Big Uptrend. Tech Momentum Fading | Katie Stockton on the Rotation Investors Are Missing

Summary

Excess Returns Podcast — Episode Summary

Episode: Big Uptrend. Tech Momentum Fading | Katie Stockton on the Rotation Investors Are Missing
Date: July 9, 2026
Guests: Katie Stockton (Fairlead Strategies), hosted by Matt Zigler, Justin Carbonneau

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Overview

In this episode, the hosts are joined by Katie Stockton, founder of Fairlead Strategies and respected technical analyst, to discuss the current state of the stock market, with a focus on tech sector momentum, market breadth, sector rotation, risk management, and investor sentiment. The conversation delivers actionable insights on how to interpret warning signs, manage portfolio risks, and identify emerging opportunities in a climate defined by fading tech momentum and evolving leadership across sectors. Listeners get an in-depth, technical perspective—grounded in real-time data and years of experience—on what investors may be missing in the current rotation.

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Key Discussion Points & Insights

Market Momentum: Losses and Consolidation (01:39–04:23)

• Short-Term Warning Signs:
  Katie notes a “loss of momentum” driven largely by a rollover in the 20-day moving average, signifying a consolidation phase that initiated in June.

  • “The consolidation phase... is, you know, neutral. It has a hold right now and we’re going to simply watch the boundaries of that consolidation pattern...” (01:39, Stockton)

• Implication for Investors:
  Focus on boundaries within the consolidation—determining whether to shift “risk on” or “risk off.”

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Overbought/Oversold: Definitions & Use (02:36–05:45)

• Technical Definitions:

  • Overbought: Stochastic Oscillator > 80%
  • Oversold: Stochastic Oscillator < 20%
  • Overbought reflects positive momentum; actionable signals arise when momentum reverses.
    • “Overbought is a function of positive momentum... a better term almost would be overextended.” (02:53, Stockton)

• Short vs. Long-Term Signals:

  • Monthly charts = long-term implications (months/years)
  • Daily charts = short-term (days/weeks)
    • “Short-term overbought sell signal would have implications for days... long-term... for months, if not longer.” (04:40, Stockton)

• Nuances in Signals:

  • Sell signals don’t always mean prices will drop; conditions can “clear” via sideways movement or “stochastic pop” reversals.
    • “You can see an upturn in the indicator from neutral territory... it’s like a whipsaw. And it’s a positive whipsaw usually.” (05:45, Stockton)

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MACD & Indicator Confirmation (06:47–09:19, 10:21–13:07)

• The MACD Whipsaw:
  March logged a rare MACD monthly sell signal for the S&P 500, which quickly reversed—highlighting rare “whipsaw” behavior (just three times in twenty years).

  • “That March signal proved to be a pretty dramatic whipsaw just happening so quickly... really unusual and unexpected.” (07:09, Stockton)

• Risk Management Takeaway:
  Use multi-timeframe confirmations (e.g. wait for two monthly closes; supplement with weekly or daily indicators), and accept that whipsaws are inevitable.

  • “That double confirmation, time and price, is really very valuable and will help prevent whipsaws.” (10:36, Stockton)

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Tech Sector, Mega Caps, and The QQQs (13:07–18:33)

• Slippage in Tech Leadership:
  Both QQQ and S&P 500 show short-term momentum loss; no “decisive” longer-term sell signals yet.

  • “...the mega caps have really started to underperform. Semiconductors have just really... started to lose their stronghold and you’re seeing that most in the Triple Qs...” (13:43, Stockton)

• Key Support and Stop Losses:
  Identify historic support levels to manage risk and consider partial hedges (inverse ETFs, hedging higher-beta exposures).

  • “Stop losses…are a great way to manage risk. And then you know, just simple trend following.” (18:33, Stockton)

• Psychological Challenges:
  Even professionals find it hard to follow systematic sell signals due to behavioral biases, underscoring the value of disciplined approaches.

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Market Breadth, Sector Rotation, and Emerging Leadership (21:14–29:39)

• Market Resilience:
  Despite Mag 7 underperformance, broader market has held up, largely due to narrow AI/semiconductor-driven outperformance and decent breadth.

  • “It’s just been remarkable how strong or resilient the market has been in light of this underperformance.” (21:49, Stockton)

• Breadth Indicators:
  Use NYSE advance/decline line and percentage of stocks above their 50-day averages—these confirm backdrop but aren’t precise timing tools.

  • “...it gives you a sense of a backdrop... tells you that most stocks are still rising.” (25:30, Stockton)

• Sector Rotation:
  Recent relative strength is shifting away from tech, bringing breakouts in healthcare, biotech, industrials, and even consumer staples.

  • “...some sectors—industrials, another one—have emerged and are a source of breakouts. And we love breakouts.” (27:35, Stockton)

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Investor Sentiment: Contradictions & Oscillators (29:51–35:53)

• Sentiment Divergence:
  Measures like VIX and the Fear & Greed Index show oversold (bearish) sentiment, but no clear turnaround—sentiment extremes can persist.

  • “Sentiment... is from that measure getting to sort of an extreme... but they can get much more bearish before they turn.” (29:56, Stockton)

• Consolidation Phase:
  After a period driven by greed, current conditions are more sideways than euphoric or panicked.

  • “We didn’t have a super extreme environment in terms of people getting overly bullish. Nor do we have an especially extreme environment on the other side yet.” (32:48, Stockton)

• Alignment of Indicators:
  The strongest signals emerge when multiple indicators show extremes—a setup not yet present in 2026.

  • “There’s points in time when multiple indicators line up, and right now... nothing’s really lined up...” (34:40, Zigler)

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Sector-by-Sector Opportunities & Digestion (35:53–42:36)

• Sector Trends:
  Most sectors are in uptrends; energy has seen a drawdown tied to crude oil, but some areas (e.g. utilities, insurance, biotech) are breaking out.

