Joe Fahmy: How To Handle Changing Market Trends And Improve Your Trading Edge | Investing With IBD

hello and welcome to another installment of investing with IBD it's Justin Nielsen your host and I'm back from vacation uh thank you so much to Arusha Pierce for holding down the fort and uh he joins me every week he is an O'Neill Global advisors portfolio manager how you doing Arusha I'm I'm doing well I hope you're you're nice and refreshed uh you were definitely missed okay yeah refreshed certainly and it was nice that uh you know come back and we had a Fourth of July holiday um and you know helping us celebrate is Joe Fami always great to have Joe with us um I mean he's one of the the favorites of IBD live and also one of our favorite podcast guests so how are you doing Joe I'm doing great thanks for having me on I'm excited to uh talk markets and look ahead to the second half of the year yeah so I mean we we just finished the first half of the year I mean that that finished on Friday so uh one of the things we'll do is we'll kind of take a review of the year uh for the market action that's been going on so far we'll also take a look at uh some lessons from some of the Masters that you can have learned from from the years one of the big ones and the is being flexible adapting to the situations and then Joe's got some stocks for us so we'll take a look at those but let's get right into it Joe do you want to start with the NASDAQ or what do you want to start with sure we'll start with the daily uh NASDAQ okay and if it's okay can we start from the beginning of the year just to quickly review absolutely yeah uh we started the year with that right off right away with that January 6th follow-through day uh which got a lot of people off guard and we had that continued strength into January caught a lot of people off guard because a lot of people were negative coming into the year which we'll discuss later I guess that's sort of a teaser for the rest of the podcast but make sure people stay tuned so uh we had that strong January and then the statistics show that when January is up greater than five percent you tend to get a consolidation for a few months and then you move higher out of that consolidation statistically around late April early May and that's exactly what we had we had that strong January 13 week cup with handle on the NASDAQ with that ShakeOut or the low being that Silicon Valley Bank news and then we recovered from that and what's interesting is after that recovery that the the Regional Bank news was still fresh in everyone's mind so now I want to analyze and see how is it just a snapback or after that recovery is it going to be Consolidated well and it actually I thought it Consolidated that handle very well throughout April you can really see it in the weekly chart how Not only was it tight price action it was low volume showing that after that Silicon Valley Bank news and Surge and Recovery the institutions weren't really selling too much so you had tight price action low volume held the 10-week moving average and a lot of stocks started setting up and then right on cue according to the statistics after a strong January consolidation and we started to move higher uh around the beginning of May and that's taken us to the strength so far yeah and you know what I just gotta kind of give you Kudos because you you mentioned that tight action and that being one of the things you were looking for and when we had you on uh on the podcast earlier this year that was the that was the topic tight is right and it really kind of uh was a little bit of foreshadowing because just a couple months later that's exactly what we were looking for and as as you noted I mean it was just kind of picture perfect um now you also mentioned that the you know there was the strong start to the year we really kind of had a shift from the Dow Jones industrial average starting things and then it was the NASDAQ in Tech um then we really saw this Divergence as the as the banking crisis happened after Silicon Valley you know it just really seemed to be like oh it's big cap Tech is your safe area and everything else was you know a little hodgepodge of whether it was performing or not um so what do you think changed to kind of write this ship a little bit I think um investors switched over to what's reliable because when there's uncertainty in one group it doesn't mean there's uncertainty in the entire market so it is kind of a safe haven with the you know the the Fang names and the top 10 NASDAQ 100 names because they're amazing companies reliable earnings pristine balance sheets kind of the opposite of a lot of the regional Banks so money shifted over to what they considered safe and reliable as far as uh you know fundamentally strong companies now now Joe one of the I guess kind of one of the criticisms of the the rally early on or at least as was merging out of that tight range back in early May was that oh this is such a narrow rally uh it's only the The Magnificent Seven right of those kind of large cap tech stocks uh have you seen it started brought in more is it broadening more along towards what you're looking for yeah I mean it's it takes time for it for moves to develop sometimes so I think we get impatient and we want everything to participate right away but yeah besides the mega caps you're seeing a lot of software names uh joining joining the party you're seeing semiconductors retail both restaurants and uh Peril and clothing and shoes and so forth uh housing the home builders are participating you have some biotech some medical products so I like