Episode 242: The Bearish Thesis

In this week's episode, David and Ian discuss the bearish sentiment among market participants and some of the mixed signals within sentiment indicators. They also discuss how a bearish move in the market over the near term, does not necessarily mean that there will not be gains within the market by year end. 

Transcript

david_1_02-21-2025_105629 0:26

Welcome back to the Weekly Trend Podcast. Today is Friday, February 21st, currently sitting at 6081. I'm David Zahrling. I'm here with almost baseball season, or is it baseball season, Ian McMillan.

ian_1_02-21-2025_115632 0:41

Yeah, it's college baseball season.

david_1_02-21-2025_105629 0:43

Yeah, college has started. High

ian_1_02-21-2025_115632 0:45

College,

david_1_02-21-2025_105629 0:46

the

ian_1_02-21-2025_115632 0:46

yeah, this will be the this will be the second weekend for college baseball series.

david_1_02-21-2025_105629 0:51

South Carolina looking good.

ian_1_02-21-2025_115632 0:54

Yeah, I'm in the 5 0, so

david_1_02-21-2025_105629 0:56

Dang,

ian_1_02-21-2025_115632 0:57

I guess you can't can't complain with undefeated. I wouldn't say it's been super pretty, and you know, this time of year you get pretty subpar competition. But, yeah, 5 0 is 5 0.

david_1_02-21-2025_105629 1:10

it is, man. You gotta pick up the slack for the basketball team.

ian_1_02-21-2025_115632 1:13

You do. Terrible. Just terrible.

david_1_02-21-2025_105629 1:16

Well, at least you have a baseball team.

ian_1_02-21-2025_115632 1:18

That is, that is true. Don't want to take that for granted.

david_1_02-21-2025_105629 1:22

Yep. UW Madison, no baseball team. Kinda sad. But their hoops team is good. Maybe you can only get one or the other. You only get baseball or you only get basketball. I don't know. I don't know how it all works. We have plenty to cover this week, market related. Where would you like to start?

ian_1_02-21-2025_115632 1:37

Yeah, so Interesting, we, I mean, I guess I feel like 50 percent of the time I start off with that. Although to me, Mark, it's usually pretty interesting no matter what happens. Did hit all time high on the S& P I believe that was Wednesday.

david_1_02-21-2025_105629 1:57

Is that the second or third one this year?

ian_1_02-21-2025_115632 1:59

Second. Yeah. Second closing. All time high. And then yesterday, a lot of spookiness. Some bigger names. More popular names. Down a lot. So. Shot across the bow, maybe. I don't know. Markets have responded okay so far.

david_1_02-21-2025_105629 2:17

Yeah. It's an interesting environment because we're only a few points away from another all time high,

ian_1_02-21-2025_115632 2:24

Mm hmm.

david_1_02-21-2025_105629 2:25

but yet we've got surveys showing like a bull bear spread AAII.

ian_1_02-21-2025_115632 2:31

Yeah, pretty bad.

david_1_02-21-2025_105629 2:32

pretty negative.

ian_1_02-21-2025_115632 2:33

It is negative. I think it's fascinating. You know on the statistic you're referring to from Dietrich I don't have it up in front of me, but I think it's something like bulls less than 30 percent for three straight weeks But you're like, okay So when we've had that read, I mean, that's not a rare reading people are super bearish. I mean that You Happens it's happened 137 times in, you know, since the survey's been started. I won't say market history, but since this survey has been started, 137 times we've had at least three weeks with AAII bulls under 30%. The average of those 137 bulls Or let me rephrase that in of those 137 instances on average when those are recorded think you said we were like 18 off the highs And here we are one per I mean not even one because it's not this data wasn't taken yesterday so, I mean we're At all time highs, you know, I guess probably the data was taken last week, but still yeah, I mean just fear out there amongst investors that we've never seen in this type of market environment. The fear has happened before at these levels, but usually we're in the midst of a pretty big sell off.

