Katie Stockton

Into it. But I was always interested in math. I ended up being a finance major. And in that major, we had the opportunity to have an internship. And it was the internship that set me on the path initially to studying technical analysis as a discipline. And so I picked up an internship at an old Payne Weber office down in Richmond, Virginia. And one of the advisors had on his desk, a pile of papers with X's and O's on it. And it turns out those were point and figure charts. So I was really interested in what that was, because visually, it's nothing like I'd ever seen before. And it turned out it was from a local firm called Dorsey Wright and Associates. And Dorsey Wright, because they were local, ended up hiring me as an intern. And I worked there part time for a couple

Of years during college. And so that really sort of set me on the path that I'm still on now, with a lot of deviations, of course. And I don't know if you've met Tom Dorsey, but he's pretty inspirational as a person, and really energetic. And for me at a young age, I knew pretty much then and there that I wanted to do technical analysis and to be on that side of the business, sort of the markets, the public market side of things. And so I had this unique experience of being able to hand chart point figures for a couple of years. And I found that it was a really great way to be close to the market. And indeed, that's what I first did straight out of college as well. Believe it or not,

My university had coursework in technical analysis, too. And at the time, it was one of 12 universities that had that. So it was really very fortunate. It was a graduate level course that I audited as an undergraduate. And they brought in all the big technicians. So Ralph Acampora being one example of that. he, again, is another inspirational sort of figure in my small world here. He stood in front of our class and tore the Wall Street Journal in half and said, you don't need this anymore. So a little controversial for a finance major, right, with our, sort of 101 investments class and what have you. But I knew what I wanted to do. And, there really weren't jobs necessarily in technical

Analysis. And sometimes I would argue that there's not really that any here now either. I think it's really hard to find a job as a technical analyst, per se, doing it full time all day. But indeed, that's what we do. We focus at Fairlead Strategies on solely technical research. And we started Fairlead in 2018, early 18. And before that, I really had spent most of my career on the sell side on Wall Street, most recently at BTIG, which is an investment bank in Manhattan, and started my career in San Francisco and always had sort of a technical bent to what I was doing. I did DV8. I was a sales assistant at DLJ for a while. When I moved back east, I grew up in Connecticut. I ended up picking up a job at Morgan

Stanley on their technical strategy team, which is now no longer in existence. And that was really unique experience as well, because I got a scope of, what the listeners were sort of consuming and hungry for. So in these roles on the sell side, I was able to get a perspective, really from the clients as to what's most helpful, which to me was no longer point and figure charts. I found those, as much as I appreciate them for the analysis, they were really hard to go in front of a client who was not technically inclined with, because you really had to start from square one with your explanation. So I found that the bar charts were a little bit more digestible, almost from a

Marketing perspective. And that became my discipline over the years. I worked under some great people. One person who really shaped my methodology was Mike Hurley. I worked for him at eOffering. This was the investment bank of E-Trade at the time, back in the dot-com bubble. And we published technical analysis research on technology stocks. And that was it. That's all we did. And those were fun times until they weren't. And that's when I ended up coming back east.

But, retirement probably will never happen, but I'll try to do more and more of that

Nerves that I'd say, but it, but certainly just that joy, like you said, just pure joy and looking around the room and seeing so many familiar faces. It was really exciting to me. And, we've had a great experience with the NYSE. I had been down there many, many times with CNBC broadcasting,

An uptake on main street. And I think that came with just access to information. think about going from hand charting to then be, being able to scroll through the S&P 500 in a couple of hours. It really is remarkable to me now what, what we have capacity to do, market scanning and filtering and just the capacity for that, but also the accessibility of the discipline for young investors. I think it's really exciting because it gives them tools to manage risk and difficult market environments of which, we're, we're being dealt one now. And I'm quite sure that's not the last time. So we wanted to bring the research to the broader audience. Our client base has really grown on the advisory front. So we have a lot of investment advisors who find value in the research

And the research, what it looks like right now, we have seven different reports that we're publishing and they're primarily, I would say, focused on U S equities, but we do sort of different variations around that. We have a daily report that's somewhat short-term in its orientation. It kind of creates an episodic view of what's happening. It shows some short-term internal measures and S&P futures flow, that type of thing. And then we have three weekly reports of which one is focused on sectors. We call it S&P 500. We call it Fairly Tactics. You're probably gathering these more boating references in here.