  • “Not... a lot of breakdowns unless they’re more short term... utility sector, especially electric utilities... acting really well.” (36:22, Stockton)
  • “It is a market that I would say is rewarding the breakout... the follow through has generally been really very good.” (41:25, Stockton)

• Generalist Allocation:
  Broad sector exposure provides ballast and captures emergent leadership outside tech.

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Managing The Fairlead Tactical Sector ETF (TAC) (42:36–47:47)

• Systematic, Rules-Based Approach:
  The ETF uses sector spiders, trend-following, and an equal-weighted, quant-driven process; non-performing sectors’ allocations shift to Treasuries and gold.

  • “TAC is like a sector rotation strategy... if there’s less than 8 [sectors]... we will use other asset classes... Treasuries and gold.” (43:26, Stockton)

• Goal:
  Outperform in drawdowns and provide portfolio ballast, especially for tech-heavy investors or those prone to behavioral mistakes during corrections.

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International Equities and Emerging Markets (47:47–52:09)

• Tech and Semis Dominate EM Performance:
  South Korean and Taiwanese semis have driven EM returns; China has underperformed.

  • “Emerging markets have this element of technology sector dominating... South Korean market... run up now, strong pullback... China has really done poorly...” (48:12, Stockton)

• Developed vs. US:
  U.S. outperformance is tied to its tech/semis exposure; developed ex-US shows neutral trends with possible value-driven rotation ahead.

• Commodity Impact:
  Country-level opportunities often driven by specific commodities (metals, energy).

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Gold, Crude Oil, and Remaining Risks (52:09–54:16)

• Gold:
  Recent corrective phase shows signs of downside exhaustion—but long-term momentum has faded. Expect more tactical swings than a strong bull market.

  • “Gold... more short to intermediate term swings are what we’re going to try to navigate as opposed to that nice strong bull market.” (53:47, Stockton)

• Risks to Watch:
  Geopolitics (crude oil), credit spreads, and sector reversals are looming risks; robust sentiment and demand have kept the market resilient for now.

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Notable Quotes & Memorable Moments

• On Nature of Market Indicators:
  “No one knows where the market will be in six months.” (13:07, Stockton)

• On Investor Behavior:
  “Personally, in investing, it’s still very difficult to respect all of the breakdowns and the sell signals...” (21:14, Stockton)

• On Leadership vs. Breadth:
  “Market breadth is participation... leadership is where is that outperformance coming from—two really different things.” (21:49, Stockton)

• On the ETF Strategy:
  “Risk management is inherent to being more systematic in an approach.” (47:16, Stockton)

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Timestamps for Important Segments

• 01:39 Loss of momentum and consolidation in the S&P
• 02:53 Defining overbought and oversold technically
• 04:40 Importance of multiple timeframes in signals
• 07:09 The rare MACD sell signal whipsaw
• 13:43 Tech momentum fade and QQQ analysis
• 18:33 Risk management with stop losses and hedges
• 21:49 Mega cap (Mag 7) underperformance and market resilience
• 27:35 Sector rotation and breakouts outside tech
• 29:56 Sentiment measures and market “void”
• 36:22 Sector digestion and where opportunities are appearing
• 43:26 The mechanics and defensive attributes of TAC ETF
• 48:12 International and emerging market technicals
• 53:47 Gold’s corrective phase and momentum loss

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Where to Find More on Katie Stockton & Fairlead Strategies

• Website: fairleadstrategies.com
• LinkedIn & X (Twitter): @StocktonKatie
• Research Trials and Info: Fairlead Funds website

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Summary Prepared by Excess Returns Podcast Summarizer

Transcript

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[Katie Stockton]

Morning decisions. How about a creamy mocha Frappuccino drink? Or a sweet vanilla smooth caramel maybe? Or white chocolate mocha? Whichever you choose, delicious coffee awaits. Find Starbucks Frappuccino drinks wherever you buy your groceries.

[Matt Zigler]

You're watching Excess Returns, a channel that makes complex investing ideas simple enough to actually use. Where better questions lead to better decisions. I'm Matt Zigler. Justin Carmeno's actually in charge here today. Don't let him tell you otherwise. We have one of our favorite technical analysts back with us, Fairlead Strategy Zone, Katie Stockton. What's good, Katie?

[Katie Stockton]

A lot, I think. So far so good for the summer. Thank you.

[Matt Zigler]

I like the sound of that, especially post fourth of July. So straight into the deep end. Last quarter we talked about a continued long term uptrend for the S and P. What do we all like? That nice, easy, quiet summer hanging out by the pool.

[Katie Stockton]

Rarely ever. I know it's that. That used to be sort of a guarantee, didn't it? But not, not so much anymore.

[Matt Zigler]

Don't people take vacations? What, did Covid ruin this? So you're seeing some shorter term potential warning signs. Let's start here. Let's get this chart up. What's going on?

[Katie Stockton]

Yeah, the shorter term. I mean, there's been a loss of momentum. We're maintaining right now a neutral bias and the rationale behind that is simply the loss of momentum. You can see it in the moving averages, like the 20 day moving average for one. That's a very close sort of tight moving average. And normally we might just ignore it, but when you have such a steep trend and then it loses enough steam to have that 20 day rollover, we do pay attention. And it has been an environment where it has been just this really steep up move from the leadership, as you know. So that puts us on guard for any loss of momentum. The consolidation phase that initiated in June is, you know, neutral. It has a hold right now and we're going to simply watch the boundaries of that consolidation pattern to determine, you know, whether we want to go more risk on or risk off.

[Matt Zigler]

So this is a place where I think the whole overbought and oversold part becomes really interesting in your work because we achieved overbought. So actually define those terms and you're the way you define them first. And then let's talk about what we've moved through with that momentum loss.

