J.D. DURKIN: Good morning, subscribers. The great Helene Meisler joins me now for her take on what to expect from the final weeks of 2023 trading on this very first day of December. Helene, welcome. And it's really nice to have you. I know you've been so busy over on Real Money.

And I do want to start with your column from earlier this week, which had a bit of a warning for the bulls. You wrote you could see a pullback followed by a rally in early December. Helene, what led you to make that particular call? And do you still feel that way at the end of the week?

HELENE MEISLER: I do still feel that way. One of the reasons that I feel that way is we're a little overbought. We're not fully overbought. I don't think we're intermediate term overbought yet. But short term, we're a little bit overbought. And we have sentiment has gotten a little giddy in the last week or so. And when too many people are bullish, you need a little pullback to shake the tree.

J.D. DURKIN: In terms of overbought, if you don't mind me asking, just in terms of the technicals, for any of our members who don't know necessarily how you get that information, are you going off of the relative strength index, RSI? A lot of people followed that measure between 30 and 70 if you get to a certain level. What are you following to better inform some of our subscribers?

HELENE MEISLER: OK. I don't use any of those computerized indicators. I have my own methodology. And it's based on the breadth of the market. And so, for example, if we take a look, the market's breadth has been quite positive lately. I mean, it's not been spectacular, but quite positive.

And beginning Monday, we will be looking at the-- if we look at the prior 10 days of trading, we'll have 8 of the prior 10 days had positive breadth. And so at some point just think of it like someone who's running. At some point you need just to take a little breather. And so overbought is just a loss of upside momentum. You can pull back and sort of, if you will, if you're a runner, you stop, you take a little drink of water, and then you get going again.

J.D. DURKIN: That's a great comparison. I think it's something that a lot of people would very much understand. Of course, Wall Street has become increasingly bullish. The media loves to wrap market sentiment, Helene, with neat bull versus bear back and forth. But in practice, it should be treated a lot more seriously than just some flashy, quick, shiny thing headline. Helene, why do you keep track of sentiment? And how does that influence your own personal approach to the market?

HELENE MEISLER: OK. First of all, we keep track of it because we want to know when, if you will, think of a boat. When a boat is loaded too far on one side, it has a tendency to flip back, either flip over or flip back to the other side. And so we don't want sentiment to get too-- well, when we were in late October, we got sentiment too bearish. And then you see that people have to scramble and shorts have to cover and nobody wants to own stocks. And then all of a sudden, everybody wants to own stocks because the stocks are going up.

And so sentiment slowly starts to move towards bullishness. And now we're getting to the point where bullishness-- I don't think we're quite giddy. But we're on the verge of getting, if you will, the boat tipping a little too far to one side. And the reason we care about it is the same reason we cared when people got too bearish is that when they get too bullish, if everybody owns stocks, who's going to be left to buy? So you need to shake it out and get people a little bearish so they think, oh, God, maybe I don't need to own stocks here. And then you can go up again. So it's the same concept as an overbought market that got a little ahead of itself.

J.D. DURKIN: I love that. Now, Helene, you've seen numerous signs of more investors warming up to the market. Can you walk us through some of the indicators that you've been closely watching as well as their significance?

HELENE MEISLER: Yeah. First of all, the Investors Intelligence bulls have gotten to 55% this week. To give you an idea, generally speaking, 55% to 60%, you're sort on the verge of giddiness. You've really converted a lot of people to bullishness. We got to 56% the first week in August. And then you saw we had a big correction. So that'll give you an idea.

When we look at the American Association of Individual Investors, which is, to me, I think it's a little bit more like day traders, but they're now at 48% bulls. They got to 51% in August. So you can see-- and they were down-- I can't quite remember, but I think they were down at like 30%, or maybe it was 25%, in late August. So they're getting a little frothy.

And then if we think about the bears, the bears in the AAII poll are now at 19.6. And that is the first time that they've been teenagers since 2021. That's a long time. And so maybe they're not as bullish as they were in August, but they're certainly a lot less bearish. And if you take a look at this chart here, I'd like to plot it on a four-week moving average because it gives you a little bit more of a trend.

And the first thing is you can see that big peak in the four-week moving average-- that's the blue line-- right at the low. People were way too bearish. And now you can see we're fast approaching the kind of readings that we had, again, in early August.

But even if you go back and you take a look at those twin lows in 2021-- and I know people are going to say, yeah, but, look, the market kept going up, except if you take a walk down memory lane to 2021, you might recall the second half of the year was all what we called FAANG stocks. Now we call them the Magnificent Seven. But it was a terrible year for any other stock in the second half. And then in November even the FAANG stocks peaked out. So you care about sentiment because, again, you don't want the boat to capsize. You want it to right itself again.