And Fairly Tactics is our, sort of foundational report. It has our views on the S&P 500, on the sector relative strength. It has views of crude oil, gold, the dollar, treasury yields, really anything that influences equities. And that's, where we help people find opportunities, manage risk. we highlight some themes and ideas in that report as well. We recently launched something called the ETF Navigator, knowing that a lot of advisors are using ETFs as a primary investment vehicle. We cover, I think it's close to 60 ETFs in this report week over week. We'll have like apples to apples comparisons using charts that will show folks how the indicators stand. We roll in different asset classes week over week so that each gets monthly coverage in that report. So that's also very

Comprehensive and really a good way to, I'd say, keep yourself honest because to not let biases work their way into your views, I think the quickest way to do that is to create yourself a chart book, right? And you can't argue against the trend. You can't argue against the indicators for sure. And to have that apples to apples comparison is a great way to go about that. And a more conservative approach, I'd say, to technical analysis. We also have a sub-stack newsletter that we're publishing, I'd say, more opportunistic ideas outside of the S&P 500 in that it's designed for a more retail audience.

And we have cryptocurrency research that we put out as well. I'm probably forgetting something, but we're really very prolific, I think, is the idea. And all of that and our methodology became, I'd say, the basis for what we now have as an investable product. So we went from producing research and doing a lot of consulting around that to then realizing that there was demand, I would say, for a product that was in following with what we're learning from our clients, that they were doing sector rotation strategies. And we found a lot of advisors were using things like the sector SPDR ETFs to try to leverage trends in, say, technology or financials or energy.

And in doing so, they were, I'd say, trying to follow the trends, but it wasn't necessarily systematic in the way they were going about it. So I saw opportunity there because I really believe in approaching markets systematically because that's really what we're doing with the charts and with our methodology. We're trying to take out some of the gray area and let the market tell us what's happening. We're not trying to be ultra predictive in our work. We're rather trying to react to trends, trend shifts, momentum shifts, overbought, oversold indications, things of that nature. And we think that that's one of the best ways to invest long term in the equity market. And we also felt that the sector rotation work, which is something that we've always really been very close to

In our research, was sort of the lowest hanging fruit from the market in terms of finding sources of outperformance or underperformance. And, sort of an easy way to go about it from a top down perspective, because in any given year, you see major dispersion on the sector front, just looking at the S&P 500 sectors. And you'll see, what was it, energy up 50% in a year where nothing else was in the green, just wild dispersions. And sometimes they're hard to capture. But over, the course of 20 plus years, it's been a really great way to go about markets. So we believe in the sector rotation strategies, but we found that an ETF wrapper, and a systematic approach is a really good way to go

About that, because the ETF wrapper gives the, I'd say, sort of tax advantages, certainly over, trading the individual sector funds themselves, right, because you'd have to be pretty active in doing so to take advantage of trends. But then also, versus mutual funds, which have obviously sort of faded in their popularity for largely tax reasons. So we felt like the ETF wrapper was the natural sort of investable product, but also the most accessible. So to go back to our goal of reaching a broader audience, with high quality technical analysis, this is what we wanted to do with an ETF product.

Even though an ETF is pretty difficult, I would say to launch, we felt that it was the best product because it is a publicly traded instrument, right? So you can go and, buy an ETF on your platform, you don't need to fill out a bunch of paperwork. So as long as it's offered on that platform, well, then you don't have to, spend much time with your due diligence unless you're so inclined to do that. So we felt like it was an accessible product, a tax advantage product, and a strategy that we found that really held appeal for our client base. And also in our research, we felt like it was a good way to go about market. So we created this strategy. And it took a couple

Of years, we were inspired in part to do it as a rules based system by some quantitative sort of friends of ours in the business. And we worked together to isolate our, methodology into a series of rules. And therein came up with something that's, I would call it a sophisticated technical model, sophisticated without being terribly complicated, in that it's just designed to sort of trade alongside long term trends on the sector front. And following also with our, the way we think about the world in a way, and also, I'd say our more conservative approach, I don't know, if you've ever seen me deliver a presentation or anything like that. But you'll find that I'm almost, I'm sort of unemotional about the whole thing, because I don't think we can