that it is broadening out it's just the waiting of those Mega caps is so heavy on the index but I am noticing other stocks participating uh which is which is to me confirming the rally even stronger now one problem I guess that a lot of investors have is um you know at this point it seems a little bit more obvious a little bit more like oh yeah that rally was for real but now for those that maybe didn't believe it at the beginning they're kind of rambling to catch up and you you quickly run into the situation where you are extended in the indexes you're extended in a lot of the stocks I mean if we just look at meta as an example meta platforms I mean this thing has just been going up and up and up you you know you can't really buy it now because it's it's so it's sticking up so far up there so what should investors be uh kind of thinking of right now if they were on the sidelines or if if you let's say you have participated and you know things get extended like this do you have to start hedging or um what what's kind of the the plan of attack I think it's important to fine tune your time frame and to know your time frame if you missed some of these moves with either stocks or sector ETFs you can wait for pullbacks eventually they pull back to their 21 day their 50-day they visit them every once in a while so you just have to be patient if you did participate uh in this move it just depends on your time frame and there's nothing wrong I always tell people it shouldn't always be an all or nothing decision meaning if you have 100 shares of something you don't have to sell the entire 100 you can sell 10 20 25 to even 50 whatever but you can peace out and take partial profits but it really depends on your time frame and if you believe this is going to continue into year end yeah enjoy so so you mentioned the 21 day I know you're a big fan of the 21 Day uh with markets being so strong at least the NASDAQ being so strong especially the larger cap tech stocks are are you mainly focusing on the 21 day and being maybe even a little bit more aggressive when some of these key stocks that you're watching maybe one that you might have missed was pulling back there and almost treating it as uh the 50-day that most people treated it you know usually kind of be as aggressive at the 50 day yeah when the Market's very strong uh strong stocks strong ETFs strong indices tend to hold that 21 EMA and they do eventually visit the 50-day but when the Market's super strong that's an area for example when Nvidia had their strong numbers and all the semi-surged you did have a time if you were patient with let's say SMH the the one of the main semiconductor ETFs you did have time to buy that on a pullback to the 20 one day igv if you missed some of the strong software names you did have time so I'm using the 21 um 21 EMA is an area for for some strong support because the market to your point is pretty strong and you know one of the things we were noting on IBD live earlier this week is I mean geez the computer software Enterprise Group I mean if you just pull up Arusha g3583 uh that's our that's our Industry Group code for the only Dustin would know the industry code what exchange is that trade on um but I mean here you have the group and you know it's it's right there at the 21 Day moving average line a lot of the stocks in this group are at the 21 Day moving average line but there's there's kind of this dichotomy you have stocks like this that look like this group where it just got above the 200-day line just got above its 50-day line and it's it's finally putting in some time above those those lines but then you have the other side you know like the semiconductors like Nvidia and you know some of these Magnificent Seven that are they've been up above their 200 day lines now for most of the year so are you focusing on kind of the ones that are just getting up there or maybe the the stronger ones the ones that were first out uh looking for opportunities to get into what what has truly been leading for most of the year I'm focused on the the ones that are already uh showed the strength uh that have showed the strength in their pulling back because I like to kind of focus on the ones that come right out of the gates especially not only after the fall through day but after this consolidation the ones that were moving to to highs and uh during that that seasonal strength in May so those are the ones I'm focusing on some of the I'm just a big fan of the strongest uh the strongest ones out there as they say why take LeBron James out of the game to put in a lesser player so and for the Michael Jordan fans you can substitute him but my point is um because there's that big argument but the whole point is I'm sticking with the absolute true winners that I can try to stick with and so Joe what what about because I I know you're you're you're uh on Twitter a lot and um there's there's the what about the the opinions of the Bears right where uh now it's gone a little quieter right versus last year but uh or even earlier this year but what about you know the the Bears point of view of how everything is really slowing down and with the things things are just going to keep getting worse and worse for the next few months and and you should be very careful about these handful of stocks uh that that are just holding the market up I have a theory that I've been talking about this now for a couple months um as far as the Bears I think they're too focused on the macro and to me the only thing that matters macro wise is the direction of interest rates so the market has already started to