J.D. DURKIN: Good morning, subscribers. Carley Garner joins us now to take a look at commodities as well as her takes as we make our way through November trading. Carley, good morning. Thanks a lot for taking the time, as always.

I do want to kick things off with your latest column over on Real Money. On Monday, Carley, you noted the market might be experiencing a bit of a regime change in favor of the bulls. What did you mean by that? And do you still feel the same as we close out the trading week, I wonder?

CARLEY GARNER: I do. What I was getting at there, and this is a macro take, not a micro take-- so I'm talking months or years, not days-- but the idea is we talk a lot about market cycles-- earnings cycles, economic cycles, things like that-- but the markets go through volatility cycles.

We go through cycles of high volatility and low volatility. During high volatility times, people tend to overreact to headlines. During low volatility times, they basically don't react to things they should react to so. It's a little bit of a market psychology standpoint.

In my view, we started shifting from high volatility to low volatility a year ago in October when the market bottomed. And we're still kind of working through that process. But I think we're-- maybe this last correction, maybe, was the last time for the bears to try to capitalize on that pessimistic outlook.

And going forward, I think it's going to be a little bit different. The corrections will be a little shallower. The rallies may not be as significant, but they'll be more plentiful. And so I think we're just going from a situation where maybe we see some sort of lull in volatility, kind of like what we saw in a lot of 2017-2018 where markets didn't skyrocket higher, but it was like a slow grind higher. And I think that's kind of where we're headed over the next year or so.

J.D. DURKIN: Carley, we spend a lot of time talking about the S&P 500 resistance levels here at AAP. And of course, back in July, you correctly called the market correction-- I'm going to give you a hat tip, you could spike the football a bit, it'd be well deserved-- you called the correction that we saw through October. But I wonder, is there a new level on your mind that maybe our members should also be aware of?

CARLEY GARNER: So there's a couple of levels that I'm watching. And keep in mind, I'm following the E-mini S&P 500 futures. It's a little bit different cash market. It's adjusted for about 20, 30 points-- futures are a little higher. What I'm looking for is as long as the market holds 4,300, 4,330 area on any downside correction that we might get in the next couple of days, or week, or so, I think the bulls are in Control

That's kind of a level that we've picked out on a weekly chart to be a pivot between bullish and bearish. On a daily chart, I see pretty good resistance at 4,430 to 4,460. If we can get above 4,460, let's say, in the next week or two, that, to me, is confirmation that the seasonal rally is in full swing.

And to be honest, when I look at a weekly chart, if we get above 4,460, I really don't see anything stopping it until we get to 4,700, 4,730. So I know it sounds impossible now with the fundamental backdrop, but markets are momentum driven.

And I think a break above 4,460 puts us right around 4,700 maybe even by the end of the year. We'll have to see how that goes, but I think it's possible.

J.D. DURKIN: Carley, to the point of seasonality, we know how strong Q4 is historically for equities. And we're not quite at the season to talk about a Santa Claus rally, but it's not too far away. Are those kind of normal things that we look for also on your radar for this year?

CARLEY GARNER: It is. Absolutely. I think seasonality is playing a really big role in what happens going forward. Occasionally, we do get big selloffs this time of year, but it's very rare. For example, in 2018, we saw the market not only refuse to the year end rally, but actually dropped very sharply, all the way into Christmas-- I think it was Christmas Day or Christmas Eve.

Anyway, the odds are, on most years, markets go up this time of year. So it's generally not a good idea to be working against that. And the interesting thing that generally goes under the radar is seasonality for treasuries is also very bullish. The Treasury market's had a habit of bottoming in October.

In 2018, we had a capitulation bottom in October. In 2022, we saw the same thing. And in thus far in 2023, it looks like we may be getting exactly that. And if treasuries did bottom in October or somewhere sooner rather than later, that's going to be a major tailwind for stocks.

J.D. DURKIN: Early to late October, of course, we saw the VIX hit levels as high as 20, 21. It has since retreated there to around 14 and change in recent sessions. What have you taken away from the action in the VIX? I know it's something you've followed and written about extensively throughout the last few months, Carley.

CARLEY GARNER: Right. So that's a really good numeric representation of what I'm talking about-- a regime change. We went from high volatility, high fear, or at least relatively elevated-- I'm not going to say "high." It wasn't super panic. But we went from slight panic to a market that's overbought and maybe a little over optimistic in a matter of a week, week and a half. And that caused a really big implosion in the VIX.

And this tells me that speculators or even hedgers, portfolio hedgers, are going to be a little less aggressive hedging their price risk going forward. And to me, this is something that's bullish, not bearish.

J.D. DURKIN: OK. Let me ask you about bond yields here. The 10 year of, course in, particular, been such a focus for the last several weeks and months. Let's talk about the relationship between stocks and bonds for our members.

Typically, bonds go down, stocks go up, or vice versa. Is this still a pattern to expect? Or are we kind of in this whole new world where maybe it's a little more difficult to try and figure out how some of these typical metrics play themselves out?

CARLEY GARNER: Right. Well, that's exactly what they taught us in finance 101 while we were in college, right? Stocks up, bonds down. And in this particular situation, we're seeing the exact opposite. I ran the stats over the last 90 days, and the US 10 year note Treasury future versus the S&P 500 future has settled in the same direction about 90%, 92% of the time over the last 90 days.