Even get too passionate about anything that's coming from math. It's just, it's just math, right? So we feel that, our conservative approach to markets really dictates using technical analysis for risk management. And without wanting our first product to have leverage or to use derivative strategies, we found that the best way to sort of simply go about managing risk was to use alternative asset classes. When the sector ETFs that were trading, we're not doing what we expected them to do in a strong environment. So, and of course, we don't always have a strong environment. So we wanted to make sure that we had something that was adaptive. And that's what we created something that is focused primarily on sector rotation, but in markets that just aren't friendly to that necessarily. We created the

Ability to move into these alternative asset classes that tend to do better over history versus

Three out of the 11 sectors, and created this, sort of eight bucket portfolio, of which we would expect to have all but those defensive sectors firing on all cylinders from our, our model. And so we'll run the sector SPDR ETFs, we wanted to use the spiders, because state street funds are very popular, but also very liquid and low priced. So we felt that they were something that our client base was trading anyway. So there was a comfort level there with them. And also probably the most popular sector ETFs out there. So we wanted to kind of stay aligned with what people were doing already. And we take those and we put them through our model and we evaluate them for characteristics that are measuring long term

Momentum, long term overbought oversold conditions and long term relative strength versus the broader market. So those qualifiers when they are met will fill the bucket with that sector. And when they are not met, we, we then move that bucket into different asset classes. We do also have a quantitative momentum overlay that will apply when we have more than eight sectors qualifying. And when we move the buckets into the alternative asset classes, we do it in a diversified manner, which has really helped the portfolio since we launched it, which was in March of 22. Because, there was a long term treasury bear market at the same time as an equity bear market, which it was pretty damaging for portfolios that would toggle just from, long equities to long, long term treasuries. So we have that diversified

Exposure between long term treasuries, but also one to three year treasuries, so shorter term treasuries, and gold. The gold position, hasn't helped us recently, but it does over history tend to do better than equities in bear market cycles. And that certainly was the case at times last year. So we have this sort of, it's not exactly one third, one third, one third, but it is a diversified bucket of alternative asset classes. So we can have at a given time, only three ETFs in the portfolio, being those three risk off categories, but that's only happened over the course of our model, that only happened three times. And I think you could probably guess exactly what times those were, right? They're just the major bear market cycles going back to 2000. And, we saw the portfolio get very close to that

Last year, but it didn't quite get there. It still was rewarding energy with a position. And now it's really interesting because we have what I call it sort of a market neutral strategy right now in play. And it means that half of those buckets are in sectors, and they happen to be the leading sectors for the most part from this year. And then the other half of the buckets are filled with those three alternative asset classes. And so it's positioned for, well, near-term upside, perhaps from a relief rally from the leading sector. So it does have that exposure to boost the fund, but it's still in risk management mode. And when you look at the charts, when we look at the markets from a long-term

Perspective, it's fairly obvious to us why that's happening. Because while long-term momentum has certainly improved this year, it hasn't improved to the degree with which it's saying, okay, this is a secular bull trend. We have what we would call a cyclical bull trend within probably a big wide trading range. And until we feel that the longer-term indicators shift more decisively positive, we would expect to be still more in risk-off mode. And what would it take to change that? There's a lot of different factors that get built into the model. So there's not a simple answer to that. But what we're seeing in our research, which is, means a little bit, I'd say, more intermediate term than it does long-term. What we're saying is that if the S&P 500, we do expect a

Relief rally here, if that relief rally is strong enough, meaning that the breath is good, and that it can get the S&P 500 above a resistance level, well, then we have the potential to see something that's more lasting. But the resistance is quite strong. The long-term indicators are, I'd say, lean positive, but not strongly positive. And we have the headwind of long-term overbought conditions for one. So we really want to see the market improve. And then we would expect to morph right back to that sort of full sector exposure, which is where we essentially started early 2022.