Discount the FED pausing and likely cutting later this year or next year so I think that's the only thing I don't want to get you know that go down the rabbit hole of all the macro but my other thing that I've been talking about for the past uh couple of months is that strong moves in the markets historically have been fueled by Innovations and inventions that have revolutionized Our Lives whether it's so many examples of railroads and medical products and television airlines PCS smartphones internet the the list is endless and my theory as to why the current market is so strong and I'm not paying attention to the macro besides the markets telling me not to pay attention to it is that AI is that next Innovation or invention that is fueling this market and why the market is so strong so that's why in my opinion the market is uh I'm sticking with this trend and ignoring the bearish uh argument right now now with something like AI which is you know arguably still in its infancy um you know there's not too many companies that are necessarily making money with this it's a lot of potential but not necessarily uh earnings that are out there and tangible that you can touch it's it's kind of a little bit more speculative how do you kind of handle that as a um you know when there's not as much proof yet of who the who the leaders are going to be who the winners are gonna be and they're all kind of vying for that position if I can give a little pushback to that I think the guidance from Nvidia and Microsoft is actually and we'll get into that later in the show is actually showing that it's kicking in right now so I do agree with you that it's not it's still an unknown quantity but it's happening quickly where even a company like Marvel Technologies uh they guided and said their AI chips in the next fiscal year the revenue from that's going to double so with mrvl so I do think it's actually to your point it's not quite prevalent in the tons of companies but the main companies that are benefiting the most from it have really increased their guidance uh and are starting to show that more and more companies are uh getting involved with AI and it is kind of I mean like in videos it just seems like the the classic picks and shovels play like everyone's going to be using their chips so it doesn't matter who the winner in AI is NVIDIA is going to be a de facto winner yeah and one other thing I want to add is Mark Andreessen wrote a piece I believe in 2011 called wise software eating the world and you know he's not only a brilliant uh Tech innovator with Mosaic and Netscape and then his current um Venture Capital firm uh Andresen Horowitz so he's brilliant as far as a technology mine I recommend people read sort of his 10-year later updated piece instead of why software's eating the world it's titled why AI will save the world and you can find it on Andresen Horowitz uh website it's a great think piece that can you know a thought piece that can really help you understand it a little bit better of what we can begin to expect um out of AI it's so something I recommend the listeners uh check out awesome and that's actually kind of nice because most of the thing you hear from ai's why ai's gonna destroy so that that's pretty cool and we grew up watching the Terminator I mean we have that kind of ingrained in us right it just depends on people's mindset I think I think some people are worried about exactly Mad Max Terminator all the end of days type of movies but then other people are focusing on detecting cancer two or three years earlier like there a lot of people are focusing on a lot of the benefits in productivity that's going to come from it one last question on the market in general because you did mention um kind of the the January statistic of a strong January and and some seasonality numbers that you were giving out you know there's the old adage of you know selling man go away is is that your thought process right now uh to kind of sit out the summer or what's what's your thinking on the seasonality right now uh shorter term the seasonality is strong until about the third week of July then we traditionally have August and September a lot of people are away you get a traditional pullback or at least some sideways but a lot of the statistics that show strong January strong first half of the Year bode well for you know anywhere from an eight to twelve percent gain for the second half of the year of course it's not going to be straight up of course we're going to have regular consolidations and pullbacks along the way but depending on your time frame shorter term for July is strong and then the fourth quarter tends to be strong as well very good well when we come back we're going to take a look at some of the ideas that have really formed Joe fami's approach to the markets so stay tuned we'll be right back in concentrated Equity Holdings often have a reluctance to exit their position due to the potential tax burden and other considerations this creates an unbalanced risk profile in their portfolio the North Coast concentrated stock Triple Play strategy uses options pricing models to help clients in these situations hedge risk and create premium income the proprietary approach also makes use of North Coast's Market exposure model which looks at 40 different data sets and a stock scoring model which considers more than 20 factors for more information visit www.northcoastam.com Triple Play Welcome Back to the investing with IBD podcast it's just Nielsen your host and Arusha Pierce who joins me every week is with me as well he is an O'Neill Global advisors portfolio