone who's interested in technical analysis by all means should should come our way. Um because we we do um have the ability to create model portfolios and things of that nature. >> Okay. And that's going to your website. >> Yep. FairleadStrategies.com. >> Okay, great. And when I edit this, I'll put up the URL to Fairle. Also put up the um ET the ticker for TAC and stuff when you had mentioned it earlier. >> Yeah, thank you. >> No, no, no, no. Thank you. Okay. Um All right. So, uh you mentioned a couple of specific assets I'd love to get your quick thoughts on. Um gold. You mentioned gold. Gold had one of these breakouts. um as did silver. Um and uh it it has corrected since then. Um I I've read your recent research reports so I know your latest thoughts on this, but could you share them with the audience here? >> Yeah, of course. So gold has been of course very topical lately because it had a parabolic up move of its own and now has retraced and it's that kind of dramatic pullback uh that puts people on edge. But in reality, it's just come back to where it was a few weeks ago. So, it's it's not that dramatic on the chart when you zoom out on the monthlies for both silver, gold, and and other precious metals. Um, but we do think it will continue, and that's based on the overbought downturns that we have on the weekly bar chart. So, it's a it's more than just a daily bar chart issue. It's a weekly bar chart issue. And so, we think it will stay with the market here in the near term. I wouldn't get too caught up in whether that means risk on or risk off because gold has been um in a world of its own. It's been acting more risk on of course right at times even when you would expect it to be more risk off. So it it's just uh forged higher. So um the breakout that we saw last in gold the target from that in the same way that we had 6880 for the S&P the target from the breakout in gold had already been exceeded. So we we're left without having an upside objective, but when we get the pullback generating an intermediate term oversold reading, that's when we get excited to add exposure to take advantage of the long-term uptrend again. So that's what that will go from, you know, calling the pullback mode into, okay, now we want to find our re-entry. And I don't think we're there yet, but probably based on our uh indicators, we would expect to see that opportunity present itself before year end. Okay. All right. So, in the near term, wouldn't surprise you to see gold show more weakness, but you're still more optimistic long term, and you're just kind of waiting for that entry point. >> Yeah. And the uh stochastic oscillator that we use is one of the best ways to time those re-entries. So, even though a lot of people will be inclined to say, well, what level do you want to buy at? You know there is support of course just shy in fact of 3500 for the price of gold but rather than use that as sort of a buy limit order or something like that we recommend people watch these indicators and watch for stabilization. And so we don't want to just know where support is because then you know if it's coming down there and it's it's a falling knife uh we don't want to add exposure into that but rather once you've seen a little stabilization and that will show support discovery it shows buyer stepping in and then it manifests itself in those indicators. So we recommend using the indicators as a way to understand if the support is meaningful. >> Okay. All right. Now heading over to energy um which you said you guys had been big into during 2022. um you know oil and gas the main fossil fuels um you know it's a boom bust industry right um so you kind of know wherever it is on the boom bust cycle it's going to go the other direction at some point right and so um energy has been out of favor all year as I think you mentioned um world still runs on oil um you know uh oil demand goes up every year right that looks that seems to show no uh no signs of stopping um with all the excitement about AI. Um you know, we've we've seen some sectors like uranium and and nuclear stocks uh go bananas. Um but surprisingly, the the the fuel that's probably going to power most of these data centers over the next bunch of years before we have all these brand new reactors is going to be natural gas. But again, you know, market hasn't really been that interested. Um, so it it seems to me again from the cheap seats that at some point here market's going to care the world's going to care about oil again. Market's going to care about oil again. Um, how do you determine if if you agree with that general thesis, which I think you probably do, but correct me if I'm wrong. Um, how do you determine when it's time to to buy these stocks while they're cheap? >> Yeah. And we look at crude oil first. So that's going to be I think the primary source of our views on the energy complex and that goes for any kind of like leveraged ETF. We always start with the source you know people like to trade boil as one right which is an inverse um natural gas fund right. Yeah. Yeah. So so we watch that um you know we but we also watch the underlying commodities. So natural gas, we'll watch crude oil and not until we feel like we've got a real advance underway there would we think about building overweight exposure to the energy complex, right? Because you want that tailwind. Uh they are positively correlated. So with crude oil prices, we'll watch very closely for signs of a long-term bottom. And the long-term oversold reading that we had in I think it was um March, April was pretty meaningful on the monthly chart. So that again puts us on lookout for signs of a bottom. And we do have a counter trend buy signal. That's in contrast to the one that we have in the S&P 500 on the sell side. Uh we do have one that's not confirmed yet. So it's still low conviction, but it's occurred at a higher level than those uh springtime lows for crude. So there are some early potential indications that a bottom is being established in that sort of 55 plus range for crude oil prices. And if we see momentum shift, you know, more meaningfully to the upside, well, that would be something that would draw us to the energy complex. And we'd probably also see in that the uh relative strength would start to turn even before we see the rotation into the stocks themselves in absolute terms. So you look at the ratios of say a chevron versus the S&P, you might see that ratio start to tick up. And that's that's often your best opportunity to add to stocks that you would consider to be kind of like turnaround plays, right? Or ones that are downtrending. So a little higher risk and counter trend. It's when their relative performance starts to move higher or you know improve meaningfully. That's when we get pretty interested in in that. So so we're starting to see that here and there within the complex but I think it's a little bit early to be convinced that it's a lasting shift. >> Okay. If somebody right now didn't have much exposure at all to energy, would your advice be get a core position and then keep your eye out for that material momentum shift and then start committing real capital? >> Um, so you can do that. It's not one of our recommendations presently because we don't have enough evidence that a turnaround is underway. We just have a downtrend still for the most part. As much as we have some signs of downside exhaustion, you can really see it in the ratio of like an XLE to the S&P 500, uh, but you can always buy something that is counter trend as long as you have a stop-loss in mind, right? I would just really adhere to those stop losses because in a counter trend setup, your risk is heightened. Um, so I would have some kind of mechanism to manage risk. And it could just be you take the the recent low and you say, I don't want to see it close a couple weeks below that. That's my stop-loss. Takes all the emotions out of it. You don't get married to a position that way. And um I I don't see any problem with that. But you for that for the sector as a whole um I would probably wait myself um and if I see some stocks maybe individually that seem to be doing better in relative terms that would probably be the first place I'd go