J.D. DURKIN: Good morning, subscriber's. With me today is AAP team member Bruce Kamich to help us dig into the technical landscape Bruce has over four decades of experience charting everything from ETFs, to commodities, to stocks. You may already be familiar with his daily chart analysis over on Real Money. But before we get to the actual technical expertise itself, just a quick reminder to all of you watching at home that Bruce's analysis might not always match the latest that you've heard from Chris Versace. As part of the new look revamp of AAP, we want to continue providing you with as many different viewpoints as possible, in addition to Chris' daily management of the portfolio itself. And with that, let's get started. Bruce, thanks for being here.

BRUCE KAMICH: Thank you.

J.D. DURKIN: Absolutely. So what caught your--

BRUCE KAMICH: Pleasure to be out and about.

J.D. DURKIN: There you go. It's great to have you. So what caught your attention, Bruce in the market this week and what are you watching as we turn the page to next week?

BRUCE KAMICH: About four things caught my attention this week, not so much exactly technical price action, but the marketplace started to pay more attention to bearish news, and react to bearish news, and less attention to bullish news. So there was some good news about inflation, its pace slowing, but the reaction in the marketplace did not last very long. So that's a subtle change in how the market is behaving.

Secondly, the decline in yields that people were pointing to as being bullish for the stock market, I think that period of declining yields has passed and we're probably going to see yields inch back up in the next days and weeks ahead. Thirdly, I think there's been a lot of enthusiasm about the reopening of China. And I was paying attention to the Chinese large-cap ETF with the symbol FXI and that pace or that advance is slowing. So whatever euphoria and excitement about China reopening and COVID restrictions being lifted, the stock prices are not responding in a corresponding matter to the excitement that the media is giving it. So to me that's a problem that despite the optimism, the charts are starting to weaken.

And, lastly, a quiet rally that's building is in precious metals, not getting the attention I think it should be getting and what that implications are for down the road. Looking ahead to next week, I really just have one thing that's easy for people to watch is there's an old-- old, from the 1970s-- an old technique of if the stock market takes out it's December low in the first quarter, it does not bode well for what happens in the weeks ahead. And so we're edging down close to those December lows. So if we broke in on a closing basis, historically, it would say you're due for further weakness.

J.D. DURKIN: All right, that's great perspective. Now many of our members keep a close eye on the S&P 500 in order to gauge the overall direction of the market. Is there a range, perhaps, that you are eyeing right now?

BRUCE KAMICH: The range is really just for the first quarter, maybe the first four months of the year. I really don't suggest much of a range for-- say, for the whole year. But for the first quarter, I would give it 4,000 on the upside-- we've seen that-- and on a downside as low as 3,200. That's my low for the whole bear market, which I outlined back in late 2021. Whether it hits 3,200 or not really is not particularly important, it's the timing and the direction. I think the market still needs a washout, a capitulation, some kind of white-knuckle experience where on the margin people sell. They don't have to totally go into cash, but on the margin somebody is a seller for whatever reason and we need some sense of fear. Markets are always driven by fear and greed. We've had the greed back in 2021 with SPACs, and IPOs, and everything else. Now we need that fear factor-- something-- and it may be exogenous to our economy. It could be something that happens in China or Japan. And whether it's 3,200, 3,100, 3,300, 34-- the level is not important. It's the put buying, and the fear, and the jump, and the fix that will make the difference and set an important allow.

J.D. DURKIN: That's great context on the range. And for whatever it's worth, as we have this conversation, is currently at 3,936. So at least for right now on the higher end, but we've certainly see a fair bit of choppiness these last few days. And that's great guidance in terms of what to expect maybe for the next three to four months. What do you expect, if anything, from the S&P overall for the entire year? Or are you more focused on those-- on the more short-term months?

BRUCE KAMICH: Well, I think from the rest of the year, after this low is established-- whatever level it is, it's not that important-- that it could go on to maybe even double over the next 18 months. I'm not focused on year-end numbers, they're not real important to me. But I think over the next 18 months, the S&P could go and double-- so let's say from a three handle, we could go to a five or six handle in the next 18 months-- so let's say by middle of 2024.

