How to use technical analysis to make money in this market

Rich Suttmeier is founder and CEO of Global Market Consultants—and the newest contributing editor at Curzio Research. He’s an excellent analyst with 40 years of experience… and one of my favorite guests.

As usual, Rich and I have a wide-ranging interview on such topics as the recent Federal Reserve actions… his favorite sectors right now… and how to use technical analysis to make money in this market [14:22].

And don’t miss my educational segment [46:46], where I talk about buying great businesses with great brands—at a huge discount.

Transcript

Wall Street Unplugged | 673

How to use technical analysis to make money in this market

Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on Main Street.

Frank Curzio: What’s going on out there? It’s June 12th. I’m Frank Curzio for the Wall Street Unplugged podcast where I break down the headlines and tell you what’s really moving these markets.

A few weeks ago, I talked about my vacation at the Hard Rock Hotel in the Dominican Republic. It was a good time. I mentioned how my eight-year-old daughter got sick the very last day. She was throwing up violently, couldn’t even take a sip of water without throwing up, so we needed to go to the hospital so she could get an IV right away. She was very pale, very dehydrated. Again, she couldn’t even sip water. You know, we’re a little nervous.

Now, we have a timeshare at the Hard Rock, and it’s not specific to the Dominican Republic. We can stay at numerous Hard Rocks internationally. I bought this membership about five years ago. We upgraded a few times so we could use it at even more hotels, get extra benefits like more excursions, and family rooms, and it was an amazing deal. If we go four times, like we did already, it’s awesome, it pays for itself. It’s like the Disney Annual Pass. It’s expensive, it’s a little more than twice the single-day price, but if you go more than two times, it pays itself. It’s definitely worth it. If you can go 20, 30, 40 times, it’s an amazing deal. That’s kind of the deal we got. So, we’re pretty good customers.

Now, when my daughter was sick, we saw the hotel doctor. The hotel doctor, she was awesome, and she said, “Look, she has food poisoning.” Again, a doctor at the Hard Rock. She said, “Take her to the hospital. She definitely needs an IV.” We went to the hospital about 20 minutes away, and after blood tests, the doctors there confirmed that she had food poisoning and she needed to stay at the hospital for 24 hours. They gave her antibiotics, and it was great, and thank god we did that because it resulted … That whole entire process, and it happened the very last day, we had to change our flights, just scheduling. It’s really crazy when you spend a week away and you’re going to come home, it’s just like a million things going on, and then all of a sudden, you can’t come home that day, it’s gotta be another day. It’s just really, really hectic.

When we changed our flights and we needed to stay at the Hard Rock one more night, to my surprise, the hotel did not give us the room for free. It wasn’t like I was looking for anything free and say, “You know what? This is what you should do for us,” or whatever. For us, it was frustrating because the only reason why we’re there an extra day is because my daughter ate your food at your hotel and got food poisoning. They’re like, “No.” They actually said, “You know what? We’re only going to charge you $550, which is daily rate since you’re a good customer.” I said, “What are you talking about? How could you charge me? Why don’t you just do the right thing? I’m here because of you.”

When they told me that, I spoke to several people, including one of the top managers there, and I was really, really pissed off because when I spoke to the manager, not that she was giving me an attitude, but I was just surprised because she said, “Well, how do we know if your daughter actually got food poisoning at our hotel? I mean, she could have got it someplace else.” At this particular place, guys, it’s on 20 acres, they have a bunch of restaurants, and you can’t walk anywhere. It would take you 20 minutes just to walk out of it, that’s how big the place is. So once you’re in there, you’re in there. You could drive some place and go someplace else. They have tons of restaurants, not to mention they have cameras; you can see that we were in there if it really came to that, but the fact that she questioned me really bothered me.

Now if you fast-forward to today, there’s an article in The New York Post that’s blowing this story wide open. The headline for that story says Nearly 70 Tourists in the Dominican Republic Reported Illness Since March. They have a picture of the Hard Rock Hotel and Casino. This is published yesterday. They said, “Nearly 70 tourists reported getting violently ill while vacationing in the Dominican Republic since March. That’s up 10% from reported illnesses from last year, and more than 45 of them identified themselves as guests of the Hard Rock Hotel and Casino in Punta Cana,” which is the hotel that we stayed at.

Not only that, we’re seeing a lot of reports that people have died. More than six people have died from illnesses, mysterious ailments, they’re saying while staying at luxury resorts, and a couple of these people were at Punta Cana. So somebody actually told a story and said, “Our family of four recently returned from a weekend vacation at the Hard Rock Hotel at Punta Cana. Booked an all-inclusive package. We all became violently ill after they ate at one of the restaurants there,” which we know the restaurant, and they said the family had to stay an extra night at the hotel, and it cost them $847 they charged them. They were too ill to travel, but they charge them for that money.

Now, think about that for a minute because now it’s a national story. It’s everywhere. I’ve seen it on CBS, ABC, and I didn’t really take it too seriously. I just thought maybe my daughter just had food poisoning, but it could have been a lot worse than that. Thank god we took her to the hospital and we didn’t take chances and say, “Hey, you know hopefully you’ll be okay,” because now you’re seeing the effects of this. But this is a major problem. I mean, for me, I had a crazy rant on why people just don’t do the right thing. The right, oh yeah, give me the room for free. Okay, fine since it’s your fault I had to stay an extra day, not to mention I had to pay close to $2,000 for my daughter to stay at the hospital overnight because of you, but now the story’s out.

These assholes, sorry for cursing there, but these assholes and that manager I spoke to, they knew they had a problem. They already had dozens of people complain about being sick, you even had two people die at their resorts, and the manager told me, “How are we supposed to know your daughter got sick by eating here?” When you know you have a problem? I’d rather you say nothing and just say, “Hey, we’re going to charge you for the room.” But for you to actually question me, and I’m a good customer, saying that, “Are you sure she ate here? How do we know?” I mean, it’s pretty easy. You could find out, if you really wanted to, through cameras and whatever, but I’m telling you I’m a good customer and being honest with you. I’m not asking for anything crazy. I’m just asking, do the right thing here. We’re totally inconvenienced. We didn’t take a shower for two days because we took our daughter to the hospital back and forth. It was crazy.