as long as crude starts to move. >> Okay. All right. Thanks. Um so uh two last questions for you. Um, the last one is going to be, um, is there anything else that's burning brightly on your radar that I just haven't thought to ask you about? Um, but before we get there, bond yields. Um, so, you know, as we kick this conversation off, we know that the Fed just cut another 25 basis points. They've just ended QT. Um, we have after a a stubborn, you know, almost 11 months, uh, the 10-year has now finally dropped below 4%. We know the administration would like to see it a lot lower. Where do you think the trajectory of bond yields will be in 2026? You know, we actually think a a breakdown is underway in yields because you can draw a big triangle formation on the 10-year chart and you can see that it's it's penetrated the lower boundary of that triangle in yield terms and it's right around 4%. It's actually ticked up a bit and um I know that we're trading right on it right now. I just had to look again just because of the volatility, but um it is being tested hard. We think it's a breakdown underway and that that breakdown will go from sort of a neutral yields bias to a downward yields bias with next support around 367 in our work. So we are respecting the sort of cyclical down move right now in yields is likely to continue but we're viewing it within a a secular uptrend because the longerterm metrics things like our monthly cloud model do point higher and those would suggest that we will see ultimately another big low established and higher yields from there. So, we don't want to get two steps ahead, but uh we feel like the uh 4% level is in jeopardy of breaking just based on the downside momentum and the the breach of that triangle boundary. >> All right. And when you say higher yields eventually, are you talking like at some point in 2026? Are you talking like all right, we know over the next we think over the next 10 years yields are going to go higher and and and that's what you mean by higher yields? >> Well, it could certainly h happen in 26. We we don't know when it will happen but um so the secular uptrend would suggest that over the coming years. So it is um you know a very long-term trend within that context you can have a year two years in the opposite direction but it would tell us that let's say five years we should be higher than where we are now. >> Yep. Okay. So you're sort of in the Jim Grant camp of the 40-year bond uh bull market kind of ended around 2022 and we're in a new secular cycle. Yeah. Yeah. >> Anything can happen in any given year, but over the scope it's going to be rising. >> Yeah. I mean, if you go back, you can draw like a multi-deade downtrend channel on yields that has been reversed. >> Yeah. >> And so that that I think is pretty meaningful. It may not be meaningful over the next few months or even a year, but um I do think it's meaningful longer term. >> Okay. Great. All right. And then to that final question, is there anything burning brightly on your radar has your attention that's worth talking about that I just haven't had the wherewithal to think to ask you yet? >> Um, you know, there's a few things. We're we're watching financials and real estate pretty closely. Uh, financials have had really pretty terrible relative performance of late and banks, regional banks have been the culprits there largely. Yeah. So, we're discouraged by the action in the banks from a technical perspective, but maybe some people could infer that there's more to it from a macro perspective there. And a client today said, well, gosh, you know, take a look at at REIT proxy today and and we've seen a really big pivot to the downside that may reflect sort of credit concerns, right? So, I think that that's something, you know, if you're more of a macro strategist or investor, uh, that that should be on your radar, uh, to keep keep an eye on the credit markets, make sure that you feel like, uh, there's no big risk there. Um, so those are things that that are not technical, but certainly can land themselves um, and stock prices in relative performance. Um, and then I'd finally just say the VIX, the volatility index can be really helpful and informational. Um, we're not very keen on the VIX products for hedging, although we're guilty at times of recommending them just from a very short-term duration. But, >> um, when we look at the VIX itself, it's a great way to manage risk and to do so also with a an unbiased perspective. So we've been uh you know since we saw the initial spike we've been sort of in the mindset that we'll see an aftershock in the VIX. And for us the support level that we're watching is defined by the cloud model that we use and it puts support right around 16.4 for the VIX. So as much as we're watching the S&P we're also watching the VIX. >> Okay. All right. Um I'm just my notes here. 16 you say 16.5 was sort of the >> 16.4. Okay. Yeah. All right. Um All right. Well, as usual, Katie, uh this has just been a completely uh en enjoyable and as I like to say, financially nutritious, uh discussion. Thank you for being so generous way to put it. Of course, I'm happy to. And it's it's probably a good time to be having the conversation. Even if it's not >> the most decisive time, it's like there's just a lot uh going on, right? >> Yeah. Well, what I'd love to do is um is have you back on in Q1 and just kind of give us an update on all these things. Hopefully, we'll have the dust will have settled on some of these things. You'll have a little bit of a clear view of what 2026 might look like. Um, and of course folks in the interim, uh, if you would like to, uh, actually, you know, take advantage of of Katie's work, um, either go, uh, seek out her research there at at fairly strategies.com, um, or just write her coattails and, you know, buy the TAC ETF and, uh, and and benefit from that. Um, all right. Well, look, um, folks, please join me in thanking Katie for being so generous with her time, her insights, uh, and the specifics of how she's allocated. And please do that by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. Um, if you would like some help uh above and beyond um the resources that Katie offers there, maybe um you know talking with one of the financial adviserss that Thoughtful Money endorses, the firms you see with me on this channel week in and week out about some of the the trends, opportunities, and risks that Katie talked about and to find out which ones might be relevant given your own personal situation. Feel free to talk to one of the financial adviserss that ThoughtfulMoney endorses. Uh to do that, just fill out the very short form at thoughtfulmoney.com. Katie, I'd love to uh give you the last word here. You know, most of the we just had our um fall online conference, which was fantastic, and I would love to have you in one of our conferences next year if you have the interest and the availability. Um but most of the people who are watching, we definitely have some professional investors that participate, but most are just regular people, you know, that have worked hard or continuing to work hard to build wealth, to provide for their families. They want to prudently grow their wealth, but probably more importantly, they don't want to get blindsided, you know, by by one of these risks that you and I have talked about. What would your parting bits of advice be to them? >> Yeah, I mean, always just don't get married to a position and try to take the emotions out of it, which of course the charts let you do in a way like always, you know, have a level in mind at which things will change for you and to maybe keep yourself honest. Write it down when you take that position. And you can't really argue against the uh prices, you know, price really matters. So um you don't have to be a sophisticated technical analyst to see when something is breaking a support level. And I just encourage folks to use the charts to their benefit. >> All right. Well, very well said, Katie. Can't thank you enough. Thank you so much for coming. >> Good to be with you. >> All right. And everybody else, thanks so much for watching.
Will The A.I. Stock Juggernaut Run Out Of Steam Soon? | Katie Stockton
Summary