david_1_02-21-2025_105629 4:06

Right. Well, and like, you know, it was just three short weeks ago or Morgan Stanley. You know, I was worried and we're telling stocks to get diversified and cut back on stocks. You know, you had a wall street journal headline recently. That retail is panicking.

ian_1_02-21-2025_115632 4:21

Yes.

david_1_02-21-2025_105629 4:22

And then it's a juxtaposition though. Cause I know Callum Thomas who shares great charts. He also that,, fund manager cash is the lowest it's been in 15 years.

ian_1_02-21-2025_115632 4:32

Wow.

david_1_02-21-2025_105629 4:33

So are we, is this a case of. Kind of like polling where people are saying one thing. Yeah, I'm bearish, but I'm fully allocated.

ian_1_02-21-2025_115632 4:40

Yeah, could be.

david_1_02-21-2025_105629 4:42

And, and we also have a situation in our hands where Bollinger bands on something like the S and P are

ian_1_02-21-2025_115632 4:49

Very tight.

david_1_02-21-2025_105629 4:50

I know Louis Spector, one of the nicest guys in the universe. He's one of my favorites because more people should follow what he puts out there. And for what reason, that's not the case. And he's just a true gentleman and post good charts. But here we have this narrow compression and we know that from compression comes expansion and it'll be really telling to see directionally Which way we go

ian_1_02-21-2025_115632 5:12

Huh, I agree.

david_1_02-21-2025_105629 5:15

and we have a situation Barchart shared this information that we have the largest short positioning since July of last year

ian_1_02-21-2025_115632 5:22

Ugh, great. Yeah, I don't like hearing that.

david_1_02-21-2025_105629 5:26

and then Andrew Thrasher's, you know he he won a Dow award on his paper about the volatility tsunami about how Dispersion in the VIX, a measurement of volatility. When that gets narrow, that you have the potential of a VIX spike ahead. It's not a predictor. It's just saying, Hey, you know, we've had a bunch of sunny days. The odds of a storm coming are a little bit increased.

ian_1_02-21-2025_115632 5:49

Yeah?

david_1_02-21-2025_105629 5:50

Think that a thesis that exists, right. Cause we've been in a consolidation basically since the election

ian_1_02-21-2025_115632 5:56

Yeah. I

david_1_02-21-2025_105629 5:57

and the market. the S& P 500 had moved 70 percent off of the October 22 lows. You've consolidated since November.

ian_1_02-21-2025_115632 6:07

mean, Roscoe's below. It's,

david_1_02-21-2025_105629 6:09

Right.

ian_1_02-21-2025_115632 6:10

it's below where it was Tues so that mean that Tuesday close. Right? The election happens, you get the gap overnight. But yeah, Russell, below Hmm. Terrible.

david_1_02-21-2025_105629 6:25

I do, I do think that, I do think that election night price level is important.

ian_1_02-21-2025_115632 6:30

I think so.

david_1_02-21-2025_105629 6:31

it's a behavioral mile marker,

ian_1_02-21-2025_115632 6:33

For sure. I mean, it's better than using January 1st.

david_1_02-21-2025_105629 6:37

right?

ian_1_02-21-2025_115632 6:38

Definitely something you could put an anchored VWAP on.

david_1_02-21-2025_105629 6:42

And so you do have a situation where high levels of shorting volatility, at least relatively to the last year, you have a compression in the market, you have negative sentiment, but not necessarily negative positioning. It's going to be interesting to see, and we're heading into a seasonal part You know, basically Valentine's day is when you start to see

ian_1_02-21-2025_115632 7:01

Mm hmm. With

david_1_02-21-2025_105629 7:02

the second half of February, not very strong, and we've got one week left in February, but I also know recording an all time high in February is a big deal. Which we did, you know,

ian_1_02-21-2025_115632 7:14

it.

david_1_02-21-2025_105629 7:15

yeah, that's one of those things where,

ian_1_02-21-2025_115632 7:18

Set a big statistic.