[Katie Stockton]

Yeah, no, it's a, it's a good question because I do think overbought and oversold are terms that are overused. Right. They, they should reflect positive momentum. So overbought is a function of positive momentum. And when it makes a difference, when it has sort of the implications that the word suggests, it's when you see the downtick in momentum. So it is measurable though both overbought and oversold we derive from the stochastic oscillator. So for us it's either above 80% is overbought, below 20% is oversold. That's how we define it. It might mean different things to different people, but it is measurable. So when technicians who are professionals are talking about it, they usually are referring to an actual indic as opposed to just something kind of feeling overbought or oversold. And a better term almost would be overextended. Right. One way or the other. So if somebody feels like something's overextended, that would be maybe a good way to label something. But the overbought condition, you'd be hard pressed to find that missing from a stock or a security that's breaking out. Right. So it's a normal function of a breakout or positive momentum. But when you get that downtick and the stochastic oscillator for us rolls back below 80%, that's where you have the so called overbought sell signal. And that's when you want to take action. Right. In terms of risk management.

[Matt Zigler]

So now let's talk about short term versus long term. Overbought and oversold, which, thank you for saying it, it's overused and it's one of those things that's used to the point of almost being meaningless so often. So the fact that you actually have some meaning here, talk me through short term versus long term in those signals.

[Katie Stockton]

Yeah, for us, I mean, really important to always have the multiple time frames in mind because we're talking to people that some look out three to five years in their investing time horizon, whereas others are actually day trading. So we talk to everyone and they're in need to look at multiple time frames. But we find a lot of information from them and we see start usually with a monthly bar chart and therein a monthly stochastic oscillator to give us that long term takeaway on that overbought oversold spectrum. And then we'll go down to the daily bar chart to get that shorter term view. So a short term overbought sell signal would have implications for days, maybe a couple weeks, whereas a long term one on the monthly chart would of course have implications for months, if not longer.

[Matt Zigler]

I also think it's interesting to point out that that sell signal doesn't mean it has to go down to clear. You can clear that signal in a number of ways. You want to just say, say this out loud. I think this gets overlooked too.

[Katie Stockton]

Yeah. So you don't need an oversold condition to I guess, yeah, remedy the overbought condition. You can see an upturn in the indicator from neutral territory. We like this setup called a stochastic pop. We call it where the stochastics will come down, but they hook right back up. It's like a whipsaw. And it's a positive whipsaw usually. So there are nuances to it for sure. There's a few indicators that do have buy, sell, buy, sell kind of behavior, but for this stochastic oscillator, it's not quite as clean as that, maybe. And I would argue that that's the case for quite a few overbought oversold type inputs. We use the demarc indicators as another one. They too don't toggle between buy and sell, but rather suggest when the trend might be overextended in either direction. And that can happen multiple times on the buy side or the sell side.

[Matt Zigler]

Okay, let's jump to macd, because last quarter when we were talking about this, you were saying here's a MACD sell signal. But we still need other factors for confirmation. So educational perspective. First, let's talk about what happened from then to now and what you saw. Because I don't think that confirmation ever came well.

[Katie Stockton]

So it depends on how you define the confirmation. And we'd like to see a couple things for that. But to address that signal in particular, what we were looking at was the monthly MACD indicator for the S&P 500, which did confirm or actually log a sell signal or bearish crossover in March. So it happens right at the end of the month. The closing print determines whether that MACD crosses over or not. If you want to be more stringent, you might wait for confirmation on a second month, which did not happen because it whips on higher in April, which is really very unusual. In fact, I think it's happened maybe three times in 20 years. So really unusual and unexpected. And then another way you could look for confirmation would be something like one of those stochastic downturns. Below 80%, it's a matter of putting more weight of the evidence in your favor. Right. And how much time do you want to give, you know, the market and its volatility before you say, okay, this is a real signal. But that March signal proved to be a pretty dramatic whipsaw just happening so quickly. I mean, I've seen them, you know, two, three months later we'll have a higher reading or you know, the reverse reading, but really very unusual the very next month to receive that. So, you know, the loss of momentum still kind of shook the market in terms of the corrective phase and it's resumed in a way that the momentum compares, I'd say less favorably than it did in say 2025, 2024. And you can see that in the MACD histogram, which is just a derivation of the MACD itself. So it's less strong momentum, even though we saw the lift to new highs. So it doesn't minimize, of course, returns associated with that, but it tells us that it's probably a more of a mature uptrend for that reason. And that's why we just kind of further brace ourselves for any other confirmed cell signals that arise.

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[Katie Stockton]

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[Matt Zigler]

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[Katie Stockton]

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[Matt Zigler]

The whipsaw. Let's just talk about the whipsaw for a second. This is part of why we want to use these indicators that help smooth stuff out. But it's also whipsaws mess with the indicators in a way too. How do you process that one?

[Katie Stockton]

I mean, I think it's a matter of waiting for those qualifiers. Right. So with the longer term things it might be hard to wait two months, but the good news is we have shorter term indicators to help sort of set the tone. Right. So rather than maybe waiting two months to say, well this is confirmed or not, you can refer to the shorter term timeframe like a weekly macd. Right. So the weekly MACD certainly flipped positive in a more timely fashion than we had from the monthly macd. Right. So I think it's a matter of zooming in on tighter time horizons when it comes to trading and positioning. When it comes to long term investing, you would be well served by just waiting for that confirmation, just that additional confirmation whether it's one additional month. So two months on a signal, which is kind of similar to what we do on breakouts and breakdowns, we always wait for two closes on the time horizon in question above or below a certain level. So that double confirmation time and price is really very valuable and will help prevent whipsaws. You're always going to have whipsaws though with anything in the same way that you'll always have knee jerk moves in response to earnings. Right. So it's not a function that's limited to technical analysis, I would say it certainly crosses disciplines and you know, it's just a matter of putting the more probabilities in your favor by having more of these indicators on your side across the different time frames. So when we got bullish again on the back of that signal was when we had breakouts, when we started to see breakouts from both the bottom up perspective and then ultimately from the S&P 500. So it's just a matter of being adaptive too, not saying, okay, well you know, the predictive value is, you know, not such that we can tell you where The S&P 500 will be at year end, but rather to say that we have a prevailing uptrend. It's lost some steam. The sentiment is doing this that creates a, you know, this kind of environment. So it's more about what's the current status and how do we want to be positioned within that context and how much attention are we paying to risk based on all the inputs that we have. Because no One knows where the market will be in six months.

