Gold has ‘a long term uptrend to take advantage of’: Fairlead Strategies

Katie Stockton, Fairlead Strategies Founder & Managing Partner, joins The Final Round to discuss what her thoughts on the market, where investors should be looking to invest, and why commodities are a good idea.

Video Transcript

MYLES UDLAND: Let's talk a bit more about what's going on in the markets. Joining us now for that conversation is Katie Stockton. She is the founder and managing partner over at Fairlead Strategies. So Katie, let's just talk about the market set up here in the context of kind of that rough patch we saw in September, a little bit of a kind of the market sorting itself out through October.

And now with the big event just a few days away now, a few trading days away, how do you see the setup here, and are your concerns maybe over how things traded at the beginning of kind of the fall here, have they been allayed? Because the uptrend, I guess, kind of still remained intact.

KATIE STOCKTON: Yeah, I mean, the uptrend does still remain intact for the S&P 500 and other major indices. There has been, of course, a distinct loss of upside momentum. You can see that in some of the intermediate term gauges. And that's really relative to the first parts of the up move off of the March low. It's very normal. And I see it as very healthy for that to happen. Because you can't expect those kind of steep parabolic upmoves to sustain themselves over the long-term.

Steep uptrends are more difficult to sustain and often do give way to more of like a stair stepping higher. And I think that's the mode that the market has gotten in here with the September's pullback, giving way to a nice oversold reading.

And then as of last Monday, we got a widespread short-term overbought rating that now has been worked off. So these short-term overbought and oversold readings can really impact a market that now has seen a subtle loss of upside momentum without doing any real damage to the uptrend.

MYLES UDLAND: And now something that you flagged in your note to us, Katie, is that breadth has expanded since we saw those lows back at the end of September. And could you just maybe talk through, for our viewers, how you think about breadth in the market, wider participation among sectors, among individual names, and how you think about that in the context of the market's overall health and what you think could transpire over the next six or 12 months.

KATIE STOCKTON: Well, it's a good question. Breadth is really important to meet in terms of the sustainability of uptrend. You do need to see broad participation, meaning a lot of stocks up on up days. You don't necessarily need to have broad leadership, a lot of stocks outperforming. But you do need to have a lot of participation.

And indeed, we have seen that off at the September low. You can measure it any number of ways. One example would be the percentage of stocks above their 50-day moving averages or the percentage of stocks that are overbought. That type of thing can contribute to your takeaway as it pertains to breadth.

But breadth is positive. And as you mentioned, you can also evaluate it on the sector front. So we have seen breadth spread out on the sector front as well. We all got accustomed to really technology stocks being this primary source of leadership, maybe secondarily consumer discretionary stocks.

But now we've seen some signs of life from other areas-- utilities, financials, industrials, materials. I think even energy may be next with crude oil having cleared its 200-day moving average. So that, to me, can really contribute to the sustainability of an uptrend. It doesn't preclude short-term volatility, but in terms of intermediate and long-term takeaways, I think it's a positive one.

MYLES UDLAND: Well, and picking up off of that, you mentioned oil and thinking about where commodities fit in to the market here. Oil, again, as you mentioned, kind of rallying a bit. We've seen gold play a big part in the conversation. And this would all tie into what we're seeing with the US dollar. So how do those big macro pillars, I guess, of this environment shake out to you right now?

KATIE STOCKTON: Yeah, I mean, I try to look at them individually. And I like when they end up making sense from a macro perspective as well. And we certainly have seen short-term momentum improve behind crude oil, behind gold prices, behind Bitcoin, of course, to which remains positively correlated to gold. So these moves are, of course, related to a weaker dollar. And I do think that these trends persist, at least in the near term.

For gold, there is a long-term uptrend to take advantage of. That's not the case, of course, for crude oil prices. But it doesn't mean that we still can't take advantage of that in positioning. If you look at the NRG sector, it's deeply oversold from a technical perspective.

And of course, it's not for everyone, but there's been more consolidation in the space. And with that, we're seeing some signs of short-term downside exhaustion that I think could get us a nice bounce there, just in terms of breadth or the spreading out to some of these beleaguered sectors of the market.