But that’s what these guys actually did. They actually tried to convince me or, “Hey, how did that happen?” not convince me, but when you know you have a problem at the hotel. How crazy is that? And I’m not saying it’s just for a rant or a personal thing. I mean, my rant back there was what happened to people doing the right thing, especially when it comes to business? I have so many business owners that listen to this podcast.

People are going to get pissed off when you mess up as a business, and maybe you might have billed someone extra by accident, maybe you had to recall a product for safety reasons, like we see with car companies and also healthcare companies. You know what? It’s okay. Every business owner’s going to make mistakes. It’s 100% guaranteed that they’re going to make mistakes. You’re going to piss off people every now and then. But the way you handle your problems, being honest and transparent, doing the right thing, that builds long-term credibility with your customers.

I have to tell you this. People who have written in and said, “Frank,” you know, and they just came in at the wrong time, and they bought two of my stocks that went down, and they’re like, “I can’t believe this! I lost money on this,” this and that. I looked, and saw that they came in, and said, “Hey, you know what? This is on me. You came in at a tough time. We’re doing really on a lot of other stocks, but these two went down,” and they immediately came back and said, “Frank no, listen, I’ve made money from you before. This is okay. I was just ranting. I was pissed off,” but just acknowledging that and saying, “Hey, you know what?” I knew when this guy came in during a period, like there were two stocks that didn’t do well, and this guy got wrecked, if he came in two months before, three months before, he’d be fine. If he came in after, he’d be fine.

But just acknowledging and saying, “Hey, you know what? All right, I hear you,” built a customer for life because, just answer him and say, “Hey, you know what? This is my fault.” But just doing the right thing. There’s so many businesses, especially today, that just don’t do the right thing for their customers. Even in our industry especially. I’ve never seen an industry where so many people have lost money listening to the wrong people, and they continue to subscribe to these services, which is amazing to me.

I mean, there’s a theory in our business that says performance doesn’t matter as long as you could tell a good story. Think about that for a minute. It doesn’t matter if a newsletter editor loses your money, as long as I’m entertaining you, and talking about different trends, and talking about how great this is, people are still going to sign up, which is crazy when you think about it.

At the end of the day, business owners doing the right, Dominican Republic didn’t do the right thing, and not only that, I mean, look how dangerous the situation was. Instead of being, “Hey, take your daughter to the hospital. We’ll take care of it,” or whatever, you tried to push it off like nothing’s wrong. “It’s not our fault.” When clearly, you’re looking at 70 cases in the DR, and I’m telling you, after this story, my case isn’t on there, my daughter’s case isn’t on there. There’s probably hundreds of people that got sick that aren’t there that are going to reach out now after reading this story now that it’s highlighted, now that you’re seeing these stories of people dying in the Dominican Republic.

It’s really crazy considering tourism is huge in Dominican. If you take that away, most of those tourists come from the US, and now we’re hearing this story … Listen, again, you had the chance to do the right thing, you didn’t do the right thing, but it’s probably a place we won’t visit anymore. We’ll probably go to other resorts outside of that, but very, very frustrating. I just wanted to bring that up in case anyone’s thinking of going there. It is a little dangerous. I’d be very, very careful, and the fact that they tried to cover it up really, really, really bothers me because when I look at companies doing the right thing, I look at when the President announced tax reforms, you had AT&T merely gave a one-time bonus to every one of its 200,000 employees. Aflac, American Airlines did the same thing. Altria paid 7,900 non-executive employees and extra $3,000 bonus.

We saw with Binance, which is the largest crypto exchange, and it got hacked for $40 million. This is crypto, right? People were skeptical. Immediately, they came out, they were transparent and said, “Hey, we’re halting all withdrawals in case they’ve still stolen cryptos on our site. We’re not going to let them come off our site.” You had Coinbase come out and say, “We’re not accepting any transfers.” The whole community got together. They covered the loss fully, made their customers whole again. Handling that just improves their credibility. It makes me want to go to that exchange knowing that hey, I’m safe. If anything happens, these guys got my back.

It’s very, very important when you look at business that way, guys. And not that I wanted this to be a huge rant or crazy, but when you look at that situation, and it’s talking about my daughter, and safety issues where people have died, and she probably had the same exact thing that a lot of these people were sick and probably just wanted to go through, it’s pretty crazy that they looked to cover that up. It’s very, very frustrating.

Anyway, for me, you’re highlighting this story in The New York Post and how it’s going national now and global where it’s going to hurt their business specifically, and that specific resort, but the Dominican Republic as a whole, but by doing the right thing, you probably could have limited that damage instead of coming out with this. It’s such a surprise. It’s 70 people now, which is probably … It’s going to be three or four times that number who are sick with food poisoning. They had a chance to deal with this and do the right thing, and you didn’t. You tried to cover it up and now you’re going to lose a ton, a ton of business going forward because I can’t see families going there after this story was released.

Anyway, I want to move on here, but the lesson with business is doing the right thing, because I have a great guest today. It’s 40-year market vet Rich Suttmeier, who was on my podcast about three months ago, and we recently signed him to Curzio Research. He’s providing a special column for us called Chart of the Week, just for now. We’ll change that name. Kind of generic. But it highlights ideas based on Rich’s methodology for trading stocks. There’s a lot of technical analysis involved. You’re going to see fundamental analysis, but more important on the technical side, he explains in detail about moving average, simple moving averages, how he’s looking at this. When you see it, you can actually use it for yourself.

Thus far, he just wrote two stories, one about Apple, one about Amazon, so the past two weeks, it comes out every Friday, we requested feedback. 99.9% of the feedback has been amazing. Talking about hundreds of emails and we’re really happy. I love when my customers are happy. I love when they’re learning and it’s just really great.