[Justin Carmeno]

What are you seeing in the QQQs? I think, you know, there's so much things obviously going on in the headlines with AI and SpaceX and obviously the stocks in this index. The Nasdaq has been such a strong performer. I feel like every time investors feel like okay, tech is done, it's going to roll over like another group in the tech market and tech sector sort of picks up the slack. But what are you seeing with the recent move in the QQQs and I guess, you know, how is that in relation to the S&P 500? Like what, what, what is the, the technical showing you?

[Katie Stockton]

They really are almost like in greater focus, focus for our client base than the S&P 500 at times because I think, you know, most people are most interested in technology and, and of course the mega caps as having been a source of upside leadership that's been pretty consistent. The triple Q exposure is a bit greater to that than the spys, for example. So there's definitely a hyper focus on the triple Qs and reasonably so. And we have seen there too a loss of momentum pretty well aligned with what we have from the S&P 500. You know, there's 20 days rolling over and that's something that reflects probably a choppier environment for even the summer months is what it would indicate based on history. And so that we, that puts us in that mindset of okay, we, we want to be adherent to stop losses or you know, more, more mindful of sell signals, things of that nature. So we have that, but we, we only have that short term indication right now. We don't have intermediate term sell signals for either benchmark. We don't have confirmed sell signals right now on the monthly charts of either benchmark, NASDAQ 100 or S&P 500. So the messaging has been that this is a short term issue right now. There are signs of exhaustion that are longer term from the demarc indicators, but they're unconfirmed. So kind of like lower conviction. The takeaway for us with that is just that we're probably into more of like a neutral environment where we'll see some digestion but not any kind of big dramatic bearish reversal as is indicated by those gauges right now. So we have the short term loss of momentum that's pretty obvious at this point, but it started a few weeks ago and now we're watching the 50 day moving average and also just the recent highs is the boundaries of the consolidation phase for triple Qs for SPYs as well. If we were to see the 50 day moving average taken out decisively, that naturally would be a setback. It is widely followed, but it's a great gauge of the intermediate term trend. So that's where we probably start to see some of those weekly indicators roll over in a meaningful way. We don't have that yet, but we're kind of mentally prepared for that. And you know, with the breach of the 50 day, I think things would get a little dicier than they are now. But I think what's more interesting is your last point in regards to the relationship between the NASDAQ 100 tech heavy mega cap heavy to the S&P 500. And we've seen a bit of a chink in the armor of the outperformance from the triple Qs versus the S&P 500. Again, short term, it's not an intermediate term reversal or anything of that nature, not yet at least. But we have definitely seen that kind of stalwart leadership from tech, from semis in particular, and from mega caps show some slippage. The mega caps have really started to underperform. Semiconductors have just really over, over the past couple weeks started to lose their stronghold and you're seeing that most in the Triple Qs and their relative strength ratio. So it's, it's a bit of a risk, I would say, but not a decisive intermediate term reversal at this stage. So something that we're watching and also I think it has people thinking about, well, what happens when the AI tree, the confidence behind that suffers from something. Right? You could argue that Korea is doing that right now or South Korea. You know, the news there, the pullback there is impacting sentiment around AI, around the semiconductor sector. It's again, not that meaningful yet in terms of the intermediate term indicators, but it definitely has people thinking about, okay, well what if this isn't here to bolster the market? And I think that's just a healthy way of thinking because I, I'm quite sure a lot of people are uncomfortably concentrated in these areas of the market.

[Justin Carmeno]

You may have already spoken to this, but that is, I think one of the challenges for investors when you're in a stock or an index that has done so well and support is because I'm looking at the chart here, you know, on the QQQ, support is like below 650. This is a rough. And it's, you know, above 700, wherever it is now. So it's like, how do you tactically manage that. When you have something that's done so well, you want to protect some of those profits, is it using things like stop losses? Like how do you sort of tactically address that? I guess in the short run, yeah,

[Katie Stockton]

I, so for sure stop losses. And I think that's one great takeaway from the charts is that you can identify the key levels where historically that ETF or product has held and use that as a stop loss. Because if that support or demand isn't there anymore, well, that, that's a breakdown of sorts. Right. So that's a, a great way to manage risk. And then you know, just simple trend following. Right. By using the signals perhaps from the MACD or from the curvature of the moving averages to say, okay, well risk is heightened here of a pullback. Some people shouldn't do any repositioning through a pullback. And so it depends really on the overall financial picture. What's your time horizon? Are you retired? You know, those type of questions come into play. But simply from a technical perspective, stop losses and you know, knowing when it makes sense maybe to hedge a certain segment of your exposure. When we tell our clients it's a good time to be hedged, usually we're, we're kind of addressing the higher beta segment of the market and you know, maybe take a small position, an inverse ETF like PSQ to hedge the risk that they carry through that pullback or just to limit the drawdown if they can think about it that way without having to get the taxable implications of selling their positions that they still love from a fundamental perspective, but also perhaps feel like things are a little overdone. So I think that it's either through ETFs that they can achieve that hedge, usually just a partial hedge, or through a stop loss or trend following discipline that really needs to be systematic. And that's something I think we all sort of don't do as much as we should do, which is to rely on these tools because they are almost like reporting what's going on in the market. And as much as we let our biases get in the way, the market doesn't really lie. So I think it's a matter of really respecting the tools and to do so regularly. That's where I think you get the most benefit from using the charts and technical analysis. And you know, we're all even, even us at Fairlead, you know, it's our day job here. Personally, in investing, it's still very difficult to respect all of the breakdowns and the sell signals. That we see because, you know, you, you just kind of let those biases get into your decision making.

