Is An Over-Confident Wall Street At Risk Of Stocks Dropping Again? | Katie Stockton

**Katie Stockton** (0:00)
So when you do have an environment that has lost that momentum, that has lost market participation or breath, that it is running a little bit hot in terms of market sentiment, that's a higher risk environment. So it would be more prone to those types of big drawdowns. And that's why we are more defensive right now in our recommendations.

**Adam Taggart** (0:26)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Over this past weekend, the United States conducted an airstrike that appears to have destroyed Iran's most important nuclear facilities. The US had been supporting Israel with defensive measures in its military campaign with Iran, but this marks the first offensive role America has taken in the conflict. So what material impact will this have on markets, if any? To discuss, we're fortunate to welcome back to the program Market Technician and Portfolio Manager Katie Stockton, Founder and Managing Partner of Fairlead Strategies. Katie, thanks so much for joining us today.

**Katie Stockton** (1:05)
It's good to be back again, Adam.

**Adam Taggart** (1:07)
Thank you, Katie. It is such a pleasure to have you back. Congratulations or condolences. I don't know. You drew the card of being the first person I interviewed after the US bombed Iran here. So we're recording this on Monday.
Let's start there with just, hey, what impact do you think the US participation now, active participation in the Israeli-Iran conflict might have on markets? I'm asking this question to you on a day where I think everybody over the weekend was trying to bet how far down the markets were going to open and how far up oil was going to open. In fact, we've seen pretty much the opposite.

**Katie Stockton** (1:49)
We have, and it's confounding a lot of us.
I was logging on yesterday and Sunday watching The Futures, and already kind of awestruck by the lack of a reaction from equity markets around the world. I believe even Israel's stock market is up, which is curious as well. I would just expect more downside volatility to be unfolding in equity markets globally. But there is a real bid to the market, and it was there before the war too. We've seen an incredible relief rally for the S&P 500 and the other major indices off of the April lows. But there's some real damage done from a technical perspective as of those April lows. We saw a lot of breakdowns at that time. And even though the rebound has been even explosive in some areas, we were not seeing breakouts and we're not seeing necessarily massive improvement in our longer term indicators. So we do think that there's still some risk here. So we, on May 28th, moved to a bearish short-term bias, and it's been a little bit of exercise and frustration watching the markets here. You know, it's waiting for them to respond to what we feel are pretty high conviction, counter trend, sell signals per our indicators. So we're watching, we're waiting, we don't have anything to counter the signals yet. So we're sticking to our bearish bias right now and recommending that folks are hedged. And I would say that the geopolitical risks around the conflict, of course, would warrant that as well. So not to say people go out and sell everything, but perhaps reduce exposure from a top-down perspective. That seems wise to us and just position a little bit more conservatively than we were accustomed to 23 and 24 When it was time to obviously be exposed to tech and to the mega caps. Now, I think it's time to look outside of those areas for opportunities, especially the more defensive sectors of the US market.

**Adam Taggart** (3:49)
All right. I want to talk about those defensive sectors because I was reading some recent reports that you guys have put out at Fairlead. But a lot I want to pick apart in there if we can.
Let me ask you this first, just at a very high level. You used the word confounding, right? And that certainly applies to today. But I think it's not the first time I've heard that word this year. And let me just ask you this. Do you think that the market is, whatever it's pricing in right now, do you think it's pricing it in based upon some collective market logic? Or are the markets maybe broken in a way that they perhaps weren't in past years or decades? I've heard people argue that there's deformations to the markets these days, that they just don't behave the way that they used to. So I'm just curious if you have an opinion one way or the other on that.