If we look back into this-- the period of the '60s-- '65 to '82 was a secular bear market for the S&P and the averages. The Dow, as an example, went from 500 to 1,000 a number of times in that period. And it might have had a rally for 18 months and a decline for nine months-- the rallies were shorter than we're used to and the declines were longer and deeper. So if we entered a secular bear market-- we won't know that for a while-- shouldn't get used to what we saw between 2009 and 2022-- long rallies and short corrections. I think the rallies will be less in length, so a year and a 1/2 instead of three or 3 and 1/2. And the declines could be steeper and longer in duration.

J.D. DURKIN: As the bear market itself drags on, are there any indicators, I wonder, to watch that could potentially signal a bit of a turnaround?

BRUCE KAMICH: Two that I find also from the '70s-- there's an old indicator by Stan Weinstein. It was called the last hour indicator. And he basically said that the market opens up, it's got a lot of noise, and trading back and forth, people responding to the earnings and/or economic numbers in the morning, and then trading kind of takes its own-- a neutral path during the day, there's day traders in and out, but in the last hour is when Weinstein reason that professionals make their move. These are the people that either want to get out or get in for overnight. They're no longer day trading, but they're going to hold it long or short. And so we tracked the net movement of the Dow in the last hour and compared it to the Dow.

Now, it doesn't get reported. So let's say on tonight's news, they'll say the stock market rallied for the second day and the Dow or the S&P closed up X points. What's missing out of that report is what happened between 3:00 and 4:00. Let's say at 3:00 the Dow was up 200 points but at 4:00 it closed up 100 points. Well, it's still closed up and that's the end of the story as far as the news report is. But beneath the surface, the Dow gave up 100 points late in the day. Somebody wanted to be less long and didn't want to have a position over the weekend-- or less of a position-- or they wanted to be more short. So yeah, the Dow went up from close to close, but underneath the surface it lost ground late in the day. So as I'm looking for a low in the first quarter, I'm going to be looking for-- the Dow goes down 300 points, but it came up 100 in the last hour. And it came up a 100 points in the last hours, people wanted to cover shorts or nibble and do some buying. Fundamentally driven investors will buy into weakness and into adversity. Technicians want to buy in the direction of the trend. So that's a subtle indicator I'll be watching for in the next three or four months. And it's easy enough for someone at home to do that.

The other tool that I would focus on is within the 11 sectors of the stock market, you really need six or seven to be going in strong positions. They need to make lows and start to improve. And within this those six or seven sectors out of 11, you need about 40% of the stocks who have made their turns. So you can't launch a new bull market on three sectors. You can't just do it on energy, and health care, and something else. You need six or seven sectors and you need them to be on four out of eight cylinders. So that's what I'll be watching for in the first quarter to hopefully help identify a buy and a hold for the next 18 months.

J.D. DURKIN: I appreciate that context there and that the simple day of reporting at the close, Bruce, does not necessarily tell the full story, especially with regards to a bit of a late day pullback or movement to the contrary. There's always a bit more context and perspective that is worth closer examination, so I appreciate that point. Now, of course, with all the focus on the central bank here, Bruce, inflation and that ever so scary recession word-- is there anything Wall Street is not talking enough about, I wonder?

BRUCE KAMICH: Wall Street over the years has as shortened their focus on things. Inflation-- we talk about inflation a lot, but I don't think the Wall Street or government's focus on a bigger picture of inflation. So I came into the business in the '70s-- in the early '70s and I was first a commodity analyst. So I got to live through all the bull markets of soybeans, and wheat, and corn, and sugar, and salad oil, cotton-- everything that went ballistic-- orange juice, coffee.

And if you took a long-term chart of commodities-- 200, 300-year chart of commodities-- and you can do that-- it looks like a trip to the doctor. You went to see your cardiologist, and he had an EKG done, and the EKG flutters along quietly for a few minutes, and then there's a run-up and excitement and then it goes back down and flutters again quietly. That's the long history of commodity prices. They're quiet, they're in balance, and then you have an explosion like the '70s. You have a confluence of things that happen-- Russian wheat deal, a freeze in coffee in Brazil, a freeze of orange juice in Florida, high death loss of cattle because of a terrible winter, and then prices stay up long enough that people are incentivized to have more supply and things come back to the normal. Supply has always been the shock that sets off commodities.