J.D. DURKIN: Helene, if I could ask you a quick follow up on this, to this point of AAII, you wrote this week that folks have finally gotten in the pool. Why do you think they are in the pool? And how long do you suspect they will stay there for?

HELENE MEISLER: OK. So I always refer to sentiment as either everybody's in the pool or everybody's out of the pool. And so if you think about a pool that goes from shallow to deep, the way I see it is people sort of, as the market rallies, they take a step, they stand on the first step, they get adjusted to the water, then they take another step in, and so forth and so on.

And now the way I see it is they're sort of in the shallow end. They haven't really taken a big deep dive into the deep end. And that's the next step. Now, if you get a pullback, what you do is you get everybody scurrying back to the steps, which is, to me, bullish. You don't want everybody diving straight into the deep end.

J.D. DURKIN: Helene, I got to say, between boats and pools, you do a wonderful job of just describing the imagery. I mean this sincerely because I think for people that kind of approach these topics and they think, oh, it's a bit ambiguous, a little esoteric, it really does paint a really wonderful picture in terms of what you're trying to describe. So I got to say I really appreciate that. Let's look ahead here, Helene. You've been writing that mega and the big cap stocks. They're in need of a little bit of a pullback. Is that something you think we should expect in the early months of 2024?

HELENE MEISLER: Actually, I think we're getting it now. We've had them churning a lot. And then yesterday they sort of took it on the chin. The way I see it is is when those stocks rally, there tends not to be enough money around for everything else because they're so big. And they're in all these ETFs.

And so what you want to do is you want to spread the wealth. And what I say is you've got the Magnificent Seven, and then you've got the 493. And I like it better when the 493 get a little love rather than all the love going to the Seven. So I think we started a little pullback in them yesterday.

I'm OK if they just go sideways, quite frankly. But you need to get money to stop going into all of them so that you can have it in a lot of other stocks. And you will spread the wealth. As we get into 2024, I would like to see more of that because that would be, obviously, to me more bullish if you have more stocks lifting.

J.D. DURKIN: Now, among the mega caps, so much attention, as we know, has been paid, of course, as you just said there, to the Magnificent Seven, really to the point where it seems as if you can't really get away from those key seven names. Helene, how are you approaching that particular group of stocks, as consolidated as they are, and what role do you think they will play in the new year?

HELENE MEISLER: Oh, well, I think that they absolutely are what I call them, the index movers. Without them, just take a look. NASDAQ was down yesterday. And as a matter of fact, most of the day the S&P spent in the red. But the breadth of the market was positive most of the day. So you can see what happens is that they pull the indexes either up or down. But I prefer when they're flat and the money can go into all the other stocks.

And so I would like to see that continue into 2024. At this point, I don't know because I have to wait and see what sentiment looks like. I have to wait and see if we actually do get a pullback in early December and then what a subsequent rally would look like. But from my vantage point here a month before the year end, that's what I'm looking for.

J.D. DURKIN: Yeah. A nice broadening out would be something that's welcomed by many. We have seen some movement from the Russell and some of those smaller cap indexes in sessions the last few weeks. But to your point, the Magnificent Seven, so to speak, it's about 28%, 29% of the entire S&P 500. It's such an important story. So I appreciate your context. Now, Helene, you tend to focus on the down and out names. I wonder, are there any charts catching your attention in this particular environment?

HELENE MEISLER: Well, since I'm a glutton for punishment, I have been warming up to energy, having been bearish on it since about, I don't know, August or September. And I just feel like now there seems to be a running narrative about why you don't like energy. And the energy stocks came down. And they've just been sitting here. And there's a lot of support in most of them. And if you can get oil to turn up, or at least stop going down, I think you can start to get some interest in the energy names as we move into 2024. That remains to be seen because so far all they've done is just sit here.

J.D. DURKIN: Yeah, absolutely. At least in terms of the SPDR Select ETFs. You mentioned energy. XLE is down just more than 3%, one of only four sectors or so in the red. But certainly a really key sector there to focus on. Truly the great Helene Meisler, thank you so much for taking the time. I could do this conversation with you for an hour. But we have to leave it there. Happy Friday. Enjoy your weekend. Thank you for taking the time.

HELENE MEISLER: Thanks, J.D. .

HELENE MEISLER: Members one and all, Chris Versace and I will be back bright and early on Monday morning to get you ready for another very busy week of trading ahead. Until then, my special thanks once again to Helene. Have a fantastic weekend, one and all. And we will see you again soon.