manager and our special guest this week is Legend legendary Joe Fami he is a managing director at zor zor Capital and a lot of great stuff that he has on his Twitter so if you haven't checked that out you can find him at really great stuff that he puts out all the time so Joe Let's uh talk a little bit about the the flexibility and the adaptability that you have to have as an investor and why why do you think this is so important and what kind of got you started down this path I think the most important lesson that I what I love about the markets is that you're learning and relearning lessons and the the biggest one is that word adapt um and uh so many greats when you talk about all the greats whether it's drucken Miller uh Tepper Arusha I mean there's so many greats out there but I think of Paul Tudor Jones's line that you either adapt um uh evolve what's the adapt evolve compete or die and because we don't want anyone on listening to this podcast to die let's focus on the word adapt it's so important to be flexible Stanley druckenmiller says one of his greatest assets in the past 30 years is his ability to change his mind I can't think of anything more flexible than David Tepper in 0809 being short the banks and then literally turning on a dime and aggressively going long in March of 09 so the the greats always have that flexibility how it applies to me is I literally put on my blog coming into this year that I was expecting a five to ten percent uh drop in the markets and I came in very cautious and if I didn't learn from some of the best and listen to some of the best and be able to stay flexible uh once we had that follow-through day we regained the key moving averages and stocks started setting up I said okay you can't have any ego in the market who cares if you put something out publicly you have to be able uh to adapt to the markets and I think that lesson that I relearned helped me to quickly adapt to the markets and one of the things I wanted to ask you guys working closely with O'Neill I'm sure he's talked about this or any you know sort of tidbits you like that I'm sure it's a common characteristic even with O'Neill if there's anything that he shared with you on that well I'll tell you that you know when I first started working as a as his assistant this was in September of 99. um I had you know just been tapped as his assistant I was really thrilled I had only been working at The Firm for two years and we had had kind of a rough summer right and Bill O'Neill had sent to his clients a letter on how bearish he was and you know what was this 98 or 99 this was 99. so remember there you know 98 we had the we had the long-term Capital Management and that double bottom kind of form in the NASDAQ um and we came out of it in October of 98. great move but you know things were really getting extended right and always like look we're we're we're due for a pullback and this one's this one's going to be a doozy so in the summer of 99 he's he's like I I think it's here and he sent that letter to all the clients how bearish he was and then in October we got another follow-through day so there's Bill piling back in right you know and I and I think what you know Qualcomm might have gone through with climax prior to that and then it actually ended up for forming like a high tight flag and then making another 100 move yeah you know later in the year um you know to close out 99. so there were all these opportunities and those last few months before the March 2000 top and even though he had sent that to all those clients I I remember you know talking to him I was driving him to the airport and he's talking about how bearish he was a couple weeks later I'm looking at his sheets and he's loading up and I'm like Bill like you just sent that letter to clients and it was almost like you know the Ted lasso line memory of a goldfish he's like what you know but I mean it's you know we had a follow-through day and all these all these stocks are breaking out so it was just so irrelevant to him that he had you know put his neck out there with this you know call because he's like the the data is different now it's it's a it's a different market and so you have to participate you have to do something I love that story because it shows the consistencies with so many of the greats again repeating that line you have to be able to adapt you can't have an ego uh you can't be stubborn you have to listen to you know what's that line don't focus on what you think the market should be doing focus on what it's actually doing and it's a similar story where a follow-through day comes in stocks start to act better you you can either stay you know adapt evolve or you know stay stubborn or you have to make those adjustments and so thank you for sharing that because that's such a great story well and to your point Joe I mean all of these all of these people that you mentioned I mean one of the keys to success in the market is longevity you know I mean just being at it for a long time really can you know get that compounding to your favor and you know I just I just don't see how you survive unless you are willing to adapt because you know things change you know what what maybe worked in one market maybe doesn't work so well in another um and another thing about Bill was he was constantly learning constantly trying to find out hey what are some different indicators I can use to just get that much better here he was 50 years experience in the market 50 years plus and he was still doing studies on hey what what could make me better as as an investor and uh I think that's also