[Justin Carmeno]

You, you have a chart in here on the Mag 7 and you have it also versus the S&P 500 like in the lower part. But just I want you to speak to it. But are you surprised that the market has kind of hung in here given some, some of the underperformance in the Mag 7? Like I, I remember like, you know, listening to commentators saying, you know, if the mag 7 falls apart, the market's done, the market's so concentrated and yet, you know, these other areas of the market have sort of picked up the slack. And that's kind of been the case for a lot of the time when the Mag 7 has kind of gone through these, these rough periods. So what are your thoughts around that?

[Katie Stockton]

Yeah, no, for sure. I mean it has surprised me because when you look at the ratio of the Mag 7 to the S and P, it almost looks like an eerie like head and shoulders top. You know, it's really quite bearish the way it sets up. Whereas in absolute terms it looks kind of like more of a general mill or general mills. Right, A general run of the mill correction. And that is something that usually we would see as an opportunity. And so we had to reconcile I think the sort of setup in absolute and relative terms. For one, that the pullback by the way, did follow a pretty substantial rally and so it's only a partial retracement in absolute terms. So it really doesn't look like any kind of breakdown. And yet you're right. I mean it's just been remarkable how strong or resilient the market has been in light of this underperformance. And it's been wholly related to the AI trade as it pertains to the semiconductor sector in particular. So it's really a very sort of narrow story this time around. It's not to say it hasn't happened before with different sectors maybe like financial stepping in, but this has been more about the semis versus the mega caps, so that becomes more important almost towards market sentiment than the mega caps as before. So, and I think though that where we're seeing that impact to a degree is in the momentum strength behind those long term momentum indicators. So the MACD histogram, you know, on the monthly chart of the S and P, it compares unfavorably and I think that's probably part and parcel with this. But that doesn't mean you're necessarily losing money. Right on the, you know, if you have broad based exposure. The catch is that a lot of people do have that heavy mega cap exposure and they might be what they feel like is, you know, with an underweight position in, you know, the dram stocks or something like this. Right. So you've gotten, I think, a little bit of a performance chase in that world. So it is, I think it's remarkable. I think it's really interesting and by the time we kind of figure it out and get our heads around it, it probably will change. So I wouldn't, I wouldn't, you know, suspect that this is going to be, you know, the last seen setup necessarily. The market breath is obviously a huge piece of the puzzle. And leadership and breadth are two really different things. I might have said this on this podcast before, but market breadth is participation. So how many stocks are up and up days? Whereas market leadership is. Where is that outperformance coming from? So those are two really different things. So we've had especially narrow leadership to the semis in this environment, but the breadth has been pretty decent actually. So that participation has been pretty good just doesn't mean that we're getting that strong outperformance outside of it, at least up until very recently.

[Justin Carmeno]

Does, does that market breadth indicator, does that take in? Because I mean lately small caps and maybe some value stuff has been holding up a little bit better. Like how does like those types of areas of the market and does it impact breadth less because they're smaller or is that not really the case? It's just overall advanced decline counts.

[Katie Stockton]

Yeah. So there's so many ways you can measure it, honestly. We use the NYSE cumulative advanced decline line typically for our running measure of it. And then we'll also use things like percentage of stocks above their 50 day moving averages, which would be more of an oscillating measure. And we found that, you know, the cumulative measure is not like the best market timing device, but it gives you a sense of a backdrop. Right. It tells you that most stocks are still rising. Like you don't have some big negative divergence. New highs and market breath are not necessarily, you know, an action point for the market, but they do affirm what's already happened for the major indices. Right. So, so it's just confirmation, as opposed to a breakout that you could really feel like it's actionable necessarily. It's like you'd rather see that of course, course than lower highs. It also means that it's been an easier market environment than others when others will have weak breath. It just means your stock Selection becomes so much more important. So while I'd say a lot of people have probably underperformed the S&P 500 in this environment, it doesn't mean they're unhappy with their portfolios because they're probably doing all right. You know, that the vast majority of stocks are still going up with the market. Even if, you know, that person might feel like they're underexposed to that leadership segment, you know, their portfolio is still working for them. Right. So it's, it's an interesting thing to kind of pick apart, but there's nothing worrisome right now in market breath. And I think how it's translating on the sector front right now is really very interesting.

[Matt Zigler]

Well, let's talk about that for a second because I think breadth as a term is really useful in the framing context of anybody trying to be active. If you're trying to be active, breadth is a great overlay. What are you seeing at the sector level?

[Katie Stockton]

Yeah, and so, and like breath also applies to sectors, but so does leadership. Right. So when we talk about sector rotation, we're talking about typically where is the relative performance coming from. And that has really shifted recently. And it's, it's almost 100% a function of the technology sector. And also triple Q's seen a little bit of a downtick in that relative performance because they have such a huge footprint both in number of stocks within the market and also their market cap footprint. They, when they start to, you know, underperform, it means that the relative performance looks so much better for, for almost every other area. Right. So it's kind of an interesting thing that relative strength will, can improve for just about everything else when it has been a narrow tech led environment. And that's indeed what we're happening. I mean, even the relative strength for the consumer staples sector, which is, is not a, you know, a great performer of late, has upticked just as a function of the downtick in tech. But now what we've seen with the ones that have outperformed and have done so more meaningfully than consumer staples, we're getting breakouts. So we even just today highlighted a breakout for one in the healthcare sector. So we've been sort of anticipating this with the relative improvement over time. And indeed there's even a lot of resistance levels cleared by the benchmarks for healthcare, biotech, and in some other segments too. So we're really very respectful of breakouts when they happen because that's the breath. And then we're of course always chasing relative strength as well, so now we have good breath. Relative strength has shifted enough that some sectors industrials would be another one that's happened more recently have emerged and are a source of breakouts. And we love breakouts. We always want to have that exposure

[Matt Zigler]

place where less so a breakout right now. And I know it oscillates, but I want to talk about sentiment because sentiment seems like it's showing how a lot of us are feeling right now. When I look at this chart.