So I’m bringing Rich back to talk about his new partnership with us, or will he take on a bigger role, which includes writing a newsletter under the Curzio Research brand in the future, but he’s also going to break down the markets like he always does, which we’ve seen rebound sharply over the past two weeks after falling for four straight weeks. Now is it a chance to be buy? Should we be buying here? Is it going to go a lot higher or should we take in profits? Which he’s going to break down, favorite stocks, and sectors, and share one idea that he loves right now. He’s going to have a little bit of a bullish tone, which is kind of crazy for Rich. He’s more, “Hey, I’m worried. The market’s going to crash.” He’s more bullish but he’s going to highlight a stock that not only is a great momentum play, but it’s trading at a dirt cheap valuation.

Then in my educational segment, I share with you one of my favorite strategies that are going to help you buy some of the world’s best brands at a significant discount. It’s a strategy you can use for almost any company in the S&P 500, talking about industry leaders, established companies generating huge cashflow, earnings, pay nice dividends. It’s going to be a great educational segment. Please be sure to give it a listen. I promise it’s going to be worth it.

But first, let’s get to my interview with the one and only, Rich Suttmeier.

Rich, so great to have you back on the podcast!

Rich Suttmeier: Oh, thank you, Frank. Good to be here.

Frank Curzio: Well, let’s start with the markets. All right? Let’s get a macro picture because what we’ve seen over the past nine years at least is buying the dips have been a great strategy. We’ve seen over, pretty much the last two weeks, the markets have bounced back, but four weeks in a row, the market really got crushed, whether it’s tariffs, whether it’s Brexit, whether it’s uncertainty in the markets. But now, the last two weeks, again, we’re seeing the market trying to come back a little bit.

What are you telling your clients? What are you telling your people? Is there another buying opportunity on the pullback or should you be taking profits here? Are you a little nervous?

Rich Suttmeier: Well, I think when you see the market go down as much as it has, and then a key level holding at the lows, you’re essentially trying to pick a bottom for a trade, and now we’re getting up to what I believe will be the upper end of the trading range. You’re looking at all right, what did I buy during that losing streak? Let’s take some money off the table.

I think the prudent thing now is you’re positioning with an allocation that’s at a minimum to stocks because of the longer term volatility, and you have a 10% position in some sort of gold, and my favorite is Newmont Goldcorp.

Frank Curzio: Well, you brought up a couple of good things there because you’re talking about different levels, which I want to get into. Let’s get into that, actually, because when we look at … I’m going to talk about how you’re writing for us, I did a little bit of interview, and I was going to go into more of the macro picture here, but since you mentioned it, let’s give an education to the audience out there because you’re saying if a certain level holds, then you’re looking to get in.

Talk about that with the market. What level held? How do you find that level? Because I think that’s important for people to understand technical analysis because I always introduce you as, “Hey, this is my residential bear,” but that’s long-term. In short-term, you’re long a lot, you’re buying stocks on these pullbacks, you’re looking at levels. Explain that system.

Rich Suttmeier: Well, I write about the five major equity DTFs. One of them is the Nasdaq 100 shares, QQQ symbol. My methodology has the last nine weeks, months, quarters, semi-annual, and annual numbers chugging along in the proprietary analytics, and my annual level for all of 2019 is 16927. Well, guess what the low was for QQQ? 16927. We bounced off of that, obviously, very quickly and very nicely. That’s a trade. You know you got out of the market because at the beginning of May, we had an inflation of what a call an inflating parabolic bubble for the Dow, the S&P, and for QQQ. We had the signal to get out in early May, so you’re looking where do I get back in? If it holds on weakness, you’re getting back in.

So you’re trading the volatility, not betting on a new bull market, not betting on bear market gathering momentum just yet. That’s what we’re dealing with. Obviously, the Federal Reserve or the wildcard, by changing their mind over and over again, and the volatility.

Frank Curzio: You know what, Rich, talk about the Fed because that’s something, I don’t know if so many people know about you, that you’ve been analyzing the Fed’s balance sheet for over three decades, probably four decades. When it comes to data rate of market, you’re the person I listen to the most. Talk about what you’re seeing out the Fed. I love, this is probably like three months ago, when they kind of changed their tune. Maybe it was a little bit more, like in December, saying that, “Hey, you know what? Instead of tightening or leaving it alone, we’re going to probably ease,” and that really turned around the market in January, but you were saying, “Hey, this isn’t like your typical easing because there’s still deleveraging the balance sheet.”

Talk about the Fed, the impact, is that priced in, and also, are lower rates that much of a catalyst? Is it factored in? Because we all know that they’re probably going to lower them this year. It seems like it’s factored into the stocks, at least everyone’s talking about it.

Rich Suttmeier: Oh, I don’t think you can cut the Federal funds rate when you’re tightening, using quantitative tightening. In other words, you’re draining the balance sheet and you’re going to cut rates at the same time? That makes no sense to me. The quantitative tightening is $35 billion per month through this September, and then it ends, they’re no longer draining the balance sheet starting in October. There’s still a lot of money being drained from the banking system.

So you have that as a pressure on the banking system and on the bank stocks, yet banks don’t make money in a low-interest rate environment. It screws up their net interest margins. They still haven’t really gotten out of the hole from all those many years of low-interest rates because the banks’ balance sheets are off-balance. In other words, they have bought more risky longer term assets to pick up yield versus the cost of short-term assets. That’s not what a bank is supposed to do.

That is one reason that Fed Chair Powell is worried about bad debt on the balance sheets of banks. I think that’s one of his concerns by putting rates lower. In other words, let’s have more debt. And more debt doesn’t solve a huge debt bubble that we have when you consider mortgages, and student loans, and credit card debt, and auto loans, and corporate debt. The junk bond spread has been widening from Treasury, for example, and that does not make it easy for the big banks to refinance all of these debts that the big companies come up with to buy back shares and to pay dividends. They’re all coming due starting next year. There’s going to be rounds of these refinancings for as far as the eye can see. That’s going to be a problem for the banking system, and hence, for the market.