This time and this current run-up in commodities and inflation, we have a combination of supply shocks and we have demand that we've never seen before in the world. And you can get this stuff from the UN. Since the year 2000, the world has added 40, 50 million people a year to the planet. Since the year 2000, we've been losing farmland. It's been washing out down the Mississippi, it's-- we've been losing stuff to our-- farms turning into housing developments here in Delaware. We've been losing the ability to increase supply. We've had no new refineries in 20 years. It's difficult to have a new mine. There's no new mother lode of anything. And there's no new discoveries in the oil field. The last thing was the North Sea. So we have stagnant supply. And in addition, in the last 20 years, the world has added about a billion and a 1/2 people to the middle class. What does this mean? People in the middle class want stuff.

People want to move from eating rice and tofu to eating chicken, and beef, and fish, which all take more resources. People in the middle class want to move away from walking, to a bicycle, to a moped, to a little Tata motor car in India, to a big SUV. All that takes more stuff. And we've never had that demand-driven function in commodities before, it's always been supply shock. So we've had some supply shocks from OPEC, from Ukraine, and this, and that, but we have a demand that's driving things that's been unsatiable and it's a game changer. So the issue to me that's not getting discussed on Wall Street is-- it's not supply chain issues, we've cleared up the waiting time for a boat to be unloaded in Long Beach, California. We've cleared up a lot of these things and we still have high prices.

J.D. DURKIN: In a recent post up on Real Money, Bruce, you were eyeing crude oil specifically. What are crude oil futures telling you about inflation as well as the broader economy?

BRUCE KAMICH: Like interest rates, we had a little reprieve in high rates. We had bond prices rally, yields come down. Crude oil, we had a big run-up, and we've had a correction, we've a slowing demand in some parts of the world for crude, we've had marginal increases in-- here and there for supply, but OPEC has been responding with cutting back supply. The risk in the crude oil market is always that there can be a supply shock. You can get something happening in the Suez Canal, something happening in the Middle East, something happening in Russia, wherever. There's always-- the risk is supply shocks. So we've had a correction-- the market has been building a base. If if people believe we have a shallow recession, or no recession, or that the reopening of China is going to increase demand again, oil prices are poised to move higher-- into the 90s, I believe, for the first leg back up. And if you look at some of the companies-- I was just looking at a chart of Valero, a refiner here in the States, the chart is very, very bullish. So some of the equity plays in the energy fields are discounting higher prices for crude oil. So I think the good news is behind us. We've had stuff come out from the Biden administration to ease supplies-- we're done. So the risk now was for higher crude oil prices and the risk then, therefore, for inflation numbers to heat up again.

J.D. DURKIN: Absolutely. OK, finally, let's move into a little education here. Bruce, when you look at a stock chart, what is the very first thing that you're considering?

BRUCE KAMICH: OK. Always consider the trend. It's your first reaction. Are they moving from the lower left hand corner the upper right hand corner or they're moving from the upper left hand corner to the lower right hand corner? So many people that are learning about technical analysis rely on indicators. They like the math-driven, the quantitative preciseness of numbers-- moving averages are black and white, there's no gray area for that in indicators. Charts tend to be gray and people maybe either lacking imagination or not focusing on the trend. So I like to look at the trend first. I like to look at three different kinds of charts because no chart is perfect and does everything. So I like to look at a line chart, a bar chart, candlesticks point figure, and also on at least three different time frames. Most people are short-term focused. They'll look at a daily chart. You need to look at a daily chart, a weekly chart, and maybe a monthly chart, and understand that maybe this sell-off is just a dip within an ongoing longer term trend and you really want to be a buyer of it and not be bearish on it. And I think that gets lost in today's society that wants a shorter term focus and numbers. Indicators are just derivatives of the price action. So the indicator may be screaming by, but if the trend is still pointed down, it doesn't mean anything. It's like-- we need to respect the trend first.

J.D. DURKIN: All right, that was some excellent insight. Thank you so much for taking the time to join us, Bruce. Bruce Kamich, appreciate your perspective.

BRUCE KAMICH: My pleasure.

J.D. DURKIN: All right, absolutely. And for those of you who are wondering, next time we have Bruce, we will get into the charts of some of the portfolio's biggest names. Quick programming note, Chris and I will be back on Monday to help break down the state of the portfolio overall as we begin yet another trading week. Until then, have a great weekend. Thanks for watching.