david_1_02-21-2025_105629 7:20

so Wayne Whaley, inventor of the Whaley breath thrust, he talked about when the S and P hits an all time high in February, the majority of times that that happens. Out of the last 22 years, 19 times it's finished higher for the year, and they're all double digit.

ian_1_02-21-2025_115632 7:41

Wow. That's fascinating. Hmm.

david_1_02-21-2025_105629 7:44

being 2015, 1987, and 1966. So we'll see. We'll see.

ian_1_02-21-2025_115632 7:51

I'd take it. Feels

david_1_02-21-2025_105629 7:54

Well, and

ian_1_02-21-2025_115632 7:55

tailwindy.

david_1_02-21-2025_105629 7:56

it does, and here's the scenario, like, I, probably the most bearish in a while that we've started an episode. And time frame matters. Even if we have a move down to the election gap or a 200 day, it doesn't negate some of these possibilities. You can be tactically near term, a scenario, a thesis unfolding of a brief correction that doesn't negate the bigger picture for the year. Of positive returns. So I want to be careful what we're highlighting that doesn't necessarily, even if we get continuing corrective behavior next week, that doesn't negate the possibilities for the rest of the year. You know, if we get a close below a 200 day on the S and P fine, that that would be a step to take. And

ian_1_02-21-2025_115632 8:44

Mm hmm.

david_1_02-21-2025_105629 8:45

while uncomfortable, right. Cause that's about percent away. Then, you know, if we're

ian_1_02-21-2025_115632 8:50

Why does

david_1_02-21-2025_105629 8:50

5,

ian_1_02-21-2025_115632 8:51

so much, why does it feel so much further than 6%? I guess you never, yeah.

david_1_02-21-2025_105629 8:58

Cause I mean, it's been a good ride. It's been a good ride since late 2023.

ian_1_02-21-2025_115632 9:02

Yeah. Pretty steady. Not coming, really coming off any bottoms anymore. Like a July 23, you're at 11 percent off the 200 day. March 2024. You're 12 percent off 200 day. And we did have corrections after that short summer, fall 2023, a little bit harsher last, you know, what was that like April and then one into the July highs, we were again, 12%. So twice last year, we made it all the way to 12 percent off the 200 day moving averages are really strong rallies. Here we are six percent off pretty low vol. I mean like right what we saw in 2017 So far got a long way to go, but so far similar 2017 And yet, you know, we've got these statistics That are showing just how bearish people are They're saying they're bearish right to your point, maybe not positioned that way but and I kind of get that like every you know, like these monday morning gap downs or the The Palantir move this week. This immediate reaction of, Oh, this is it. Oh, this is it. Oh, told you, told you it was, stocks are too overvalued. Here we go. And I don't, I'm kind of willing to bet that we ended up making our way to another all time high somehow. Sooner rather than later.

david_1_02-21-2025_105629 10:26

Yeah. Sometime this year.

ian_1_02-21-2025_115632 10:28

Sometime this year. Could we get a 2015 2016 maybe? Sideways for a bit. We were talking about, I mean, it's been a good run. For 18, 24 months. And while we don't manage money on the mindset of well, it's made a lot of money. It's been a good run Maybe we should take some off the table. That's not how we manage money at client first For trend followers there are people out there that do care about you know, worries over economic policy and, you know, are those people taking money off the table?

david_1_02-21-2025_105629 11:00

Am old enough to remember tariffs were a topic the whole time.

ian_1_02-21-2025_115632 11:06

Yes, yes.

david_1_02-21-2025_105629 11:07

And

ian_1_02-21-2025_115632 11:08

And the market went down. Terrible year for the market.

david_1_02-21-2025_105629 11:11

well, 2017, 2017 was great.

ian_1_02-21-2025_115632 11:14

I know, I know. And that's, I mean, don't we have that same, just like every hot, every headline is, Some spook job, and then, you know, you go on a couple more weeks, and wouldn't you believe it, broad markets have found another all time high.