Frank Curzio: Now, I’m going to ask you something because it’s short-term and long-term here, right? Because we know that these debt levels are inflated. Could we actually say it is a bubble? It sounds crazy and everyone’s like, “Frank, what are you talking about? It’s over $21 trillion on the Fed’s balance sheet.” But this is a problem that even my late dad was writing about 25, 30 years ago. I’ve seen stories. I’ve actually seen videos on TV talking about in the ’70s and ’80s going back and doing the research, same thing. It’s almost like you can take them and put them in … Took them out and just hey, threw them on YouTube today, they’d be saying the same thing where debt is such an issue.

I guess the question is when? Because we’ve heard this risk for such a long time, but it seems like yes, we know it’s growing, yes, we know it’s going to be a problem, but is this something that may not hit for 10, 20 years for now? Because we’ve been talking about this for the last three decades and it hasn’t really been a considerable problem, until 2008, until everything was completely leveraged and nobody knew what the hell was going on, synthetic of synthetic of synthetic loans.

I guess what I’m asking is the timeframe. I hear about this being a risk for such a long time, but what’s the timeframe where wow, this is really going to be damaging for growth?

Rich Suttmeier: Well, as long as the Fed is on the side of the market, which is what the perception is, it could go on for a while. I was always of the opinion that our debt is a meaningless thing because we are the underwriter of the world, the US economy and our Central Bank. Whatever we do, the world follows. If anybody’s going to have debt, it’s going to be the United States of America. Right now, with rates so darn low, I would issue as much 30-year, 40-year debt as I could possibly establish on my balance sheet as the Federal Reserve because money’s still cheap, and you’ve got to take advantage of raising money when it’s easy to do.

If you look at the balance sheets of head of households on Main Street, USA, they’re getting squeezed again as these rates come down. They have more than $7 trillion worth of FDIC-insured deposits within all of the individual accounts out there. That’s how much there is. Peoples’ savings, and peoples’ checking accounts, and small businesses who use the banks, there’s more than $7 trillion of FDIC-insured deposits. That’s something that we need to raise the interest rate on those so that savers can feel comfortable spending money.

Frank Curzio: Now, you talk about the short-term when it comes to levels. Let’s get to this because guy, if you don’t, and I mentioned it a little bit earlier, but we’re going to go into more detail now, is we hired Rich to write for us. Rich, we’ve known each other for very, very long time, and you’ve written two stories on our site, one about Amazon, the other about Apple. The feedback that we got, we requested it, say, “Hey, what do you guys think of this?” It’s called Chart of the Week, it’s more trading, but the way you explained everything where you go through a technical breakdown, it’s not just, “Hey, here’s the chart, here’s the levels,” but you’re actually explaining those levels, your methodology like you went into a little bit earlier. The feedback has been overwhelmingly positive.

I guess I’m going to ask you, when it comes to short-term and long-term, long-term, I know you look at debt levels, you look at everything that’s going on with the risks in the marketplace, whether the Fed’s all over the place, we’re looking at slower growth in the US, and especially abroad, tariffs, and Brexit, and the uncertainty, talk about how you look at the short-term compared to the long-term because it seems like long-term, you are bearish, but short-term, you’ve come here and given us amazing trades on the long side.

Rich Suttmeier: Well, you know, when you’re looking at short-term, you’re looking at the daily chart. The daily chart that I’ve produced on the reports that I will do for Curzio Research will be based on a simple concept. It has a 50-day simple moving average, and a 200-day simple moving average. These are industry standards for what people look like.

Obviously, if a stock or a market is moving higher, and that’s supported by rising 50-day and 200-day simple moving averages, you’re a buyer on weakness for short-term trades. And then there’s two definitions we haven’t come across yet, and that is a golden cross. A golden cross is positive. That’s when the 50-day moves above the 200-day and it signals that the higher prices lie ahead. When you get that signal for a stock, you’re going longer stock of core position, and you’re tracking it up, and every time it dips to the 200-day simple moving average, you’re buying; every time it hits a risky level from my analytics, whether it be monthly, quarterly, semi-annual, or annual, you’re taking money off the table. You’re trading the trend plus adjusting positions based upon short-term volatility.

A death cross is the opposite. That’s when a stock is coming down and the 50-day simple moving average falls below the 200-day simple moving average. Then odds are the stock is going to go lower. That’s been a characteristic of so many of the retail stocks that have absolutely gotten crushed in the latest rounds of earnings, that there’s so many of them that have that pattern. It’s a matter of looking at the pattern and learning some very simple rules. It’s not complicated whatsoever.

I’m a guy that wants to buy on weakness to a value level and sell on strength to a risky level. I’m not a guy that looks to buy high to sell higher, which is called momentum training. A lot of people can do that successfully, but that’s not what the average individual investor should be thinking.

Frank Curzio: You know, Rich, a lot that you’re saying, and people who study charts are probably like, “Okay, this is simple. We get it,” and the people who aren’t are probably like, “Wow, this is really cool.” Let’s see how you use this for individual stocks and starting with today, right? We’re doing this interview.

You just explained death cross, golden cross. I’m sure you have, in your system, a lot of these things alert you right away if this is happening. What are some of the stocks that you’re looking at today? Because we have seen a rebound, which you called, and you actually wrote about on our site, with a lot of these stocks bouncing back, especially Amazon and Apple, but what are you seeing today? Do you have individual names to share that you might say, “Hey, you know what? These broke key levels and now it’s time to buy, now it’s time to sell”?

Because in this market, it’s so important, and I’m glad you’re explaining thoroughly because it’s a different market today, guys. It’s all about algorithms. Tariff news comes out on China and Mexico, we see stocks sell off. There’s so many stocks that sold off, 20% plus in a couple of weeks, on something that we’re not sure is going to happen. When you’re looking at technical though, it’s such a big part of the market these days, right Rich?