WORRIED ABOUT THE MARKET? SCHEDULE YOUR FREE PORTFOLIO REVIEW with Thoughtful Money’s endorsed financial …Transcript
But it's very very clear that the AI trade uh still has momentum and it still has relative performance and it's still allowing for breakouts to be generated in stocks that really appear overextended by other metrics um and of course probably are uh you know overstretched in terms of valuations uh based on history. So so the market's just telling us that there is momentum behind the trade. We want to respect that and it's our belief that you know there is the potential for that to continue in 2026 but not without some kind of pause. uh you know for some a pullback might look imminent based on our measures for others I think it will be delayed h but collectively there is enough of loss of breath so market participation and enough of a loss of leadership to suggest that we will get digestion [Music] welcome to fulfing of this video the S&P 500 00 index is trading at a new all-time high within less than 100 points of the big round 7,000 milestone and Nvidia just became the first 5 trillion market cap company in history. So the bull market in stocks appears to be doing just fine despite the skeptics's worries that current valuations are far too high when compared to fundamentals. So, will the party continue on from here into 2026, or will the new year end the current three-year streak of doubledigit returns for stocks? To discuss, we're fortunate to welcome back to the program market technician and portfolio manager Katie Stockton, founder and managing partner of Fair Lead Strategies. Katie, thanks so much for joining us today. >> Of course, good to be with you again, Adam. >> Thank you. And Katie, I want to note that we're recording this just minutes after the FOMC uh gave their uh latest guidance. Uh they have just cut the interest rate as expected by 25 basis points and they also did as largely expected. Uh they announced that the end of QT will be coming up here I think starting on December 1st. So um a lot of dust still in the air. I appreciate you sitting down with us, but I'm sure you've got a lot that you and your firm need to go analyze. Um, but anyways, we'll roll up our sleeves and dig into it. Um, I I did note this for you before we turned on the camera, but I want to note for the viewers the very cool Fair Lead Strategies print behind you. Very very tasteful and and very reminiscent of another print series that that you and I know um from a couple decades ago and I I just I love the aesthetic. >> Thank you, Adam. Yeah. No, it's good. It reminds me of San Francisco, too. >> Yeah. Yeah. Yeah, if any San Francisco if San Franciscans are watching, you probably remember the series of all the national parks and whatnot from San Francisco and the surrounding era that that are in a similar um aesthetic. >> All right. Well, look, um let's just start with this S&P 7000. When do we get there? Today, uh end of this week, next next month, what do you think? >> You know, things do happen quicker than we expect them to oftent times with this market. And um we had a summertime breakout. So when the S&P 500 cleared resistance back in June, we came to a measured move objective of about 68.880 and we assigned that objective for Q1 of next year simply based on the trajectory of the uptrend. So this is all based on technical analysis, all price based trend momentum. So those are our inputs and you know we felt like it was a pretty reasonable upside objective but maybe not for October but rather early 2026 but here we are and these aren't resistance levels per se but they do tend to see some consolidation. So I think it'd be natural to see the S&P 500 take pause here but so far we've just seen really not at all a meaningful loss of momentum. It's been remarkably strong and these pullbacks that last just two, three days seem to give way to like instant buying pressure. We thought we saw the 20-day roll over um a couple weeks ago and then it just resumed higher. So, um this this puts the market to us at a pivotal moment in a way as it absorbs today's FOMC announcement as it will absorb uh the earnings coming from the mega cap complex this week. So we want to see how we finish this week as a way to understand is risk somewhat heightened as we come into November or not. >> All right. So let me ask you this then. Um you you you said it should have shown remarkable momentum. Um, and in the intro I I I gave a nod to the doubters here who are just looking at the the multiples to earnings and saying, "Dear Lord, like these are some of the most stretched we've ever seen." Um, is is the current market momentum warranted? >> Well, that that's a bigger question, frankly, and when I hear five trillion on on anything, it it's just um astounding in terms of the the numbers, right? But you know that the charts are never going to answer that question. They won't tell you why something is happening or even if it's warranted, but they will tell you what is happening, right? It's very very clear that the AI trade uh still has momentum and it still has relative performance and it's still allowing for breakouts to be generated in stocks that really appear overextended by other metrics um and of course probably are uh you know overstretched in terms of valuations uh based on history. So so the market's just telling us that there is momentum behind the trade. We want to respect that and it's our belief that you know there is the potential for that to continue in 2026 but not without some kind of pause. Uh you know for some a pullback might look imminent based on our measures for others I think it will be delayed h but collectively there is enough of loss of breath so market participation and enough of a loss of leadership to suggest that we will get digestion. We see also the NASDAQ 100 index which is pretty techheavy. So heavy in exposure not only to the mega caps with exposure but also more broadly within the tech space. And it's this large cap technology segment of the market that has been such a persistent source of upside leadership. So as soon as that changes that will be problematic naturally with technologies big footprint in both the NASDAQ and the S&P 500. We noted that in our uh weekly report today that the NASDAQ 100 is about 18 19% above its 200 day moving average. That's not bearish. U but it does show an overextended market in its appearance relative to history. Right? So we had to go back to July of 24 to find a reading this high. And indeed, past readings that were kind of u parabolic moves like we've seen have tended to give way to pullbacks and and not insignificant ones at that. So, it we're not using that as a bearish input, but it does put us on guard for any meaningful loss of momentum. >> Okay. All right. Um so, you know, if I if I hear you're right, um this can continue for a bit. We can certainly blow through 7,000. Um but as we as we continue towards 2026, you expect sort of at a minimum um cooling off at least a pause that refreshes, you know, if not maybe more, you know, sure a correction could happen in there right now, but but sounds like your technicals are not really blinking any warning signs about that right now. Well, the momentum kind of faded earlier this month as we all noticed and uh did briefly impact some of our gauges enough that we have some overbought downturns on the weekly charts and those are for us as some of the best market timing devices. So, we do have some indications. We just don't have it really for the major indices and that's of course what most people care about, right? So, and we don't have it for uh some of the mega caps, some of the large cap tech names that have been driving the upside. So, until we see it for these broader market proxies and these large caps that mean so much to market sentiment, uh we're going to kind of just ride the trend, right, until it tells us otherwise. But indeed, it's it's already become much harder to find good setups from a bottomup perspective because of the loss of breath that we've had. and it's been with us really for a few weeks now. So, it's been harder to find good charts, ones that are actionable and don't appear overextended by our metrics. And we