david_1_02-21-2025_105629 11:31

well, and the, the beauty of setting supply and demand and using technical analysis is. Okay, step one, if we can't hold these highs that we've created, there's not enough demand to do that. Well, the next logical level would be around 5870, which is the 12 31 24 close and the election gap. Then the next level would be near 5770, 5780, the low from the year. And then you have the 200 day moving average of 5700, which is also. Lowe's from the 20 November and October of 2024.

ian_1_02-21-2025_115632 12:09

Yeah.

david_1_02-21-2025_105629 12:10

So it's not, it's not like the market doesn't have levels that it can show us where potentially you're going to see. Risk increase that sellers have control.

ian_1_02-21-2025_115632 12:21

I don't even want to find out.

david_1_02-21-2025_105629 12:23

Yeah. Same.

ian_1_02-21-2025_115632 12:24

But, I mean, we do have to eventually.

david_1_02-21-2025_105629 12:27

Well, and let's, let's not, you know, if, if,

ian_1_02-21-2025_115632 12:30

Gotta have some price discovery at some point.

david_1_02-21-2025_105629 12:33

and we've only had since November of 2023, three negative months in something like the S and P 500.

ian_1_02-21-2025_115632 12:40

Wow.

david_1_02-21-2025_105629 12:41

February, if February ends up closing lower than the January close, and you have quote unquote, a negative month. Okay, so the one since November of 23, and I can only imagine if we test some of those levels So if we have this type of sentiment, which I would not call euphoria or optimism

ian_1_02-21-2025_115632 12:59

No way.

david_1_02-21-2025_105629 13:00

sent Yeah, no way I don't see it if we have negative sentiment out there and we do correct back into areas like 57 80 Or the 200 day moving average. Can you imagine the bearish noise and positioning? I mean, you'd clear out all the, cause you'd likely have a higher VIX at that point.

ian_1_02-21-2025_115632 13:23

Oh, yeah. Yeah.

david_1_02-21-2025_105629 13:26

shorts. You'd probably see some of that survey information turned into reality as far as positioning goes. You'd see it. You'd see a stacking of put buying. Cause I'll put buyers are future actual buyers when they have to cover. So you'd have all this shorting going on that would stack the firewood. could actually legitimately carry the market for if that happens. That's a thesis. If we were to go down to the 200 day moving average, 6 percent away. I can only imagine the bearish narratives at the

ian_1_02-21-2025_115632 13:54

It'd be so loud. So loud.

david_1_02-21-2025_105629 13:56

and the hedging, the bearish positioning that would be taking place, that all that is, is future fuel for buying when those have to cover. If the market moves against them, if we go down to the 200 day and then move higher, the amount of bearish sentiment and positioning could actually propel us for the next 12 months.

ian_1_02-21-2025_115632 14:15

Yes, it could.

david_1_02-21-2025_105629 14:16

So time will tell. And we've seen some, you know, it's interesting because on one hand you, you've, you've seen staples. I'll perform consumer discretionary recently. This is not a month development. It's the last few weeks. You staples, one of the best performing sectors this week, but at the same time you have something like biotech and you've got international specifically like China and some of the Latin American areas Poland. So it's not completely risk off you still have, you know, we're fans of, of looking at credit. That's it. And you look at like junk bonds versus intermediate bonds, still look pretty healthy, still look pretty good.

ian_1_02-21-2025_115632 14:58

Or is that J and K I E F?

david_1_02-21-2025_105629 14:59

Yeah.

ian_1_02-21-2025_115632 15:01

That looks fine.

david_1_02-21-2025_105629 15:01

Look at triple C spreads, they've ticked up there above a 50 day moving average, similar to where they were in, you know, December, early January, you know, maybe they've ticked up, but they haven't substantially higher. So maybe there's a little bit of a credit stress to look at, but you still, you still have. You just recorded a new all time high in several things, including like financials, you brought up the net, you brought up the NASDAQ. So we'll see. I mean, it's why we have price levels to work with. our clients are familiar with the tools that we use. And if the time comes where we're breaking below, Those levels and an important moving averages will be moving to protection mode. We're not there yet

ian_1_02-21-2025_115632 15:44

No.

