TG Watkins, Director of Stocks at Simpler Trading and Editor of the Profit Pilot website joins us to delve into the macroeconomic factors influencing market trends and investor behavior as we approach the U.S. election. TG provides insights into the seasonality of September as a typically weak month and its impact on market dynamics.
We discuss the influence of political uncertainty on big investors and the likelihood of defensive sectors like consumer staples gaining traction. Additionally, TG analyzes technical indicators such as the put-call ratio and 50-day SMA (simple moving average) to predict market corrections, and the potential benefits of interest rate cuts on various sectors like real estate, regional banks, and small caps.
Click here to visit TG’s site - Profit Pilot
Hey everyone welcome in to another daily editorial here on the K e report we're chatting with T G Watkins we're going to be talking about some of the macro factors that could be holding traders and new investors out of the markets as well as any areas the TGCs is having opportunities as we move through what we're hearing more and more from our commentators uncertainty through the rest of this year. T G is the director of stocks at simpler trading also editor of the profit pilot website which we will link to in the show notes. T G let's talk more time of the year that we're in right now that sometimes it's relevant this year I think it's even more relevant because we have the election coming up in the US that always has investors a little bit more defensive in nature and also seasonality we just ended summer we are into September and September is usually a pretty week month so T G talk to us about the time of the year that we are in and how you think I guess people could be getting a bit more defensive or a bit more yeah not so aggressive in these markets. Yeah usually September seasonally week and that's usually fine because what that does is that lays the groundwork for then going into what is usually the most bullish time of the year in October November December basically the middle the school year if you think about it that way that's the most bullish time of the year but this time I think that we're going to get probably continued weakness or just being lethargic into November because we got the election this year and now it's not so much of a slam dunk since Kamala Harris is also out there and so I don't think the market really knows who's going to win and we don't know what they're about and so we always have to think big money needs to know what the administration is who it is and who's going to win and where they're going with that we saw that even when Biden got elected because we knew who was going to be there we knew what they were supporting we knew what their interests were where we knew were subsidies and interest stuff that was going to go and then the market responded to that so I would imagine big players are going to just kind of probably hang out and just pull back a little bit and go into idle mode and not really commit a whole lot of stuff until they know where our nation is going as far as the presidential administration well tg with that in mind do you think that more of the value sectors and some of the safer sectors are where some money may rotate in the near term then yes I would say so because money always has to go someplace right so there's always a bull market someplace so yeah I would look at defensive consumer staples like right now I was looking at Walmart now I don't know if these are necessarily the best places to initiate right now but Walmart's been doing fine Costco looks like it's doing pretty darn well McDonald's has always just kind of gone sideways but it's been up over the last few weeks so yeah defensive money's got to park itself someplace and I think that's what they're doing until they can figure out the next direction for the nation so last week was I think the worst week for the markets and over a year and it hit pretty much everything does this weakness continue though tg are you seeing signs that a broad market correction is still very much going to be underway here yeah generally I think I don't know if we're going to see a pullback the way that we saw last summer going into November which amazingly was the same timing but I do see that we're probably going to have a prolonged period of correction pullback sideways chop something like that because I'm looking at the put call ratio and it is very low which means that that basically everybody's all longed up and so we need to get that to about point one and then we can start looking at a bottom and we've got some room for that to go so that's going to take some time watch that indicator and then another one I'd look at is the breadth so the number of stocks over their 50-day SMA and we hit 0.8 so 80% of stocks were over there at 50-day SMA as of last week and that indicator doesn't like to go much above 80% so basically every 80% of stocks were over there 50-day SMA and most likely that needs to cycle back down to probably somewhere around 30% maybe even down to 10% so somewhere in that range and I actually was expecting this to happen starting I want to say starting in July and we did we just did actually start getting the market pulling down because breadth was at 0.8 and the put call ratio was low 0.6, 0.7, something like that and we did get a pullback and then that triggered us into the yen carry trade debacle and that is when the market really just got ripped down pretty hard and then the amazing thing is that it all then reversed and we got this huge bounce so on the surface it looked like oh it was just kind of this yen carry trade thing they had to kind of reevaluate and they kind of maybe toned their narrative down a little bit and the market came right back and everything's fine but underneath the surface I was like how is the market going to be up like this and continue going higher when we have the put call ratio where it's at and the breadth where it's at I'm kind of concerned about this and then we have a seasonality then we have the election and that's where we got the market the S&P went sideways for I think a little over a week and then it finally started to break down last week and I was like there it is that's basically what I was looking for to have happened it just took a long time to wear off to burn off that upward momentum that we had all right so we'll be looking at the put call ratio we're looking at the breadth on the 50 day S&A maybe just for people listening NTG that are not as technically oriented break down why you use the 50 day simple moving average why you use the 21 day and you use the 21 week and why do you use these moving averages to help you with trading and maybe just explain it for people that are still learning the technical side of the business sure so a lot of this comes down to what do the big traders use what are the institutions the big institutions like to use the the 200 day SMA worth it just the 200 SMA whatever time period you're looking at and the 50 SMA and primarily looking at the daily chart and that tells you basically the trend if price is over or under the 50 SMA well you're bullish or you're bearish or you're in an