have, as we've discussed before, the demark indicators. Y >> the demark indicators are great way to understand trend exhaustion. And um you know, right now there's a lot of those signals to suggest that that there's a trend exhaustion underway, but again, not until you see the downtick in the momentum gauges like a 20-day moving average, like a MACD indicator, uh will we really react to that. >> Okay. And just to make sure I'm following, are are you seeing the uh the mark indicators, you know, starting to to trigger their warning signs? Is that is that happening kind of in this the the smaller cap and the other non- tech parts of the the market and it's just you can almost imagine it just sort of getting closer and closer to the center core of of big tech but it's just not there yet. >> You know it is there. Um we do actually have counter trend sell signals on the weekly charts of the major indices. We have them uh for sure from a bottom-up perspective in technology uh but none of them have been confirmed and we feel that they're higher conviction when they are confirmed and there are a couple ways that that can happen. It can just be simply a loss of momentum that we feel is significant or there is a qualifier from the demar uh people that that actually designates that confirmation. So they're not confirmed signals. So there's still not high conviction, but on the weekly charts, they're the first signals on the sell side that we've had since the April low. So it's not like they've been really noisy and uh you know, stopping us out all the time. That that's happened a bit on the daily chart, but uh on the weekly chart, these signals definitely have us paying attention. We also have them on a lot of the monthly charts, including for the S&P 500. That may not have any, you know, um, implications for a few months. That's often the case. These these monthly signals are really long in duration, but again, they give you that visual indication that we really want to respect any loss of momentum that does occur that's meaningful. So, we'll continue to watch our metrics like the 20 days, but as we see breakouts confirmed, like this one for the S&P above the 6765 resistance that we've just seen, if that confirms on Friday once we're through all of the mega cap earnings, well, we're going to have to believe in that, right? Because breakouts to us are among the most actionable takeaways from the chart. So when we see breakouts, breakdowns, >> it's a great way to understand how to be positioned and >> whether we like it or not or whether we believe in it or not, if we have a breakout, we will defer to that. >> Okay. Um yeah, and those breakouts are kind of like um you know, you if it if the market's got a lot of momentum, you don't want to step in front of that freight train, more or less, right? >> Well, yeah. And the breakouts are, you know, if they're confirmed. So if you see price clear level like Nvidia just this week cleared final resistance just a minor level. It was right around 196, but still a bullish development. If it can hold up here for a few days, that does confirm a breakout. And as much as it's difficult to add exposure into strong up moves, it is often the right thing to do when you have these breakouts as catalysts because what the breakouts do, they remove the resistance from the chart, meaning that the sellers that were there, they're not there anymore for whatever reason and it tends to be a positive development. So it it's a tough thing to add exposure into strength. But indeed, these breakouts do sometimes warrant it. uh we just would caution people to make sure to wait for that confirmation and and confirmation can mean different things for different people. We just like to see it hold up there for at least a few days in order to confirm. >> Okay. And we we'll get to sort of allocations and strategy in a bit, but uh I I I I take it from you. Correct me if this uh interpretation is wrong. That right now um even though you're seeing some signs of of emerging concern um you you're not change you're not recommending a change of strategy yet because the momentum is still positive. Well, right now, so we we actually in the last two weeks did recommend to our clients to get partially hedged from a top down perspective, and we're not telling them to remove any hedges yet, but if we do see all of these breakouts uh that that just really unfolded over the last couple of days. If they hold through the the end of this week, we'll probably tell people to pair back those hedging strategies just because we don't want to fight against a tape for too long. Um, so we are somewhat sort of hedged, I'd say, in our bullishness. Um, and when I say hedged, we're not hedging a full portfolio by any stretch. We're talking about, you know, 10 20%, something of that nature, >> but something that can be additive, of course, when we do get into that corrective phase that has any significance to it. We're not talking about the three four day moves, but rather the more uh significant ones that end up showing up on the weekly and the monthly bar charts. So, we're bracing ourselves in a way for that. And yet, we just still, you know, are watching the momentum gauges and they really have not rolled meaningfully yet for the likes of the S&P, NASDAQ 100, Nvidia. Uh, so let's see if that changes. >> Okay. All right. Well, um I I do want to note that today I noted that uh combined Nvidia, Microsoft, and Thoughtful Money are now worth $9 trillion. >> I like that. Throw that in there. >> Yeah. Yeah. Um so, yeah, it's it's just amazing to me that these three companies can be worth that much money together. >> Yeah. There you go. >> Yeah. No, I'm stealing that line. I don't know who I stole it from, but it was a it was a game uh back during the Michael Jordan days where Michael Jordan scored 69 points and the guy said, "I'll always remember this is the game that Michael Jordan and I combined scored 70 points together because he had made one free throw." Yeah. >> No, but anyways, feel free to steal that line for Fair Lead Strategies if you want to. >> But the point is is really, you know, two two companies now worth $9 trillion, right? Um, and uh, you we've got several other three and four trillion uh, dollar companies in there, or maybe three trillion. I don't know where Apple is these days. Um, but uh, um, a stat I heard this morning was that I think 40% of the market cap of the S&P 500 is made up of 10 stocks, the top 10 stocks. And I'm sure for the the NASDAQ 100, it's probably a lot more of a percentage than that. >> Yeah. So, we have this I I'll call it a hyperconentrated market. You you you you don't need to necessarily agree with that. Um but um yeah, I mean when when you have a sector that makes up that much of the overall indices value, you know, breaking out, yeah, like I said, you don't want to step in front of that that freight train. It'll just steamroll you. >> Yeah, that's Sorry. Go ahead. >> Yeah, I was going to say you don't want to be short a bull market cycle just in general, right? But especially when you're talking about the leadership segment within that context, it can be really dangerous. And one of our rules of thumb is that it's just not a good idea to sell short anything that's at a new all-time high or close to it. And it's a it's saved us in some ways because when we do see the loss of momentum that's preliminary, it's really difficult to catch the pullback, right? Um, in the same way that if you're looking at the VIX, it's hard to catch those volatility spikes, right? >> When you're talking about like a counter trend position. So, we try to put more probabilities in our favor, especially on the short side, because for the most part, the market is in a bull cycle. So, we know that um, you know, even when we have a weaker tape, uh, that the bias over history is still higher. So, we're kind of fighting that bias. Wh what's the opposite of don't try to catch the falling knife, right? Like don't don't try to short a rising rocket or something like that. >> Well, and it's a great point. I even actually use this u phrase today with a client on the phone. We talked about a false breakout or like a whipsaw higher, something of that