what makes the makes the game exciting yeah just very quickly going off the the adapting part now I can understand it from from Bill's uh kind of methodology where you have a file today there are some signals there to kind of get you more objective but Joe have you uh run across like with with Tepper or you know Paul Tudor Jones where they had maybe some kind of technical kind of indication or a sentiment type of indication that maybe help them over uh overcome that fundamental bias that was saying that oh you should be much more bearish here yeah I think all the greats have like their own I don't know exactly what everybody does I think they have their own you know especially when you're managing Global macro you have your own uh you have your own team whether it's you know Hong Kong and London and and uh New York San Francisco you have offices all over the world so they have teams working on different parts of the world but assuming most people listening are not managing a global macro fund I just try to keep it simple so I'm sure they do have a lot of information that might override uh what their thoughts are but and listen to their team but just for you know the average person listening I think it's best to keep it simple for sure the other thing I wanted to add really quick is that recency bias can affect us as well and one of the lessons I remember are millions of lessons from O'Neill is that you know he always says stay positive just when you think it's you know the end of the world like spring is going to show up and all of a sudden new leaders will will emerge and if you go to a weekly s p chart of 2022 um another reminder is that bear markets tend to have three legs down so we had those three legs down and then when we started to roll over in early nov excuse me December of 2022 another clue and I know we talked about this Arusha is that there were three weeks tight the week of December 16th 23rd and 30th and you know Arusha we were talking about we were still affected from the bear Market we kind of were ignoring it because of the recency bias but that was a sign going back to the tightness conversation of maybe the sellers were drying up and beneath the surface at the end of December institutions were accumulating prior to this move in January that we saw yeah well and I think also an element here behind the adaptability is the and and something to counter the recency bias is the willingness to accept new data right you know we're constantly getting new data and I mean you you find this in science too and I think some of the best scientists were those that were willing to truly look at even their own hypothesis or maybe what they've you know built their career around uh Stephen Hawking comes to mind you know where he was like he disproved his own Theory you know and was glad to do it because he said look there's new data that tells me there's something different and I think especially with um you know I mean everyone was so focused on macro Joe we were talking about this earlier it was like the most important CPI and you know whatever ever and uh everyone was focused on every single thing um you know but you you do have to kind of roll with that new data what is the market doing now what is it doing differently and to your point I mean that those tight weeks that's if you're if you're not willing to accept new data and see how something is different you're going to miss some of those best cues yeah and to piggyback on that same thing happened after kovid where the new data that came in was the insane fed liquidity that they provided into the system with the bond buying eight rates at zero grow and just unprecedented liquidity that's another example of facts change the news change the data changes you have to be able to change your tune and adapt to the markets yeah and and really going back to what you said earlier about simplifying it you know for those listeners out there you're worried about do I have to really how much do you have to pay attention to liquidity or how much do you have to pay attention to interest rates and things like that you know a lot of times though the way I look at it is look stocks markets behave a certain way when they're being accumulated and they behave a different way when they're being distributed and those tight weeks that Joe was highlighting uh before at the end of 2022 those are subtle signs of accumulations follow-through days stocks starting turmerics out of bases and actually holding and slowly crawling up all of those things those are kind of the keys and and behaviors that I'm gonna pick up a lot better than the liquidity and things like that at least for me um yeah do your best to analyze what the the big institutions are doing because at the end of the day they control the markets yeah and sometimes the liquidity issue I feel like you know especially like that post covid um the reasons became a little bit more obvious to me after the fact right in the moment it was just yes this is what the Market's doing yeah look for some stocks to buy we just buying oh wow it starts starts to work the market slowly keeps pulling you in and then eventually like you're saying Justin the the liquidity okay that makes sense why that was all happening right and you know uh Joe I just also wanted to add another example to the the three waves down um if we go back to the NASDAQ and in 2003 I mean I think that was another classic example this is kind of the first time that I remember uh bill you know really kind of talking about this in a in a big way but the NASDAQ you know in the you know in in the moments