What are you seeing in the market? Maybe some ideas you could share because this is something that I think everyone needs to incorporate in their research going forward because that’s the market we’re in today and that’s the market we’re going to be in, in the future.

Rich Suttmeier: Well, my focus stock today is Broadcom, symbol AVGO. Last evening, after the close, they announced that they are providing components to Apple products, including smartphones and watches and the smaller devices. They have a two-year deal now to do that for Apple, so the stock traded significantly higher in the overnight trade. I have what I call a quarterly risky level for the stock at 29509, which was almost tested in after-hours trading, and then the open came this morning and the stock got tired, as was expected, but it didn’t hold its gains. The stock came down to a monthly value level at 28242. Now, that’s a pretty huge range, isn’t it?

The first buy that you would have is at 28242. The stock’s going to report earnings after the close on Thursday, and if it’s a negative reaction to earnings because the Apple news isn’t news for the last quarter, it’s new moving forward, so you’re going to look to add to the position if it comes down to its annual value level, which is 26078. That’s a lot of volatility, but name a stock that went down more than 22% from its May high to its May low. Broadcom. It was the biggest loser on the trade tariff situation. You pretty well know that that part of it is built-in, so you’re looking for factors other than the charts to whether you want to own this stock or not.

So you look at the fundamental screen, and I use what’s called Macro Trends, which I go in and I click on it on the ticker, and it gives me a PE ratio of 14.75. That’s not bad for a momentum stock. And not only that, it pays a dividend of 3.86% You can buy the stock not only for the momentum, but you can buy it for the dividend. That’s the theme for the stock of the day.

Frank Curzio: Talk about dividends because now with … And you monitor all sectors, and you’re quick to point out where if you see consumer staples rising, utilities rising, those defensive sectors, not a good sign for the overall market. We’ll get to gold in a minute because I know you’ve talked about gold. What are you seeing in terms of sector analysis because these technology companies are starting to fly higher again, but are you looking at things from a conservative standpoint where, hey, let’s get into defensive areas, or there’s still a lot more room on the upside? Because these things are just coming back off of being down tremendously over the past four weeks.

Rich Suttmeier: Well, you know, I look at the 11 sector ETFs that represent the 11 sectors of the S&P 500. At Friday’s highs, that’s June 7th, [inaudible 00:33:49], staples, and utilities each set new all-time highs. They’re obviously the most conservative, those three sectors are the most conservative. Those are the ones, this week, are performing the worst because we’ve switched over quickly from safety to momentum, and even the yield on the tenure, which I didn’t expect would go back to touch 2%. I think the low was maybe 206.

Frank Curzio: I don’t think anyone expected that. That was a pretty big surprise, yeah.

Rich Suttmeier: Yeah. Well, the TLT was the one that broke out. That’s an ETF TLT for the Treasury bonds, 20 plus in maturity. Original 20 plus maturity other than that TLT. That set its high on June 3rd. Junk bonds, that peaked on April 30th, and has been going essentially sideways to down, and year-to-date, the Treasuries up 8.4% and junk is up 6.8%. In the beginning of the year, every junk bond was way outperforming Treasuries. I kept saying, “You don’t want to own junk bonds because it’s too related to stocks. You’re better off in Treasuries.” So Treasuries and utilities, but I didn’t like utilities because the yield had gone below 3%. It was the XLU, which is the ETF utilities, the dividend yield went to like 2.78%. I said, “You’re better off buying the dogs of the Dow.”

Now, you talk about the dogs of the Dow, you have the two oil majors, Chevron and Exxon-Mobil. You’ve got Verizon. You’ve got Pfizer. You’ve got Coca-Cola, JP Morgan, and IBM. At the lows of May 31st, that basket of stocks was up 5.5%. At this past Friday’s close, that same basket of stocks is up 11%. The percentage gained from looking for dividends did quite well in an environment where the volatility has returned to the upside for these momentum names, but it’s also a time when investors are interested in dividends that can be solidly above 3%. As we discussed earlier, Broadcom is 3.86. It’s not a Dow component, but if you looked at the Dow stocks this morning, IBM’s is 4.85%; Exxon-Mobil, 4.71%; Verizon, 4.36%; Chevron, just about 4%. They’re the ones you want to focus on in terms of Dow components.

Frank Curzio: Yeah. So much great stuff there, Rich, just with the dividends and how you’re seeing almost money go into it. We know the Fed’s going to lower rates, people are going to seek yield, and they’re seeking yield not just in dividend stocks, but also cheap dividend stocks that have growth potential, that are kind of momentum names. You’re seeing that, right? It’s hard to get something that’s cheap.

Rich Suttmeier: Yeah. You’re looking at both momentum and value at the same time. It’s hard to times when that is occurring, and it is occurring now, which is one reason you may be at your minimum allocation overall to stocks because of the longer term bear market thing, but when you’re booking profits on stocks you’ve owned for 10 years, you still have more money invested in those stocks, even if you take half of it off the table.

Frank Curzio: Yeah, I hear you. I hear you. No, that’s great stuff. I want to get to one last topic here before I let you go because I get so many questions on it: gold. We’re seeing gold prices rise. It took a little bit of a step back the last two weeks as the market did a lot better, but you’re seeing gold make higher lows going out through 2012. It looks very attractive even from a macro standpoint. Yes, we’re lowering rates, but the Fed’s doing everything they can to spark inflation. Our debt levels, I’m not too sure if gold is used as a safe haven anymore. I think Treasury’s much more of a safe haven.

But what are your thoughts on gold? So many people out there, it’s been such a long time, it’s a cyclical market that’s been cyclically depressed since 2012. What are your thoughts now? Is it time to start jumping in? And be specific, whether it’s the commodity, which is fine, which gold prices have not really done that bad since 2012, but if you’re looking at gold stocks, especially junior miners, they’re still down tremendously.