nature. We we always talk about shakeouts on the downside. So the the word shakeout stands for shaking out the weak holders of that security. >> Right. Right? So it's almost like the reverse of that would be, you know, it's the buyers that are kind of too late piling in and then all of a sudden they just get burned. Right. Um so so the phenomenon happens on both sides of the market. And what tends to characterize those false breakouts would be non-confirmation, right? So we that's that's our essential uh tool is to wait for the breakouts to be confirmed. But also if you see gaps up uh later in a rally like it's a strong rally and you get a gap up after a couple weeks uh that tends to be exhaustive. They call them exhaustion gaps. That can be a setback too. And >> because gaps like to be filled, right? >> Yeah, they do. And uh especially if you see that security fall back into the gap really quickly, that tends to be another setback. So there's nuances and there's even and we don't use them ourselves, but if you are a technical analyst who's using candlestick charts, there's candlestick price patterns that are only one day in duration. And what they're usually identifying these reversal patterns would be basically a weak close relative to a high low range. So, if you see a big run up and then you see like a terrible close, >> um, that can be indicative of of a change of hands, too, in the same way that it is on the downside. I mean, go back to the April low and look at the the price bars around there and you'll see, I don't know what you would call it necessarily in the candlestick world, uh, but these sort of hanging price bars that look like they are, uh, you know, exactly when demand shifted. >> Yeah. Yeah. uh where they that the the day hit a big range but ends up closing up way near the top. Right. So you have that really long tail. Yeah. >> That that climactic behavior. Um you could argue that we have some climactic action right now with these headlines that you've been citing. So I would say that the there's some um you know exuberance out there. We we see it in some of the investor polls. Um but it could be crazier honestly. We've seen it ourselves. you know, if we're talking about San Francisco in the late 90s, um I I saw it then and it can get more exuberant, right? So, um you know, we we are just going to wait for that momentum shift. >> Okay. So, let me um let let me ask a potentially uncomfortable question and feel free to pass on it, but um as I understand you are a technician's technician, as you said, you know, you you you're dealing with the market we have, not necessarily the market you think we as it should be. Um AI uh is just such a monster uh trade right now and it it has pulled the market along for now many years several years and we're getting to these valuations that I got to think you and I would probably not have believed if we had been told this a you know a year or two ago right um back to my point about um the skeptics's views of the valuation right of of of how stretched they are from fundamentals. Um I guess two questions for you but they're really the same question is you know a is AI in a bubble but but what I the maybe more more sensitive question is is putting aside her technical hat for a moment how much does Katie Stockton believe in in these AI valuations today? Um yeah so that that well and that's completely a fair question by the way because it is so topical and uh even in our uh one of our newsletters today we have an idea generator on substack uh we talked about uh trying to find an idea outside of the AI trade is something that's interesting and it's not that easy frankly so so we're looking for momentum um but when you can find it um you know it's obviously compelling right when it's X AI because you do feel like AI is so overdone in a way in terms of the the followrough that we've seen and yet um you know the trends aren't all parabolic across the space. There's definitely some that look really overdone without question. uh you know, when you have a really steep up move that's nearly uninterrupted, uh well then you just better be careful, right? Because um if you were to wait for the moving averages to roll over, you're probably already uh pretty deeply in the hole. Uh so we would just make sure uh you know, if we're investing in that space to have some kind of way to manage risk, right, of a of a big retracement. It could just be a trailing stop-loss or you know, using the demark indicators, whatever it may be. Um, but I don't think it's a bubble. It doesn't feel to me like it did feel um before the March 2000 peak. Um, and that was the.com bubble of course and that's when I feel like I would come into the office every day and stocks would be up three, four, five% even in a day and it happened for a long time. So while we are getting big gains, it doesn't seem quite as explosive nor necessarily as parabolic from a top down perspective as it did back then for me. So I just that's just based on a feel. Um I'm sure we could run some numbers on that and some analoges, but it it just doesn't have that same feeling to me. >> Um you know, talk to me when momentum shifts. you know, if we have some kind of inverted V to talk about, then maybe I'll change my mind after that. Um, but as it stands, it doesn't have that that same technical characteristic, I feel like. Um, in terms of valuations, honestly, I have no idea. Um, I don't study the fundamentals of these companies. I see the use cases. I'm like really excited and intrigued by AI and we're already using it here in house, not not for writing yet, but more for back testing. Um, so it's been a great tool for us. Um, so I, so I see the upside. Um, but of course, you know, in terms of monetizing that, that that's another question, right? Are the companies doing a good job? There's so much more to it than just AI and its upside, right? It's it's how are the companies navigating it and actually generating revenues. So, so that's not my area of expertise, but I I will say, you know, my guess is same thing that did ultimately happen with the dot bubble was that it, you know, there were survivors, right? There were very strong companies that survive that and came out the other end and we're still talking about them today, right? Like Amazon. Uh whereas there are probably a lot of names that we've already forgotten as well. And I think that that's probably the case here too with the the AI trade in that there's a lot of names that will just not be around um in a few years if not less. Right. So it's a matter of kind of separating out the quality players in the space. I think that's going to be increasingly important with the gains that we've seen. >> Yeah. Well, I think the the question that's on the mind of a lot of my viewers is I mean, I'm sure you can have a debate, but I think most people probably say, "Yeah, AI is there's real there there just the way there was there there in the internet during the dot boom." But the.com era just went bananas and pulling tomorrow's value into today. And we needed a long period of time before, you know, the market really realized that value, right? And uh you know NASDAQ famously what was took 15 years or so to get back to to to break even right? >> Yeah. >> Um so I think >> yeah so I think the fear that people have right now is twofold. Um it's one a lot of people think that that's going on right now. Is it to the.com extent or not? No nobody knows right. um but that there could be a pretty big you know correction in AI when people realize you know it's going to take a lot longer for companies to start really monetizing this to justify you know their current market values but secondly tied to that is unlike the dot bust which was kind of largely contained to the NASDAQ and and in those companies there's just so much of the indices now that are made up by these companies and there's so many ETFs out there that no matter what the ETF says, its main holdings are MAG7 companies. And so it's a sense of just the collateral damage that a material correction in the AI space could wreak across, you know, portfolios of almost every stripe. Um, and I'm not trying to say that this is definitely going to happen