[Katie Stockton]

Yeah.

[Matt Zigler]

Even though those stocks are towards their highs, sentiment's telling a different story.

[Katie Stockton]

Yeah, no, it often does, doesn't it? You know it's funny because we all know how sentiment is from our conversations and from how we feel. But what's great is we have these like measurable sentiment gauges. The very popular one is the vix, the CBOE volatility index. And we use that as a transactional gauge. It's looking at basically how hedged mostly institutions are. And that can be real money or representing real money. So things like that can be so informational. And we also use the fear and greed index which is like an aggregated sentiment transaction gauge in a way. So that will tell us what not only the VIX is sort of saying, but the VIX alongside other things like junk bond demand are saying. And right now it is pretty oversold to go ahead and use that word, but not to the point where we have that turnaround to suggest that it's done. What we find is that this is another oscillating measure. And when you have a sub 25% reading, that's the so called oversold reading. But it'll often dip to a deeper level and it's that pivot point. And when it comes back above, you know, 20, 25%, that's where we like to pay attention. So we're not convinced that we have that decisive turnaround yet. And there's always noise, but certainly sentiment is from that measure getting to sort of an extreme or has gotten to an extreme bearish level that we start paying attention to because those bearish sentiment readings are usually the stuff of major lows. And the catch is they can get much more bearish before they turn right. So you want to be not too, too quick to respect the bearish sentiment reading and make sure that you have those indicators on your side as well that are measuring the trend. So at a very minimum, we tell people to make sure that a bearish sentiment reading gives way to improve short term momentum. That can be, you know, watching the Daily MacDs if you're real short term, it could be watching the 20 day moving average for an upturn. So you want to make sure that that momentum that also confirms what's happening

[Matt Zigler]

sentiment regarding where we started the conversation too, because we had sentiment that was on the side of greed without being fully across that line. And now we've gone into this consolidation and I think it helps tell the story of why the consolidation feels so nauseating without crazy lows. But I'm curious, did this line up in this cycle at all for you? Just in this consolidation phase since last we spoke?

[Katie Stockton]

It's funny because we didn't have an overbought reading, not, not for many months. So I think that was a little bit surprising. What we find is that in, you know, very strong tapes, you'd expect to have more overbought sell signals in the market internals. But they're of course like far fewer and farther between than the oversold readings which do generate much greater extremes. The way we measure that is through analysis of not just one sentiment gauge, but multiple. So we look for extremes in like several measures before getting excited. So we don't just look at the fear and greed and say that's our primary gauge. We also refer to other gauges and what we found is that we had, I think it was only two out of the say dozen or so indicators that we track for market internals hit an overbought extreme, which honestly isn't really that extreme. So if you're using that as your primary input, which, which we are more adherent to momentum gauges. But if you're simply watching for those extremes, we didn't have a super extreme environment in terms of people getting overly bullish. Right. Nor do we have an especially extreme environment on the other side yet. So, so yeah, we haven't had a lot of huge extremes since last year's major low after the Q1 corrective phase. That was the last giant like oversold collection of readings that we received. So I pay most attention when you have the collection of extremes that are impacting, let's say three or more as a rule. And we just really haven't had that yet. So kind of interesting.

[Matt Zigler]

I think it's really interesting because it's, it's this idea that there's, there's points in time when multiple indicators line up and right now where we are, nothing's really lined up in a way that gives a strong sense of a new trends emerging, a bottom's in or we're about to move lower. We're sort of in this weird cloud right now?

[Katie Stockton]

Well, yeah, it's, it's like almost like the void. Right. But it's where the market is most of the time. So when it comes to the market internals, there's. The extremes are that way for a reason. Right. You might see a collection of extremes like two to three times a year, I'd say on average and this year is below average in logging those types of extremes. So you have on and off years. And so it is really interesting. But we pay most attention when we get those big extreme readings and I'm quite sure we will get them between now and year end at some point. But. Yeah. Is it imminent? We can't say for sure obviously. And I would say we feel more conviction that it's, it's with this kind of corrective phase. If we were to see greater deterioration in our weekly indicators.

[Matt Zigler]

I want to go back to sectors, I want to sort of go through them one at a time if we can. Because the difference of 2025 to 2026 thus far there's been some wild swings between sectors, between that rotation from leadership, the energy numbers alone. Yeah, I mean that's, that's a tiny part of the index. It's a big number on a performance basis. How should we be making sense of this digestion that 2026 has brought us?

[Katie Stockton]