Rich Suttmeier: I like Newmont Goldcorp, symbol NEM. It’s the biggest one now and it tracks COMEX gold futures very well. You can own a stock and not be involved in trading futures. The reason why I look at things that way is the average investor does not qualify to trade financial futures. In my writings, I realized, and especially since I was chief market strategist for many brokerage firms, both large and small, people have to be approved to trade options, people have to be approved to trade on margin, people have to be approved to do a lot of different things. I can’t write a story and talk about a stock unless I’m very conservative in the way I think because I can’t assume that someone’s allowed to buy a stock trading under 10 on margin. You follow what I’m saying?

Frank Curzio: Absolutely.

Rich Suttmeier: I’m careful not to get too aggressive in my wording, but essentially try and guide people through the difficult times in the market, and when to be conservatively be aggressive long. I would never recommend shorting because most investors are not allowed to short because of the restraints put on them by the firm they have their trading accounts in or their investment accounts in. There are ways to be defensive and that’s called cash, it’s called credit, it’s called yield.

Frank Curzio: No, it definitely makes sense, Rich. So listen, we covered a lot today. One of the things I wanted to highlight is that, guys, Rich is writing for us. We’re getting amazing feedback. If you’re not into technicals, please take a look at this because for me, I always explained to you, I’ve been doing this podcast for over 10 years, you want to always learn different strategies. I benefit by having guys like Rich on, interviewing some of the best minds out there for 10 years. For me, it’s always learning about them, even if you don’t agree or disagree, but the way the market is now and algorithms, you’ve seen stocks flip on news and go down 20, 25%, and learning these key levels, and you explained it to them, it really is a great addition, Rich, and really are happy to have you onboard, bud.

Rich Suttmeier: Okay. Thanks a lot, Frank. I’m sure I’m going to enjoy it.

Frank Curzio: It’ll be really cool. You’re next story comes out Friday. Rich, thanks so much for joining us, bud. I’ll talk to you soon.

Rich Suttmeier: Take care, Frank. Bye-bye.

Frank Curzio: Hey guys, great stuff from Rich. I’m thinking about having him writing a trading newsletter for us, so let me know if that’s something that, especially your subscriber services, if you’re interested in, you can let me know: Frank@CurzioResearch.com.

Be sure to check out his two pieces first before you comment because I was very surprised at how much positive feedback we get. I really meant that towards the end of that video when this is the market that we’re in. You need to understand technicals. You need to understand levels. It’s very important in a market where you’re seeing … And just tariffs being announced, and retailers getting smoked 15, 20% after reporting good earnings, just whipsawing out of certain stocks. You’re seeing them where the company might report bad earnings. It’ll be down 5, maybe it should be down 7%; they’ll lose 20% of its value, which is crazy. Then you’ll see it, like a week later, come roaring back.

But anyway, levels are extremely important here, like he said. He highlights all levels, what you’re holding, what you’re not holding for short-term trades, but it’s very important to learn about technicals because … Not that you become traders, and most of you listening to this, I’m sure you’re not traders, you have your own jobs and stuff, and to be a professional trader, guys, I’ve met, there’s probably 10,000 people out there that call themselves professional traders. I know about three of them that make money being a professional trader. Three or four, and Rich is one of them. A buddy, Jeff Clark, is another one. He’s an amazing trader. He used to work at Stansberry, who I think is amazing.

But you have to sit in front of your computer all day, you have to be disciplined, it’s very, very difficult, but in this market, it’s important to understand those levels, know those levels. It can help you when it goes into entering a new position or getting out of a position once it breaks key levels because it’s probably going to go lower.

A lot of good feedback and I definitely want to hear from you. And just really quick, what I took away from that interview, and I kind of was all over the place at the end because I was just fascinated where when he’s talking about Broadcom offering value, yield, and momentum, and we look at the Fed, what’s the Fed doing? Well, the Fed is lowering rates right now, so when they lower rates, people are craving yield. When people are craving yield, they’re going to want high-yielding stocks.

Now, where are you going to find those? Consumer staples, utilities, which have come down, which is interesting. That could be a buying opportunity. Start looking at utilities, start looking at consumer staples that pay good dividends that are growing. Don’t ever buy a stock that pays a high dividend without having any catalysts because it doesn’t matter if it pays a 6, 7% yield, which usually means there’s something wrong if they’re paying that high if they’re not an MLP or whatever, but before you go out and buy and get that high yield, you want to make sure that the company is growing and has catalyst because that yield’s going to mean nothing if the stock goes down 20, 25%. I think people make a huge mistake when it comes to dividend stocks, but for me, that’s something I’m looking at right now.

We know the Fed’s lowering rates, we know there’s going to be a push into high-yielding securities, and with utilities down and selling off a little bit, and so are consumer staples, you may find one, two, three, four names in that sector that look attractive here. That’s why I was asking so many questions to find out the right ideas. And as always, Rich always shares his favorite ideas.

Guys, let me know what you thought about that interview. Again, I always say this podcast is about you, not about me. Let me know at Frank@CurzioResearch.com. If anyone who’s read his stories, feedback, let me know what you think because I would love to have Rich write a newsletter, a trading newsletter, for us, which I think he’s interested in. But again, we want to make sure we’re doing the best thing for our customers and that you guys really want something like that.

Keep in mind, Rich is just one guy out of the hundreds that I interviewed over the past 10 years, if not 1,000 people I’ve interviewed because I used to do daily podcasts at the Street, eight, nine, ten years ago, whenever. Used to have guests on all the time. Every single day, doing an hour-long podcast. Pretty crazy. Very busy. But I happen to have a great network because of you. A lot of these people are willing to write for us. I want to put great people in front of you with great ideas that are also going to educate you, so if you see somebody else that I’m interviewing that you say, “Hey Frank, you know what? I’d like to learn more about this guy. I’d love to see if he writes a couple pieces for you, let me know.” There’s a good shot we can get him, create a deal, and make sure we have the best content on our website. But again, I’m only going to know that if you email me at Frank@CurzioResearch.com.