uptrend or you're weak those kind of things also we can look at distance how far away is price from these moving averages and when price gets really far away from these moving averages then things are probably getting pretty overbought and kind of stretched and we should expect some sort of pullback at some point with that and so uh oh then the 21 is pretty much what a lot of people like to use as kind of a near term trend so if we're actually in a good kind of move high moving trend you'll see price pullback or follow the 21 EMA quite often a lot of people like to use the 20 SMA 21 EMA yeah it's kind of something in that area and that'll help you find the more near term trend and that is particularly useful on the weekly chart so I really do like the weekly 21 and we can see that some of the more major pullbacks that we've even had and even during 2020 the major pullbacks we had had go back to the weekly 21 so these are just common moving averages that basically everybody seems to kind of use and since there's consensus then it gives us a little bit of something to rely on to look at to say okay is it working or not working they're not always perfect they can be a little fuzzy but they give you a good backdrop as to what to look for so TJ you look back and you shared with us kind of the details on that correction that we saw last year pretty much at the same time you said this year might not be the same but look last year's correction was about three months long went just over 10% for the S&P what's similar what's different to what happened last year at this time to what's happening now well we kind of already got a 10% correction that part of that whole yen carry trade debacle and that low which let's see August 5th was about the low of that that was 10% so we already kind of got our 10% move which was the same thing as last summer it took us almost three months to get a 10% pullback so that is part of why the market did jump up over the last few weeks so high and almost and come right back the S&P came right back to its previous high because we pulled back 10% and we did it very quickly so this kind of knee jerk thing where liquidity was created very quickly a lot of stops were run and then it was just a buy the dip opportunity because we got our 10% correction and it was kind of a news based situation and then it came right back up but we don't have enough oomph to really sustain this for as much as that the market corrected 10% the internals didn't correct the put call ratio didn't cycle back down like it still pegged to the long side the breadth didn't cycle back down it still pegged to the long side so even though we got this whipsaw and I think that's exactly it was a whipsaw which then created the big move to the upside the structure underneath didn't actually do what it needed to do to provide the groundwork to create the next long-term long move add with it we've got the the election and I think people are just hesitant I think people are big players are probably looking at this big look we don't have to commit money in anything right now let's let the cards fall where they may and see who wins and then we'll know better like where they're going to put their money in emphasis and then we can kind of recalibrate then we can see which groups are going to go higher and based on this because a new administration is going to have new laws new restrictions new stuff subsidies and it's going to really kind of help determine where money goes and so that's why I'm saying we could just be in a holding pattern got the 10% correction and we could just go sideways the market even if we look at the s&p and I'm looking at the monthly chart here the monthly chart over the last few months got really extended to the high side I use what are called calendar channels and I like to use the third factor based off the 21 sma and over the last three or four months the s&p got outside of those calendar channels which is in overbought condition and so in order to have price fix that overbought condition they need to either go sideways or sideways to down or something that and it needs to start again and so I just see a lot of these macro situations add with it the election I'm like yeah I think the market needs to cool off for a while until we can do something again I would I think we're going to go up again it seemed I don't see any reason why not to but just not right now and we need to kind of burn off and change all those things well tg just thinking about how the macro affects the markets a lot of people are anticipating the first fed rate cut coming the uh september meeting just right around the corner here and they're expecting a series of cuts do you think interest rate sensitive sectors like real estate like the you know in the real estate reads mortgage market home builders those kind of things could benefit do you think it could help regional banks do you think it could help the small cap stocks are you looking at all at how the rate cutting cycle may help interest rate sensitive sectors yeah I think for right now the actual rate cut could be a buy the room or sell the new thing because basically all we know it's coming okay so whenever they finally actually cut it you know maybe the market could sell off mostly because it's going to happen and during this period of time where I'm saying hey we just the technicals of the market need to cycle down and we have the election coming up but I do think that generally speaking a rate cutting cycle which we are now in because now we are not raising rates for cutting rates I think is generally going to be bullish for the market that's why I say I don't think I see the market going down I just see it taking some time and taking some breathing room until we kind of get the next administration figure it out that being said I do think it's going to be bullish for the market in certain sectors the financials look good XLF looks good carry which is the regional banks I think it generally looks good but it's in a holding pattern small caps via the IWM they've gone sideways they've a lot of noise there but it can go sideways for a very long time which if you look at the monthly chart we kind of see it trade in brackets and it's still just going sideways it doesn't look bearish but it just needs to kind of hold to there for a while and gosh I mean anywhere else yeah I think it's going to be bullish it's just right now we need everything to cycle back down and provide the right base for the next opportunity to go higher okay I think that really drives it home then T G you're in kind of a waiting mode right now waiting for this weakness to play out waiting for some of these big question marks that are coming in the US to play out and then you're seeing that as another buying opportunity we'll follow up with you as I guess we get a little bit more weakness in the markets and get closer to that election to let you tell us when that green light is to get more aggressive out there always interesting hearing what T G has to say and if you want to follow along with some of his individual trades click that link in the show notes to visit his profit violet website T G thank you again for your time we'll chat in another couple weeks