Yeah, I mean I would just say that with the digestion phase, like in, in, in terms of sector rotation, like you again, you have to kind of go back to reconciling the breath and the leadership phase in the market. So I feel like that, you know, the breath has been good enough that we have in our own ETF. The, the fairly tactical sector ETF recently maintained a nearly 100% exposure to the equity sectors, the market. So there's enough working that, that warrants that kind of even in an equal weight strategy like tax holding, eight sectors of the market. And so that kind of for us would like, we consider to be a more full equity exposure. That's a function of the breadth of the market. The narrow leadership has been the bigger challenge. And where we got the first correction this year, and we'll probably get the second correction this year, is when the sentiment shifts more meaningfully around the leadership segments of the market. And we have some perhaps early indications of that, but not again to the extent that we feel like it's high conviction. And the sectors, if we were to pick them apart sort of one by one again, most are in uptrends, most are not in strong steep uptrends like We've seen from the technology sector but now we have some of those breakouts like the industrials and healthcare and the beleaguered areas of the market which previously was, you know, financials or REITs or consumer staples, even discretionary. So those areas of the market in absolute terms they don't look too bad honestly. You know, the longer term trends are pretty much intact. If you had checked up on them a year ago you probably have sort of a similar takeaway as a year ago. We're not seeing breakdowns, not, not a lot of breakdowns unless they're more short term at times. Right. We saw certainly a lot of not, not necessarily breakdowns long term but overbought downturns after the correction, you know, culminated in March. So that gives you a little bit of that kind of, you know, it, it shakes your confidence a little bit. But for our ETF it's like we only went down to like an 87 and a half position in the equity market and then came right back to the full exposure. So it wasn't really enough to impact the long term momentum or long term uptrends that are still really very widespread on the sector front right now. I last looked at the utility sector, especially electric utilities and boy, I mean they're acting really well, right? Not necessarily a, a super promising source of relative outperformance but, but you can definitely make a case for them, you know, short term and also long term based on their action. So there's a lot to do out there. You know the bottom up work shows a lot of diversity in the charts which is another cool takeaway I think from the current environment. And it is largely related to the sectors energy as another sector has seen like a pretty substantial downdraft as you'd imagine with the price of crude oil. But now we have some oversold indications that are getting kind of interesting, some signs of downside exhaustion from the demarc indicators. So we pay attention when that happens and look for opportunities that become a little higher conviction. So even in areas that have done really poorly we can make the case perhaps for either countertrend exposure or, or taking advantage of their corrective phases. So pretty unique environment in that way that despite that neuro leadership there's still been a lot to do if you have sort of a broad exposure that you're seeking in your portfolio. Just you know, if you're a generalist of which, you know, sometimes I feel like the only questions I get are about technology but it is I think positive to have kind of a Generalist outlook when it comes to the sectors and for your core holdings, especially if you're most interested in technology, can create some ballast to a portfolio in a way. You know, if you have other sectors to, you know, that might be less correlated to the S&P 500, which gets

[Matt Zigler]

extra interesting and thanks for bringing it up. Like the utilities performance, the reversal in REITs after all the B REIT drama and things that we saw in the middle of last year, there's a lot of other moving sectors right now and even if it's not showing up in headline ways, at least we can talk about something other than tech.

[Katie Stockton]

Yeah, I know it's, we actually featured in an article recently the insurers. So the insurance sector, which we're not getting a lot of questions about it but boy, it started acting really well and you started to see some breakouts. So it is a market that I would say is at rewarding the breakout. So when we see a breakout we're, we're inclined to believe it and it, it's almost counterintuitive I think to sometimes you feel like you're chasing some of these rallies, but the follow through has generally been really very good. And so you know, when a Stock clears its 200 day moving average, that type of thing, we're generally seeing good follow through. So with breakouts in some of these other sectors or subgroups, it's, it's been great. I mean biotech as, as another example within healthcare that broke out a few weeks ago and it's still going so you can get a little bit more I guess, momentum out of the breakouts which by the nature they're, they're relieving the chart of their resistance. Right. So the supply that was there isn't there anymore. And that's a positive takeaway.

[Justin Carmeno]

Katie, I know, you know, we've talked to you a number of times and we always like to spend some time on the methodology behind tack and you kind of hit on it to some extent but I think it'd be good to sort of hear from you, you know, how the ETF is managed both in these risk on and risk off environments. And you know, I was just looking at the, on the, on the, on the fund website, you know, you guys benchmark it to the Russell 1000/ weighted and you know, when you look at like the risk statistics, things like standard deviation, you know, worst quarter, I mean max drawdown is not on there. But you know, I'm sure it's way, it's, it's a, it's like not only has the fund kept close to a long only strategy, but in periods of stress, you know, the strategy actually has, has delivered. So just kind of talk to that because I think we kind of sometimes lose sight of that as investors. Like the importance of the downside management too.

[Katie Stockton]

Yeah, no, I appreciate that Justin. And, and I agree with you. I mean I think kind of going back to that comment about ballast, right, to a portfolio that's tech heavy, I think TAC is, is a great sort of strategy to that end. And I say that because not only of that equal weight exposure which kind of inherently provides that ballast. Right. But then also the long term trend following that's informing it. So at its core, TAC is like a sector rotation strategy. It evaluates all the sectors using sector spider ETFs and it looks for the best sort of long term trend following inputs. And if all 11 economic sectors are checking boxes, well, we narrow those to eight and we do that using a quantitative overlay. And if there's only eight, we'll hold all of eight. And that's where we stand currently. And if there's less than 8, well then that becomes an environment in which we will use other asset classes. So we will shift the bucket that was sort of dedicated to the sector that's now not showing those long term bullish characteristics and we give that bucket to a combination of ETFs representing treasuries, so both short term and long term Treasuries and gold. So using the gold mini shares. So it's a really pretty unique strategy in that it has that trend following element. It uses asset allocation, but then at its core is sort of an equal weight sector strategy. The end result I think is most, I guess relevant when we have our conversations with investors because we want them to think in terms of what's our desired outcome. And I know that's become like a phrase in the world of ets, but we want to make sure that we are limiting drawdowns consistently through this strategy. And you know that that's just as important to us because we believe that especially you know, as you're either on the verge of retirement, in retirement or you know, unfortunately, perhaps investing at the start of a bear cycle which, which will and does happen, that, that you have some protection, right, some downside protection and not through some sophisticated option strategy but, but through that asset allocation and through also the trend following which inherently kind of manages risk in and of itself. So that's the tax strategy, I think, you know, the low beta Profile is something that is desirable. The low correlation to the S&P 500 and even though relative correlation to that benchmark, which has no asset allocation, of course. Right. We're, we're comparing it to an equal weight index that suffers, you know, bigger drawdowns and has more volatility. Right. So it's almost like the more accurate comparison could be something that's like a 6040 type of portfolio. Right. But then you have that extra gold element to it and it doesn't actually over history tend to run 60 40. Exactly. It obviously fluctuates. It can actually go all the way to full exposure in assets outside of equities. So as much as it's an equity focused fund, it can at times hold no equities.