Now, let’s move onto my educational segment.

When I look at a company like Apple, and I’m taking Apple for a specific reason, to prove my point, to show you how you could buy some of the best brand names at big discounts. When you look at Apple, it’s the first company to ever hit $1 trillion market cap. That was last year and it came off of that. Now we know Microsoft, I think, is the only company with $1 trillion market cap right now. But it’s kind of incredible when you see Apple, saying, “Wow, it’s $1 trillion dollar company,” considering the tech giant was about three months away from going bankrupt. Some people don’t know that.

What they do know is Apple’s often referred to as the King of Technology, one of the most innovative companies ever, maybe not lately, but come on, the iPhone, the iPad, the Watch, used by hundreds of millions of people every day. That’s why they’re considered one of the most innovative companies on the planet. But Apple’s rise to this level was not easy. It wasn’t a straight line, everything was great.

Because if you look from 1985 through 1995, and by the way, that’s the period where Steve Jobs says he got fired, but he left the company, Apple was in turmoil. The stock prices were in free fall, very little innovation, which in turn, helped customers take huge market share, and the following, in 1996, things really got ugly. Apple’s burning through tons of cash. They lost $860 million that year. $860 million. Talk about a company, I think the market cap was around $3 billion at the time. It’s $900 billion today. But there was no end in sight and the company had little catalyst, no exciting products in the pipeline.

So stock hit a 12-year low, went more than 60% of the year, and then the Chief Financial Officer at the time, Fred Anderson, initiated a big bond offering of over $600 million and he said, “Well, that was to keep the company afloat.” It wasn’t enough. As the year progressed, Apple’s losses kept mounting. With just a few months of cash left in the bank, the company made a desperate move. In January of 1997, Apple decided with its long-term rival Microsoft.

It’s funny. I kind of remember that because Steve Jobs was talking at the Mac Expo Conference, that’s their annual conference, and it may have been the only time that Jobs got booed in his life. I mean, booed by the entire audience of Apple diehards. They booed him because they hate Microsoft. You can see why they were pissed off; Microsoft’s eaten Apple’s launch for years, it signed numerous deals to put Windows and Office in every personal computer, plus Apple and Microsoft were suing each other for patent infringements. Tensions were really high, but Apple had no choice. They had to do something.

They signed a deal and they said, “Hey Microsoft, you know what? We’ll support Internet Explorer and your browser for five years,” and in return, Microsoft invested $150 million, not billion, but million dollars into Apple, and also created a new Office product just for Mac computers. When you look back at that deal in 1997, and that’s just before, a few months later, I think, Steve Jobs became the CEO of the company again, and the rest is history, but that deal was really good for both companies when Microsoft was able to keep a smaller competitor from going bankrupt, which was a very big deal back then. It was going to result in fewer headaches, and the government was all over them, attacked them all the time about Microsoft being a monopoly, so this was a good thing for them, and Apple was able to get a much needed cash injection.

It only took a year later, because they used that cash to redesign the Mac computer, which was a big hit, it sold over 800,000 units in the first five months. A few years later, Apple released the iPod, turning the music industry upside down, and a few years after that, we know that they released one of the best phones, which is the iPhone, and now the company’s the biggest in the world.

You’re looking at Apple today generating $250 billion in sales, and I know I talk about the stock a lot, but the company’s amazing, just sometimes I feel like it’s overvalued. You’re looking at a company generating $44 billion in free cashflow, sitting on over $200 billion in cash on its balance sheet. $200 billion. Remember, they got bailed out by Microsoft for $150 million. But to put the $200 billion in cash on its balance sheet, if you want to put that in perspective guys because I don’t think people understand, and maybe you do, but there’s only 25 companies in the entire S&P 500 with market caps, not cash on their balance sheet, but market caps greater than $200 billion. That’s how much cash Apple has. That’s how great they are.

Now, it’s important for you to understand this because I chose Apple because it’s the biggest and the best, but it highlights how even the biggest and best companies can go through rough periods sometimes. This isn’t just Apple; this is every single company, basically. You can go through the S&P 500. Microsoft had its share of the problems. They call it the lost decade. It was really 13 years. The stock price didn’t go anywhere from 2000 to 2013. It was just Windows, Office, very little innovation. That was under Ballmer. Then Nadella took over, got into cloud, and the rest is history. They’re the biggest company in the world.

Walmart had its share of problems. In 2015, stock fell 40%. Yeah, you know, Dollar Store really, and even Target, take a huge market share. Today, we have Walmart near an all-time high. Look at comic book giant Marvel. They came close to going under in the 1990s. Struggling to create new revenue streams for his content. This is before they decided to come out with all these movies. Today, look at the company. Disney bought them for $4.5 billion in 2009. And man, I think they might have generated that in the last two movies with Avengers, but they produce some of the biggest revenue-generating movies in the world, but Marvel was close to bankruptcy. This was around 1993, I believe.

If you look back, almost every company in the S&P 500 had its share of ups and downs. If you’re looking at the Apples, Marvel, Starbucks almost went under in 2008, IBM, AIG, General Motors, Best Buy. A lot of these companies came close to bankruptcy. When that happens, what happens to the stock price? It gets destroyed. You want to try to pick up a brand name at the cheapest price possible, and when you see crazy low prices, it usually means something’s very wrong with the company, something’s going wrong, but remember, when you’re looking at these big brand name companies, many of them are able to right the ship.

It could take … IBM, it took a long time. 22 straight quarters of revenue declines. I get it. But we recommended it, we’re up in the stocks, number one performer in the Dow. Could be one of the biggest players in hybrid cloud, public and private cloud after the Red Hat acquisition which is closing, I think, towards the end of this year. Maybe sooner. Sometimes it happens really quick, maybe a year or two, but all these companies go through these huge problems.