and I'm not trying to spook anybody, but I do see it as a really valid concern. And of course, the big question is, well, if it is going to happen, when? and nobody knows that. So, I'm not going to ask you that because it's just not knowable. But, but how much of a concern do you have for for that concern that a lot of my viewers have? >> Yeah, I think I definitely share the concern and and we're already in a way kind of spooked by the action because we haven't seen a pullback of any magnitude since April and that's a a very long duration. So it certainly feels like there's a dynamic at work here, something that's more related to market structure uh than it is just simple uh you know price momentum or market sentiment. So without question there there's some dynamics that we probably can't measure all that well but we know that the ETFs out there the passive ETFs especially are exacerbating uh the momentum and behind the biggest players mo most obviously and that can be problematic when it does pivot of course because when they pull they have to pull all at once they have to stay aligned with the the uh price action so that can be really detrimental to people's portfolios. So the way we um rather than being fearful and trying to predict exactly when that happens because as you said nobody knows we are all about uh building a portfolio that can withstand it and also as we recommend in our research at times being hedged to that exposure. So there are ways to navigate uh you know a big corrective phase or even a a bare cycle which if it is a bubble and that that's unfolding then then yes we will have a bare cycle uh whenever that that unfolds you know we want to be ready um you know from a I guess portfolio management perspective to navigate that and not you know lose half the value of our portfolios. Mhm. So okay and I I from my take here in the cheap seats at fair lead you you kind of take a twofold approach one is okay let's construct a portfolio that is riskmanaged right so that we can absorb any catastrophic failure in any one part of that portfolio but then also your your bread and butter is watching the market technicals and so there's a sense of like okay we're going to kind of know as we're going into some sort of big correction or something like that. So we'll be able to start making real-time portfolio adjustments to minimize our vulnerability to it. Am I capturing that correctly? >> Yeah. No, it's right. So we're almost like adaptive or reactive in how we are positioning. Um but we do that in a systematic fashion. So it's not us sitting here and saying like I you know it feels like momentum is shifting. It's it's actually measurable for us. We're using technical indicators that are mathematically based and they give very clear signals especially when you combine them as we do in our models. So it it's um a systematic approach to risk management but also to leverage the momentum and the relative performance in certain segments. So it can serve both of those roles at you know at the same time. We often are differentiating between uh like core long-term holdings and portfolios. We we have been saying because we've had a long-term bullish bias in our work. We've been saying for uh a long time just, you know, stay with your core long-term holdings, especially the ones that have not seen a meaningful loss of momentum. You know, look beyond any corrective action for those. Whereas for the more opportunistic and/or higher beta positions, right, that that are there to supplement those core long-term holdings, those are the ones that we're more inclined to address in our positioning, right, when when we feel that there's a corrective phase. So, uh, we're pretty clear to to keep that core as long as we feel that we're not in a bearish cycle. And um even in a bare cycle, there's portfolios that are designed to manage through that, right, with either alternative asset classes or ways to navigate the overconentration that you highlighted in the the major indices. So, so there's ways to get around it. Um you know, some of those ways may limit your upside if you have hedged equity products. Sure. Uh but listen, if you're a long-term investor, we're we're more interested in uh you know, not the high-flying moves necessarily, but but steady gains and limiting draw downs. Because if you limit the draw downs, not only are you digging yourself out of a less deep hole when you come out of things, uh but you're impacting your portfolio favorably over a long period by just, you know, not letting that equity curve dip dip dip, >> right? So, so we're big believers in long-term investing if you can. >> Okay. All right. Well, look, um, given all this, um, where kind of are you right now on an allocation basis? >> So, we have one ETF that we manage. It's called the Fairle Tactical Sector ETF or TAC TACK. It is long-term in focus. It is treated oftentimes as a hedged equity type of product by advisors. uh but its design is exactly to follow long-term trends and momentum on the sector level using an equal weight bias but then also to use asset allocation to manage drawdowns and rotate into other uh areas of global markets that are doing better than equities especially during those really big bare cycles. When we launched the ETF it was in 22 which ended up being a pretty big bare cycle for the S&P 500. We spent most of that year in just one sector which was energy and it was really kind of the only sector that was substantially in the green for the year. So there are years like that and we had the flexibility to leverage those. We've been mostly full in our equity sector exposure of late. We actually have only one slice of our pie which we have uh equal positions eight of them at about 12 a.5%. So, one of those 12 a.5% buckets that we have has been designated um currently for short-term treasuries, long-term treasuries and gold. And those things can serve as a buffer, right? If you see a corrective space and um and then, you know, attack will adapt if the long-term momentum deteriorates further behind more sectors, >> meaning that they get kicked out of the portfolio. But for now, it's pretty riskon. um with that one sort of piece there there's probably um the obvious sectors that aren't included like energy would be for one now. So to contrast 2022 energy just hasn't been great. You know it's been trending uh sideways to lower when uh of course technology and others have been trending very much higher. So it's just rewarding those long-term trends and with through the equal weight positioning and uh through also that asset allocation the TAC portfolio tends to be quite low beta meaning that it's not you know going to be exceptionally volatile on the upside or downside and then also it's maintained a low correlation to both the S&P 500 and its proxy which is the Russell 1000 equal weight index. So, it's a a pretty unique product in that sense and it it serves a very good role in a portfolio as one of those core long-term holdings that hopefully you just don't have to worry about. Um, but then in a very strong tape like we have had, we have been telling advisers to supplement, right? You want to supplement with the AI trade with things that have been working, so those higher beta positions until they stop working. And then you want to make sure you build some cash to put back to work uh when you know the consolidation or corrective phase uh you know seems to be mature. So we like to have a piece of a portfolio that is reserved for that more opportunistic positioning but a good core long-term uh you know portfolio like attack to serve as a foundation. >> Okay, great. And just to make it practical for the viewers, um, if you basically want to have a portion of your portfolio managed the way that Katie manages, uh, at Fair Lead Strategies, you can just go buy TAC, uh, you know, through your brokerage and, um, just let it ride. >> It's a good way to put it. Yeah, we >> Yeah, it's it's easy to access, list it on the NYSE. >> Great. Yeah. And now obviously higher net worth family office type clients can reach out to fairly strategies for more customized uh management. Correct. >> Yes. So we do actually have a a great research business. We do research