[Justin Carmeno]

That's great, thank you. Yeah, I think it's a very interesting strategy to be tucked in, you know, inside an investor's portfolio, particularly someone that is worried about drawdowns or maybe more specifically for people that tend to behave badly when market drawdowns happen. And a lot of investors do that.

[Katie Stockton]

Yeah, we, we all do. And, and systematic, I think is, you know, an important takeaway as well where it's responding to market moves as opposed to, you know, our discretion. We're not waking up and saying, you know, what should this look like this month? It's really, we're letting the indicators guide our positioning, which I think is, is something that's again, that risk management is inherent to being more systematic in an approach. So yeah, it is, it is pretty unique.

[Justin Carmeno]

Another area I think that investors are or were and probably still are underexposed to is, you know, international stocks, both developed and emerging markets. So talk to us about what the charts are telling you about international in those two areas of international versus the U.S. i mean, it's been, I think, a pretty good run since the beginning of 05 for both sort of cohorts of these non US stocks. But what are the charts saying here?

[Katie Stockton]

Well, it's been pretty interesting because emerging markets have this element of the technology sector dominating the performance of the benchmark. So we have the South Korean market, as mentioned, had a very strong run up now, quite a strong pullback, but that's largely related to just almost like a very small segment of that market, but a very dominant and powerful one in the semiconductor sector. So the emerging market proxies have been pretty, I guess, influenced by that. And also, I mean, we always would talk about how China dominates these emerging market proxies like eem, but boy, China has really done poorly of late and you wouldn't really see that in those EEM proxies. And that's exactly how strong Taiwan and these other regions in Asia have, have done well and contributed to that relative performance. So it's a really interesting kind of case study, but it's almost like you want to maybe focus more on the country level than from a top down perspective. But the relative trend is favorable longer term in marching markets to us. And that's something that we sort of started to see in clean sales a few months ago and it's persisted. You can see it in the curvature of the moving averages of the ratio and the action the trend following. And then for IFA countries developed global versus US we've seen a pullback. I think you tuned into the fact of the timing of that really came on the back of when the war initiated and then when also we saw that really strong recovery in the U.S. i think when the U.S. is working, it certainly is the dominant sort of player I think in global investment markets. But so that underperformance from the IFA countries, I think it sort of, you could almost translate it as if we're talking about semis versus our market as like the US is representing semis. Right. So I think that the underperformance is wholly a function of the lesser technology exposure and these other countries and that when we see more sort of value rotation, which we're starting to see some hints of that that's when the European countries tend to benefit from that in relative terms. So it really is, it's based on the sector positioning and the actual price action in absolute terms in the US is really very influential on those ratios. But I would say the takeaway honestly in the ratio itself is sort of neutral because following this pullback associated with the conflict and the rebound and what have you, the range is still holding. So the pullback has brought the ratio into some range support and even still the long term shift still seems to be intact. Right. So even though there's a range now, it's a better picture than it was two years ago for international markets versus us. So it just opens up more doors I think to invest in countries where you have a compelling case to do so either from a macro or fundamental perspective. Commodities are a huge influence on the country level, as you know as well. So you know, if you're constructive on certain metals or uncertain energy commodities, well that might lead you to different markets. But overall I would say in line to better performance is, is likely to characterize this year and that opens up More doors for us.

[Matt Zigler]

It's fascinating how, how markets have digested this conflict and this event and how little we see it sort of in that chart itself when we look at it.

[Katie Stockton]

Yeah, it is, it is. And I think it's, you know, it's all about sentiment. And so somehow we've managed through this environment without losing the sentiment that has boosted the market. And I'm not talking about the fear and greed index type of sentiment, but the demand. Right. And that demand, I think has been fueled by the AI trade and it might be different next time, but I think that that sort of excitement has been exactly why we've been able to navigate this challenging environment. But I do think the shock in crude oil prices is something that remains a risk even though we've seen a big retracement. And I do think that credit spreads, you know, looking somewhat oversold from a technical perspective are also a risk. So these are things that we'll watch and will keep us, you know, our guards up to some degree. Just given exactly what you cite there, Matt, in terms of, it's surprising to see such a resilient tape in the face of some of the geographies political risks.

[Matt Zigler]

Another one that's a surprise and so far best explanation I've seen of this came from Ben Hunt who shared it on our monthly show where he basically said trust in the US central bank seems to be recovering from a low from when the president was beating up on Powell last year. And that seems to have been righting itself. And maybe that's the explanation for where I want to go next, which is the price of gold. This is another one that, well, we've come off the top a little bit what's going on with gold.

[Katie Stockton]

It's been a corrective phase that now shows signs of downside exhaustion. But what we saw last quarter and what remains an issue is a loss of long term upside momentum that's meaningful enough to hit our monthly indicators. So I think we're now in the mindset of okay, well gold, you know, more short to intermediate term swings are what we're going to try to navigate as opposed to that nice strong bull market that we had previously.

[Matt Zigler]

Katie, people want to find you on the Internet bug. You get some of this research. Where can we send them?

[Katie Stockton]

Of course, yeah. So we have a website, fairleadstrategies.com and we encourage people to take a trial of our research. We offer free one month trials. They can also find me on LinkedIn and on X it's Tockton. Katie, and yeah, we also have the Fairlead Funds website which is all about tech. So encourage people to reach out.

[Matt Zigler]

Make sure you check it out. Make sure you head over to Excess Returns on Substack. We'll have notes, transcripts, all sorts of things on this episode and more. Katie, thanks so much for doing this.

[Katie Stockton]

Thank you guys.

[Matt Zigler]

Nice to see you like comment, subscribe all the things below. And we are out.

[Justin Carmeno]

Thank you for tuning in to this episode. If you found this discussion interesting and valuable, please subscribe on your favorite audio platform or on YouTube. You can also follow all the podcasts in the Excess returns [e-mail] if you have any feedback or questions, you can contact [e-mail] no information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of the firms of the hosts or their clients.