And you say, “Well Frank, how do I buy these stocks because when they’re coming down, I don’t want to try to catch a falling knife?” And there’s ways to do that. One thing that I love to see is insider buying, and insider buying from the CEO or from the CFO, I want to see that insider buying because if the insiders aren’t buying with that stock down 60%, why the hell should you be buying? That’s not the end-all. It’s not, “Oh, insiders are buying. Let me buy this stock.” No, I’ve seen insiders wrong a ton, even though the only reason why insiders buy the stocks is because they think it’s going higher.

Hundreds of reasons why they’ll sell stock: diversify, whatever, pay taxes. But when you buy it, there’s only one reason, and they’re not looking for short-term gains of 20, 30%. Trust me. So insider buying, when I see a stock that’s down a lot, makes me look into the company more. When I see a brand name company down tremendously, you want to see what pushed it down. Is it weakness in certain categories within their brand? Say it was Marvel. Avengers is their biggest asset. Are they seeing a decline in sales and nobody wants that? Nobody wants to see it anymore? Of course, that’s not the case. I’m just saying. But you’re looking at Cabbage Patch Kid Dolls or whatever, I mean, sometimes things are amazing and they’re just flying off the shelves, and the fad runs its course, and nobody wants it anymore. So are you creating other brands or are you able to turn around that brand?

You’re looking at Burger King and sales surging after they just came out with a new Whopper deal, like a certain type of Whopper, and that worked. They’re turning it around. What happens? You look at the stock price. You’re going to see sales go higher, but you want to see if that marketing plan’s working.

Is it more macro conditions like we see with gold or uranium where the conditions are just horrible, but you’re seeing stocks trading at ridiculous low levels? Are insiders buying? But the macro level’s hard to predict. Nobody knows what’s going to happen in the future.

For me, I like looking at the details, looking at the last quarter, listening to management, seeing what’s going on because if you have three or four reasons why the stock is down so much, and those reasons change, and then you’re seeing insiders buying, guys, you just need that stock to go from bad to less bad, and you’re going to see 30, 40, 50% gains on that name. I’ve seen it happen numerous times. I’ve done that strategy with small caps a lot, and even biotechs where they get completely beat up, and you have to look at the news why they got beat up. Maybe the FDA just wanted a little bit more information on safety and you’ll see a stock lose 50, 60% of its value, and yet, they’re going to come back to the FDA knowing exactly what they want, and they’re going to come back to the market six months later, maybe nine months later. Give you an opportunity to buy that asset at a 60% discount.

When you look at the biggest brands, every single business has problems. A lot of these businesses almost went bankrupt over their decades and decades-long of being market leaders, but that happens. But you want to look at some of these names that have gotten crushed because anyone that bought Apple in 1998, 1999, even after the tech crash, I mean come on, you probably own your own island. Imagine buying Microsoft in 2013 before Nadella got there. Imagine buying Marvel when they were having problems before they really got into movies and things.

The reason why I’m mentioning this because there’s a great brand name company I just recommended in Curzio Research Advisory that everyone’s familiar with, it’s down tremendously, but all the reasons that push that stock down no longer exist, and it showed up in last quarter’s results, and even a quarter before. The stock’s still trading near a 20-year low, and more important, insiders are buying hand over fist, which tells me we’re pretty close to the bottom, and the fact that they showed huge, huge gains in the brands that they were doing so bad in, show me that their turnaround is working. Their cost-cutting is working. When companies cut costs, that money goes directly to the bottom line.

Not only if you’re able to turn around operations, your company’s much more lean now, you’re getting those benefits of sometimes hundreds of millions of dollars in cost savings, shutting down plants, reducing headcounts, and then if you’re able to turn around operations, now you’re looking at the stock go up tremendously off its lows. That’s one of the names that I just found. It’s a brand name that, when you see it, you’re going to be like, “Holy cow, Frank, are you serious?” Trust me. Read the report and you’re going to know why I’m recommending it.

A lot of you guys are CRA subscribers. If you’re not, I always provide a special deal for that. It’s $49 for the entire year. You can go to CurzioResearchOffer.com. That’s CurzioResearchOffer.com. Again, it lets you see my research closeup, our 10, 12-page reports, everything that I wrote since inception. If you’re interested in that, that’s a special deal that we have specifically on that website that you can go to at CurzioResearchOffer.com. If not, no worries.

As Rich highlighted so many ideas, I’m also highlighting ideas, and I break down individual stocks, and you get ideas through the podcast for free, but really, to see our performance and track everything, and see the research, and really get that educational component of how I’m coming up with these ideas, $49 for the entire year, guys, not the month. That’s a level where it’s kind of like a breakeven price for us. I do that for you because, over my 25-year career, and I mentioned this earlier, when I’ve done the right thing by people, it comes back 10 times more. So providing a nice newsletter like this builds my network, it results in even more ideas, and that price is set for you guys, which is incredibly cheap for the research that you’re going to get for that newsletter for the entire year.

Guys, thanks so much for listening. I always appreciate your support. Be sure to email me, let me know who you want to see write for us, who you want to see me interview, let me know what you thought about Rich’s interview, also his content, if you’d like to see him have more of a role here, maybe we could launch a newsletter by Rich Suttmeier. Let me know. Frank@CurzioResearch.com.

This is about you, not about me, so we want to serve our customers and give you guys exactly what you want, and I want to put some really great people in front of you.

Really appreciate all the support and I’ll see you guys in seven days. Take care.

Announcer: The information presented on Wall Street Unplugged is the opinion of its hosts and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.

Wall Street Unplugged, produced by the Choose Yourself Podcast Network, the leader in podcasts produced to help you choose yourself.


Editor’s note: As Frank mentions on today’s podcast, he’s releasing the latest issue of Curzio Research Advisory after market close… with an opportunity to buy a tremendous business with an iconic brand at a dirt-cheap price. If you’re not yet a member, go to curzioresearchoffer.com—where you’ll also get the details on a potential 10-bagger…

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