david_1_02-21-2025_105629 15:44

because

ian_1_02-21-2025_115632 15:45

Hard to worry about anything for the last couple days.

david_1_02-21-2025_105629 15:50

right? Because bull markets, and this is the beauty, they consolidate like this, it's about what happens directionally to, you know, the thesis would be a consolidation of bull market should confirm directionally by breaking out of that range to the upside. And so we have, we have plenty of time for that still to be the case, though I know we're going on four months of sideways. Yeah. It's okay. I mean, after a 70 percent move, it's, it's perfectly okay for the market to move sideways for almost five months.

ian_1_02-21-2025_115632 16:22

Agree. Not as fun, but it is what it is.

david_1_02-21-2025_105629 16:26

Right? So what do you think about other areas like gold, crypto, commodities overall?

ian_1_02-21-2025_115632 16:32

Bitcoin still, Bitcoin itself, not a terrible week. It is likely going to finish green on the week. Still consolidating, still in this range. Between 92 and 92. 107. Big range. Gold you know, we've had a weaker dollar, I guess, most of the year. I was starting early January, dollar kind of peaked. It is strong I knew relative, kind of sitting at relative highs. If you're using GLD, depending, it's kind of a sloppy relative chart over the last three years, really. Towards the upper end of that range,

david_1_02-21-2025_105629 17:12

You know, I'll just go back to any, any bearish thesis at this point is near term

ian_1_02-21-2025_115632 17:17

yeah.

david_1_02-21-2025_105629 17:18

and the longterm uptrack uptrends are still intact

ian_1_02-21-2025_115632 17:21

Very strong uptrend on an absolute basis for sure.

david_1_02-21-2025_105629 17:24

and you, you know, you look at a GCC you know, continuous commodity index. it can hold its May 2024 highs, that would be very productive for commodities overall. But when you look at GCC versus S& P, it remains in a downtrend.

ian_1_02-21-2025_115632 17:42

Yeah, coming into some, what's that called? Trend trend resistance. Overhead trend resistance. But yeah, again, a great chart on an absolute basis. It is going up. You're making money off of it. Just not as much. Now it is, you know, it is up to date. Or, year to date it is up for stocks. But, we'll see. Not substantially. What do you think? You think dollars going lower?

david_1_02-21-2025_105629 18:08

well, it's back in the box, right? It's back, you know, back below 107, if that holds and stays into that range, it'll be interesting to see how stocks perform. Because, I mean, September, it's interesting. You know, the low in September of 24 through the high in January of 25, it is interesting how resilient stocks were during that period of time. And that if you were to fall back into this range for the dollar, what does that mean for stocks? You know, one thesis would be that would be very beneficial, but again, these things go in and out of correlation. So you can't sit there and say, that's for sure what's going to happen. Or do we hold here in the trade way to dollar and actually move higher don't know I wish I knew I wish I could I Could predict the future. I wish they gave me the information like that, but they don't

ian_1_02-21-2025_115632 18:57

Maybe we'll get to parity with the euro.

david_1_02-21-2025_105629 19:00

who am I

ian_1_02-21-2025_115632 19:02

We were there before back in what was that right near the bottom? Fair market bottom october 2022

david_1_02-21-2025_105629 19:08

right? So it'll it will be interesting what the coming months bring part of part of being an investor is sometimes you have to sit through consolidation and And it's you've gotten so used to the ride that was before

ian_1_02-21-2025_115632 19:23

Yes. Yes

david_1_02-21-2025_105629 19:25

and that and that feels good And now it's about being patient and letting the market deliver the information. It needs to deliver

ian_1_02-21-2025_115632 19:31

Well, and it's right and it's it's not like it's a clear sign that it says, okay Time to get off the ride. Time to get into the, the right lane.

david_1_02-21-2025_105629 19:42

No.

ian_1_02-21-2025_115632 19:43

it can be, it can be kind of weird and funky trying to navigate those periods where we are. You know, even if it's moving into just an uptrend and not the same, still an uptrend but not at the same rate of trend, if that makes sense.