and consulting for individuals all all the way up to the biggest institutions. So anyone who's interested in technical analysis by all means should should come our way. Um because we we do um have the ability to create model portfolios and things of that nature. >> Okay. And that's going to your website. >> Yep. FairleadStrategies.com. >> Okay, great. And when I edit this, I'll put up the URL to Fairle. Also put up the um ET the ticker for TAC and stuff when you had mentioned it earlier. >> Yeah, thank you. >> No, no, no, no. Thank you. Okay. Um All right. So, uh you mentioned a couple of specific assets I'd love to get your quick thoughts on. Um gold. You mentioned gold. Gold had one of these breakouts. um as did silver. Um and uh it it has corrected since then. Um I I've read your recent research reports so I know your latest thoughts on this, but could you share them with the audience here? >> Yeah, of course. So gold has been of course very topical lately because it had a parabolic up move of its own and now has retraced and it's that kind of dramatic pullback uh that puts people on edge. But in reality, it's just come back to where it was a few weeks ago. So, it's it's not that dramatic on the chart when you zoom out on the monthlies for both silver, gold, and and other precious metals. Um, but we do think it will continue, and that's based on the overbought downturns that we have on the weekly bar chart. So, it's a it's more than just a daily bar chart issue. It's a weekly bar chart issue. And so, we think it will stay with the market here in the near term. I wouldn't get too caught up in whether that means risk on or risk off because gold has been um in a world of its own. It's been acting more risk on of course right at times even when you would expect it to be more risk off. So it it's just uh forged higher. So um the breakout that we saw last in gold the target from that in the same way that we had 6880 for the S&P the target from the breakout in gold had already been exceeded. So we we're left without having an upside objective, but when we get the pullback generating an intermediate term oversold reading, that's when we get excited to add exposure to take advantage of the long-term uptrend again. So that's what that will go from, you know, calling the pullback mode into, okay, now we want to find our re-entry. And I don't think we're there yet, but probably based on our uh indicators, we would expect to see that opportunity present itself before year end. Okay. All right. So, in the near term, wouldn't surprise you to see gold show more weakness, but you're still more optimistic long term, and you're just kind of waiting for that entry point. >> Yeah. And the uh stochastic oscillator that we use is one of the best ways to time those re-entries. So, even though a lot of people will be inclined to say, well, what level do you want to buy at? You know there is support of course just shy in fact of 3500 for the price of gold but rather than use that as sort of a buy limit order or something like that we recommend people watch these indicators and watch for stabilization. And so we don't want to just know where support is because then you know if it's coming down there and it's it's a falling knife uh we don't want to add exposure into that but rather once you've seen a little stabilization and that will show support discovery it shows buyer stepping in and then it manifests itself in those indicators. So we recommend using the indicators as a way to understand if the support is meaningful. >> Okay. All right. Now heading over to energy um which you said you guys had been big into during 2022. um you know oil and gas the main fossil fuels um you know it's a boom bust industry right um so you kind of know wherever it is on the boom bust cycle it's going to go the other direction at some point right and so um energy has been out of favor all year as I think you mentioned um world still runs on oil um you know uh oil demand goes up every year right that looks that seems to show no uh no signs of stopping um with all the excitement about AI. Um you know, we've we've seen some sectors like uranium and and nuclear stocks uh go bananas. Um but surprisingly, the the the fuel that's probably going to power most of these data centers over the next bunch of years before we have all these brand new reactors is going to be natural gas. But again, you know, market hasn't really been that interested. Um, so it it seems to me again from the cheap seats that at some point here market's going to care the world's going to care about oil again. Market's going to care about oil again. Um, how do you determine if if you agree with that general thesis, which I think you probably do, but correct me if I'm wrong. Um, how do you determine when it's time to to buy these stocks while they're cheap? >> Yeah. And we look at crude oil first. So that's going to be I think the primary source of our views on the energy complex and that goes for any kind of like leveraged ETF. We always start with the source you know people like to trade boil as one right which is an inverse um natural gas fund right. Yeah. Yeah. So so we watch that um you know we but we also watch the underlying commodities. So natural gas, we'll watch crude oil and not until we feel like we've got a real advance underway there would we think about building overweight exposure to the energy complex, right? Because you want that tailwind. Uh they are positively correlated. So with crude oil prices, we'll watch very closely for signs of a long-term bottom. And the long-term oversold reading that we had in I think it was um March, April was pretty meaningful on the monthly chart. So that again puts us on lookout for signs of a bottom. And we do have a counter trend buy signal. That's in contrast to the one that we have in the S&P 500 on the sell side. Uh we do have one that's not confirmed yet. So it's still low conviction, but it's occurred at a higher level than those uh springtime lows for crude. So there are some early potential indications that a bottom is being established in that sort of 55 plus range for crude oil prices. And if we see momentum shift, you know, more meaningfully to the upside, well, that would be something that would draw us to the energy complex. And we'd probably also see in that the uh relative strength would start to turn even before we see the rotation into the stocks themselves in absolute terms. So you look at the ratios of say a chevron versus the S&P, you might see that ratio start to tick up. And that's that's often your best opportunity to add to stocks that you would consider to be kind of like turnaround plays, right? Or ones that are downtrending. So a little higher risk and counter trend. It's when their relative performance starts to move higher or you know improve meaningfully. That's when we get pretty interested in in that. So so we're starting to see that here and there within the complex but I think it's a little bit early to be convinced that it's a lasting shift. >> Okay. If somebody right now didn't have much exposure at all to energy, would your advice be get a core position and then keep your eye out for that material momentum shift and then start committing real capital? >> Um, so you can do that. It's not one of our recommendations presently because we don't have enough evidence that a turnaround is underway. We just have a downtrend still for the most part. As much as we have some signs of downside exhaustion, you can really see it in the ratio of like an XLE to the S&P 500, uh, but you can always buy something that is counter trend as long as you have a stop-loss in mind, right? I would just really adhere to those stop losses because in a counter trend setup, your risk is heightened. Um, so I would have some kind of mechanism to manage risk. And it could just be you take the the recent low and you say, I don't want to see it close a couple weeks below that. That's my stop-loss. Takes all the emotions out of it. You don't get married to a position that way. And um I I don't see any problem with that. But you for that for the sector as a whole um I would probably wait myself um and if I see some stocks maybe individually that seem