before that March follow through in O3 um it did have kind of a three waves down it might be a little bit easier to see it on on The Daily so you you have that big you had that big overwhelming you know move down but if you if you go to the go to the Daily uh on it Arusha um you you can you can also see and and by the way this was also it was interesting that the accumulation distribution was an A minus uh at the time of the follow-through in March you know you can see kind of in that in that area from December if you just start in December there was kind of another three waves down a very short one you know um you know right in there yeah so um yeah this it's it's one of those things where you do this long enough you kind of see these same things repeat over and over um and uh yeah notice the similarities October low with a surge and a consolidation that comes out around March April I mean it's it's as you say the patterns repeat a lot so um so to kind of to kind of wrap this up uh do you have kind of some suggestions for I I mean to a large degree you said this at the beginning Joe ego you know how you had to put your ego aside you know even though you had kind of made this call and and stuck your neck out you had to put your aside and say okay things have changed how how do you do that you know are there is there like a is there like a retreat a man's Retreat you know type thing where you go into the woods and you know how do you get that ego out of uh out of play so that you can be more successful I think to your point about longevity it just takes it just you learn your lessons if you're stubborn earlier in your career and stick to a call there's nothing wrong with forming your opinion and letting the market prove you right or wrong and in the past I would say no and I'd argue with the market but now I just don't argue with the market and I just really try to stay flexible with my Approach but I think we all learn the hard way and then you eventually adapt and you just learn to say okay I'm gonna go with the flow and be willing to be flexible and very open-minded when you're analyzing the markets yeah and I'm just going to point out because because our producer did mention hey why did you just say a men's Retreat um let's be honest here the egos are a little bit bigger on the men you know I this is and I think this is why a lot of people have said women can be better investors because I think uh you know the ego on the man is a little bit well it's a piggyback on that my line is two things I never argue with is the stock market in women and why because they're both smarter than than me and they're both always right yeah there you go um and and Arusha did you have any kind of uh things that you wanted no no I'm staying out third rail issue okay well when we come back we're going to talk a little bit about some stocks that have been setting up including some of the big ones that have been on our radar for a while and whether they can continue so stay tuned we'll be right back investors with concentrated Equity Holdings often have a reluctance to exit their position due to the potential tax burden and other considerations this creates an unbalanced risk profile in their portfolio the North Coast concentrated stock Triple Play strategy uses options pricing models to help clients in these situations situations hedge risk and create premium income the proprietary approach also makes use of North Coast's Market exposure model which looks at 40 different data sets and a stock scoring model which considers more than 20 factors for more information visit www.northcoastam.com Triple Play Welcome Back to the investing with IBD podcast it's Justin Nielsen here your host back from my couple weeks of vacation and uh I'm sorry if that's actually a bad thing because we had two bang-up hosts uh filling in including Scott Sinclair and Ali Quorum so definitely take a look at those podcasts if you haven't we are joined by Arusha Paris who joins me every week O'Neill Global advisors portfolio manager and this week we have one of our favorites back on Joe Fami managing director at soar capital and uh one of again just a a legendary investor lots of great wisdom so he's going to kind of help break down some of the stocks that have been on his radar and that includes some stocks that are you know arguably the the market Darlings right now so you know for those of you that are thinking that maybe you've missed the the biggest leaders Joe are there going to be second chances for these yeah I still think there's more upside uh as I mentioned earlier a big reason for the strength in the market and why I believe we are we are going to head higher is the major invention in Ai and Innovation and AI because those types of inventions the key word is they increase productivity and the way AI is going to help businesses interact with uh with customers and just overall I think is uh is still in its infancy stages and I want to focus uh on some of the major AI players Okay so we've already kind of mentioned Nvidia and uh this is this is certainly a big one um you know from a from a graphics processing unit and you know hey this is something that your video games have to have to have in order to work because of all of the calculations well it turns out doing all those calculations so quickly helps with AI so what's uh what's your take on Nvidia Joe yeah it's not just the um all the verticals Data Center and gaming and PCs and so forth they're Cuda software platform is where a lot of this development on AI is and I have to say 27 years of doing this I have never ever in