Kind of drift that we have there. And it's a good problem to have, of course, when something runs away from that 12.5%. And it's the rebalance that it's the dynamic nature of the model. And I think that this is where it's a real testament to technical analysis and its benefits and that it will react to a market shift that it deems important. It won't react necessarily to what it would consider to be a sort of a corrective move or something that has the potential just to be a knee-jerk based on our indicators. But when there's a major trend shift, it will react dynamically and it will do so that investors can ideally use it as an alternative to just the old-fashioned buy and hold, right? So, versus buying the SPDR ETF, as an example, you can find that the goal here is to

Build on the returns long-term versus the broader market versus our benchmark for the ETF and then do so with limited drawdowns. And it's those limited drawdowns that over history can really be incremental. Obviously, missing a 2008 would be probably the best example of that. And indeed, I think 2008 was when technical analysis really got a great reputation and got that uptake that it hadn't really had in the early part of my career, to be honest. I always felt like I was trying to defend my discipline. But now I don't have to do that anymore. And I think it's because of those types of environments that people said, well, gosh, if I even just had a very simple long-term momentum overlay, I would have been, sort of protected by that. So it's the limited drawdowns. And

In our conservative approach, also, a lower beta. And you know that well, Brad, with your fund too, something that's a bit more conservative and with a lower standard deviation.

What we've seen pretty heightened volatility. So when you can take out some of that noise, week over week, I think it's beneficial in terms of your positioning. You don't want to over trade something. It tends to just give you more transaction costs without much benefit. And you're ending up, essentially carrying more risk by doing that. So we wait for the month-end closing data. That's also, of course, like the integrity of the charts and indicators that we're using. Like we can, sort of eyeball them and say, it looks like this is probably going to happen. But until we have confirmation, we don't want to react to that. And it probably, it's something that's getting somewhat ad nauseum for our client base

Hearing us say, you need to wait for confirmation. But it is, it's that conservative approach to me that's a very wise and systematic investing. You want to make sure a breakdown is confirmed, a breakout is confirmed. You can't just spend one day there because if you think about, resistance and support and the basis for that, it's not a precise point. So you want to make sure that, if something is cleared one way or the other, that you're actually seeing that hold for, whether it's a day or two, a week or two, you just want to make sure that it's decisive. And that's indeed sort of part of our methodology and trickles down into the model.

Because that would be out of following with the math behind what we're trying to do.

With what a lot of advisors are trying to do for their clients with multiple funds, right? So it creates that 60, 40 or 70, 30 type of portfolio with the unique piece in gold. So the gold would be sort of the outlier there. So it is a unique strategy in that it is holistic in that way. But we found that it's fit into some models as either liquid alternatives, because it is that, it is based on technical analysis and that differentiates it. Others have treated it as a hedged equity type of portfolio, and others are more simply approaching it as a US large cap equity sleeve. So there's different ways to approach it. I think a great way to use TAC would be as a core

Holding that is then supplemented by opportunistic positions in strong environments. So let's say, we have this relief rally underway in the equity market. And in our research, we're telling people to take advantage of it by increasing exposure to higher beta assets. And so, TAC remains a holding, but then you could supplement it perhaps with, sort of high growth, innovative technology stocks, something of that nature, that would boost performance in a strong tape and also, create opportunity to, I know a lot of people really like individual stock investing, we do too. And so a way to express those views, but to do it in a way that you still have that safer core position. And then you can essentially trade, trade around it, right, have

Positions that build on it at different times when the market's dictating it. So we like the idea of adding that technology exposure at times when the market's really very strong. the technology sector is the biggest sector in the S&P 500. So with an equal weight position, arguably, we might not be rewarding it enough in a certain environment. If it's a tech-led bull market, then we certainly want to have TAC supplemented by some technology exposure. And that's, of course, not always the case. we've had what an energy-led market before. So it's nice to be able to reward the smaller sectors when

Some of the sort of, I'd say, resources in terms of trading and compliance and marketing that have been really instrumental also in growing the fund to where it is now today. And then we, we haven't really made any, I'd say, concerted marketing efforts outside of continuing with our thought leadership, I would say, in terms of the research. And we do tend to get a lot of exposure for what we're doing. I'm a CNBC contributor. And so that exposure certainly helps, I'd say, build a following. So, we're learning as we go, but so far, so good.

Which is fairleadfunds.com. And folks can track the holdings and learn more about the strategy that way.