to be doing better in relative terms that would probably be the first place I'd go as long as crude starts to move. >> Okay. All right. Thanks. Um so uh two last questions for you. Um, the last one is going to be, um, is there anything else that's burning brightly on your radar that I just haven't thought to ask you about? Um, but before we get there, bond yields. Um, so, you know, as we kick this conversation off, we know that the Fed just cut another 25 basis points. They've just ended QT. Um, we have after a a stubborn, you know, almost 11 months, uh, the 10-year has now finally dropped below 4%. We know the administration would like to see it a lot lower. Where do you think the trajectory of bond yields will be in 2026? You know, we actually think a a breakdown is underway in yields because you can draw a big triangle formation on the 10-year chart and you can see that it's it's penetrated the lower boundary of that triangle in yield terms and it's right around 4%. It's actually ticked up a bit and um I know that we're trading right on it right now. I just had to look again just because of the volatility, but um it is being tested hard. We think it's a breakdown underway and that that breakdown will go from sort of a neutral yields bias to a downward yields bias with next support around 367 in our work. So we are respecting the sort of cyclical down move right now in yields is likely to continue but we're viewing it within a a secular uptrend because the longerterm metrics things like our monthly cloud model do point higher and those would suggest that we will see ultimately another big low established and higher yields from there. So, we don't want to get two steps ahead, but uh we feel like the uh 4% level is in jeopardy of breaking just based on the downside momentum and the the breach of that triangle boundary. >> All right. And when you say higher yields eventually, are you talking like at some point in 2026? Are you talking like all right, we know over the next we think over the next 10 years yields are going to go higher and and and that's what you mean by higher yields? >> Well, it could certainly h happen in 26. We we don't know when it will happen but um so the secular uptrend would suggest that over the coming years. So it is um you know a very long-term trend within that context you can have a year two years in the opposite direction but it would tell us that let's say five years we should be higher than where we are now. >> Yep. Okay. So you're sort of in the Jim Grant camp of the 40-year bond uh bull market kind of ended around 2022 and we're in a new secular cycle. Yeah. Yeah. >> Anything can happen in any given year, but over the scope it's going to be rising. >> Yeah. I mean, if you go back, you can draw like a multi-deade downtrend channel on yields that has been reversed. >> Yeah. >> And so that that I think is pretty meaningful. It may not be meaningful over the next few months or even a year, but um I do think it's meaningful longer term. >> Okay. Great. All right. And then to that final question, is there anything burning brightly on your radar has your attention that's worth talking about that I just haven't had the wherewithal to think to ask you yet? >> Um, you know, there's a few things. We're we're watching financials and real estate pretty closely. Uh, financials have had really pretty terrible relative performance of late and banks, regional banks have been the culprits there largely. Yeah. So, we're discouraged by the action in the banks from a technical perspective, but maybe some people could infer that there's more to it from a macro perspective there. And a client today said, well, gosh, you know, take a look at at REIT proxy today and and we've seen a really big pivot to the downside that may reflect sort of credit concerns, right? So, I think that that's something, you know, if you're more of a macro strategist or investor, uh, that that should be on your radar, uh, to keep keep an eye on the credit markets, make sure that you feel like, uh, there's no big risk there. Um, so those are things that that are not technical, but certainly can land themselves um, and stock prices in relative performance. Um, and then I'd finally just say the VIX, the volatility index can be really helpful and informational. Um, we're not very keen on the VIX products for hedging, although we're guilty at times of recommending them just from a very short-term duration. But, >> um, when we look at the VIX itself, it's a great way to manage risk and to do so also with a an unbiased perspective. So we've been uh you know since we saw the initial spike we've been sort of in the mindset that we'll see an aftershock in the VIX. And for us the support level that we're watching is defined by the cloud model that we use and it puts support right around 16.4 for the VIX. So as much as we're watching the S&P we're also watching the VIX. >> Okay. All right. Um I'm just my notes here. 16 you say 16.5 was sort of the >> 16.4. Okay. Yeah. All right. Um All right. Well, as usual, Katie, uh this has just been a completely uh en enjoyable and as I like to say, financially nutritious, uh discussion. Thank you for being so generous way to put it. Of course, I'm happy to. And it's it's probably a good time to be having the conversation. Even if it's not >> the most decisive time, it's like there's just a lot uh going on, right? >> Yeah. Well, what I'd love to do is um is have you back on in Q1 and just kind of give us an update on all these things. Hopefully, we'll have the dust will have settled on some of these things. You'll have a little bit of a clear view of what 2026 might look like. Um, and of course folks in the interim, uh, if you would like to, uh, actually, you know, take advantage of of Katie's work, um, either go, uh, seek out her research there at at fairly strategies.com, um, or just write her coattails and, you know, buy the TAC ETF and, uh, and and benefit from that. Um, all right. Well, look, um, folks, please join me in thanking Katie for being so generous with her time, her insights, uh, and the specifics of how she's allocated. And please do that by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. Um, if you would like some help uh above and beyond um the resources that Katie offers there, maybe um you know talking with one of the financial adviserss that Thoughtful Money endorses, the firms you see with me on this channel week in and week out about some of the the trends, opportunities, and risks that Katie talked about and to find out which ones might be relevant given your own personal situation. Feel free to talk to one of the financial adviserss that ThoughtfulMoney endorses. Uh to do that, just fill out the very short form at thoughtfulmoney.com. Katie, I'd love to uh give you the last word here. You know, most of the we just had our um fall online conference, which was fantastic, and I would love to have you in one of our conferences next year if you have the interest and the availability. Um but most of the people who are watching, we definitely have some professional investors that participate, but most are just regular people, you know, that have worked hard or continuing to work hard to build wealth, to provide for their families. They want to prudently grow their wealth, but probably more importantly, they don't want to get blindsided, you know, by by one of these risks that you and I have talked about. What would your parting bits of advice be to them? >> Yeah, I mean, always just don't get married to a position and try to take the emotions out of it, which of course the charts let you do in a way like always, you know, have a level in mind at which things will change for you and to maybe keep yourself honest. Write it down when you take that position. And you can't really argue against the uh prices, you know, price really matters. So um you don't have to be a sophisticated technical analyst to see when something is breaking a support level. And I just encourage folks to use the charts to their benefit. >> All right. Well, very well said, Katie. Can't thank you enough. Thank you so much for coming. >> Good to be with you. >> All right. And everybody else, thanks so much for watching.