So not only are they not negatively correlated, but they're highly positively correlated. And what this tells me is a lot of that weakness that we saw in stocks over the last month or so was really just an interest rate story. Higher interest rates spooked investors and caused various reactions in the marketplace. But if interest rates have stabilized or bottomed, as I think they probably have-- if treasuries have stabilized or bottomed, interest rates topped, I think that we're in an entirely different environment. And I think both asset classes can climb higher as we go into the next couple of months, and maybe even quite a bit longer than that.

J.D. DURKIN: All right. It's not a conversation with Carley Garner without some talk of commodities. Let's talk oil and gold. Let's start with oil. Brent crude futures hitting their lowest level since at least August this week. Do you expect that downturn, specifically, and a bit of that downward pressure to continue?

CARLEY GARNER: When oil started to rally on news of violence in the Middle East, it failed to break above 95. And I knew then that this market was probably in trouble. The market was just too long in the 90s. Speculators were buying on the news. And then they ended up selling on the fact, which is generally what happens.

Often, when you get violence in the Middle East that causes a crude oil rally, speculators are disappointed, because usually the supply disruptions that the markets are pricing in don't materialize. And then we get liquidation of that trade. And so often, the price of crude oil is often lower at the end of the news cycle than it was in the beginning, which is ironic, because just from a fundamental standpoint, that's probably not how most people would expect it to work. But that's how it works more often than not.

The numbers we had coming into the last week or two as support were 76, which we surpassed yesterday. Our next number is about 72, 71. I do think we see the low 70s. So if you're bullish, maybe exercise a little patience. We're getting a little bit of a technical bounce here over the last couple of days, but my best guess is that's not going to last.

Seasonally, crude oil generally trades lower from mid-October through mid to late December. So I'm not in any hurry to get bullish, but I do think once we do get into the 70s, it's probably a good value play.

J.D. DURKIN: Absolutely. Brent's at 81.10 as we're currently having this conversation. We'll track it very closely. Over to gold, also been a leg lower, whether as a hedge against inflation or something to consider amidst the geopolitical uncertainty you mentioned. Is the long enjoyed safe haven status of gold, do you think, a bit more coming into question?

CARLEY GARNER: Gold is a very complicated market. It's not a great hedge of anything, but it is a good diversifier because it has a mind of its own. It does its own thing. It's not really correlated or negatively correlated to any asset. It kind of is unpredictable, which is nice as a diversification factor.

I do think that gold, probably the fundamentals are supportive. But the market participants have been trained to take profits on rallies, and that's exactly what we're seeing. And I would expect that we see gold retreat down to about 1,920. That's where we would retest the trend line that was broken on the way up. And that's kind of a typical market pattern.

So somewhere around 1,920, I think we find support and we start heading a little bit higher. Speculators are not holding bullish positions in a manner that they normally would. So there's plenty of buying power, they just need a reason to do it.

J.D. DURKIN: And of course, as a reminder to our members at home, the club owns positions in both SPDR Gold Trust as well as the Energy Select SPDR Fund as well. Now that harvest season, over to the ag space, harvest season largely behind us-- Carley, how are the agricultural commodities looking to you as we head now into the final weeks and months of 2023?

CARLEY GARNER: Well, we're just-- we're deep into the harvest season. And usually in the grain markets during and right after harvest is when supplies are the most plentiful. And that's usually when you see some sort of a bottom in pricing. And I do think we're probably in the process of bottoming in many markets, specifically corn.

But what I do see in the tape and also when I talk to market participants, some farmers and ranchers, I feel like there's a lot of grain out there that's unhedged. And this is the byproduct of having elevated grain prices over the last couple of years. farmers are optimistic people, so they're always hoping for the best.

And some of them, I believe-- unfortunately, I think more than I would like to believe-- are probably unhedged or under-hedged. And what that generally does to prices is it puts pressure on it, because they're going to be forced to sell their product or the inventories they have in the bin probably at low prices, but they need that cash to continue operations.

So unfortunately, I think the path of least resistance is lower for the near term. But once we get that worked out of the system, we should get some firm pricing going into next year.

J.D. DURKIN: Carley, before we leave-- anything top of mind that we did not talk about or you think maybe we should be paying a little bit closer attention to?

CARLEY GARNER: As always, you've done a great job, J.D. , you asked all the right questions. I will mention the dollar index, because I tend to mention that on this segment quite often. The dollar index had a really huge rally earlier this year, and it stalled. And according to our charts, it's holding-- as long as it holds 106.5, 107, the path of least resistance remains lower.

I'm looking for the dollar index to trade a little under 100 in a month or two, somewhere around the 99 area. If it breaks 99, we could go quite a bit lower. And that in itself, all else being equal, that in itself is supportive for most assets.

J.D. DURKIN: Wow, OK. That's great insight there. That's going to do it. Thank you for taking the time as always. Carley, appreciate it.


J.D. DURKIN: All right, members, Chris Versace and I will be back on Monday morning to get ready for another busy week ahead. Until then, have a great weekend, and we will see you again soon.