david_1_02-21-2025_105629 19:58

Yep.

ian_1_02-21-2025_115632 19:58

that can be weird. That's

david_1_02-21-2025_105629 20:00

For sure. Yeah. Markets don't move in a straight line. And as, as, as good as strong uptrends feel, part of investing is having to sit through consolidations and this is where we find out who the real buyers are, who the real sellers are when these consolidations happen. It's all it is, is an auction process trying to, it's price discovery. It's trying to determine where the buyers are, where the sellers are. We'll say sellers take over control of this market. If that thesis is true, we'll see the price levels that were previously mentioned break to the downside. But at this point, that's not the case. there's really, I mean, there's about 6 percent volatility that you can count on and still have the bull market intact.

ian_1_02-21-2025_115632 20:43

Good way to put it.

david_1_02-21-2025_105629 20:44

So just the way it is. And before we, before we wrap things up, I do want to highlight the support of this podcast, the adaptive select ETF, which is listed on the New York stock exchange under ticker ADPV. Which helps investors access to the most prevalent factors in markets, momentum, and relative strength using proprietary identification methods. The adaptive select ETF attempts to own the strongest 25 large cap stocks. When the market is in an uptrend. since not all market environments are the same, Adaptive Select seeks to prevent extended clients by moving to short term treasury bills and cash during long term market downtrends. Investors can find out more, including how to invest in ADPV by visiting adpvetf. com calling 1 833 880 5200. As always, investing involves risk, including possible loss of principal. ADPVs distributed by Quasar Distributors, Anything else you'd like to cover or highlight at this time, Ian, we close this episode down?

ian_1_02-21-2025_115632 21:46

I think that's it for me

david_1_02-21-2025_105629 21:47

Okay.

ian_1_02-21-2025_115632 21:48

is still on track. Cryptos Bitcoin bitcoin bitcoin's held up well, Compared to a lot of other cryptos So, I don't know if that's a political thing or what Right? Lots of talk around Bitcoin reserves and sovereign wealth funds and you know, I think I saw France is gonna start a crypto Fund, you know what whatever that means

david_1_02-21-2025_105629 22:12

Yeah, there's always going to be a narrative, isn't there?

ian_1_02-21-2025_115632 22:14

there always will be

david_1_02-21-2025_105629 22:16

You know,

ian_1_02-21-2025_115632 22:16

no matter what.

david_1_02-21-2025_105629 22:17

thing I feel like to teach investors even young ones is that by the time something is news, there's no edge to it anymore.

ian_1_02-21-2025_115632 22:25

Yeah, it's a good. Good way to put it. So I don't like when people talk about my stocks when they're doing well

david_1_02-21-2025_105629 22:31

Right. Exactly. Like, it's already had its move. So we patiently wait, wait for more information. There is a thesis on the table of continued sideways, some type of correction into the You know, election level on, on something like the S and P 500 day moving average that's currently sitting at about, you know, 5, 700, 5, 720. Whether we're talking about election level near 58, 80, those would be important levels to look at. And if we do get that really important option process, that's about to happen is see if the buyers are for real. But again, next week we could be making brand new eyes, confirming the uptrend once again.

ian_1_02-21-2025_115632 23:14

could be

david_1_02-21-2025_105629 23:15

So I

ian_1_02-21-2025_115632 23:15

I would like that.

david_1_02-21-2025_105629 23:15

a.

ian_1_02-21-2025_115632 23:16

I hope we're here next Friday talking about another All Time High.

david_1_02-21-2025_105629 23:19

Agreed. Nothing better than all time highs. those accounts. People tend to like that. Markets are for making money. And there's a time to protect. Maybe that time is soon. We don't know yet. But we'll make sure we stay disciplined to that process. But Ian, thanks for being on here again. Hope you have a wonderful weekend with your family and everybody listening. Make sure you share it if you find it valuable and give us a high ranking. We really appreciate it.

ian_1_02-21-2025_115632 23:43

Yes, you do the same. Have a great weekend, everyone.