my life seen a company guide with the insane guidance that they did last quarter I literally think it was a game changer for the markets we're going to look back at the end of this year and we're going to say that was the key pivotal pre-pricing of a lot of stocks because they were supposed to do or guide to 7.2 billion they got it to 11 billion and I've never seen that I saw Zoom during the pandemic was one of the greatest growth stories but as far as numbers this large uh I've never seen anything like that and Jensen longer uh CEO I'd like to think he's a smart person and I know he's one of the most brilliant uh people out there he's not going to guide to 11 and then miss their earnings and then have see the stock drops in other words I think that was a conservative guidance so that woke up the markets to uh the amount of processing power that's needed in data centers uh for AI compute and so forth the story is just uh is very very strong you want to combine the strong technicals on the weekly chart where if you look after that big guidance three weeks tight showing after a big move to keep it simple the institutions weren't uh selling or Distributing shares then you had another surge higher followed by another couple of tight weeks so that's nice to see that the institutions are not selling their shares so you have strong technicals strong fundamentals unusual option activity going out over the next 18 months I still like this as a play over the next six to 12 months what do you say to people who who are a little concerned about Nvidia only having an EPS rating of a 68 and then of course you know you have all this negative earnings and sales I think you have to think outside the box I don't think it's always going to be on paper I'm actually curious what you guys what O'Neill would say when the technicals are so strong but the fundamentals are the estimates uh aren't quite there my honest opinion is the analyst just have this wrong and have underestimated the power of AI I'm curious what O'Neill would tell you guys when that situation would come up well I mean though I mean a lot of times kind of the way I learned it it wasn't necessarily what what O'Neill said but it was just kind of just by observing and being there is you're always kind of weighing the pros and cons and so you're looking at the fundamentals you're looking at the technicals and oh you're also looking at well if you if you bought the stock and you said you know it has it's close enough I'm gonna take a shot at it because of the AI theme because it's one of the the great companies out there and technically it's acting well and it's breaking out of this cup and now the market is saying that you're right on it you're actually making money you're not getting stopped out like a lot of the other stocks were uh in the past uh you might be onto something here and you want to listen to the market so so that's kind of how I learned it you're always looking at really three kind of areas to help gauge uh that decision to help inform your decision well and there was also the the idea of cyclical stocks right for a long time chips were uh the the kind of the standard cycle right you have you have the cycles that it would go through and with cyclical stocks um it's it's almost like when the earnings are good and that's that's kind of when they uh need to be sold because it's about to turn you know and when the earnings are bad that's that's when they kind of need to be bought but I don't know the semiconductor industry has changed so much from kind of that cyclical nature to look you just you know this is kind of almost the industrial Powerhouse so um I guess that was one of the surprising things about Nvidia is you know when when you're saying that game changing happen with the with the guidance Joe I mean Nvidia was already up 100 for you know off its bottom so it was like you know and and all of those earnings were looking you know looking poor at the time what they were actually coming out with the actual numbers so I I know you're trying to push it back on us I'm going to push back over to you John I was going to say who's around here yeah what do you you know what do you you know how do you kind of do that you know the the kind of the The Telltale signal came so late um you know but the technical action was there so how do you kind of maneuver through that I mean I'm just amazed at how many analysts 30 35 analysts were all this far off on their numbers um so sometimes the analysts get it wrong or sometimes the game changer is the market just woke up to AI is for real you saw so many chip companies uh go up because again of more processing power needed um in data centers and so forth and I do like to dig into the company I have talked to people who work there and I do you know when I see these potential True Market leaders and and potential Big Winners um you know the story is very very compelling going out uh where some very sharp people are saying that AI could be bigger than the internet itself so again going back to our flexibility discussion if the technicals break down if the if it proves me wrong I'm not going to stubbornly stay long the stock but I've been it for been in it for a while and I think that uh the growth is still going to be sustained for a while I should also disclose that I do have a position in this myself and yes I've been adding uh adding to uh so yeah and I and and as we're looking at that tight action I mean I've been looking at okay a time time to add a little bit more if I can because this is this is one where I started smaller and like I was with a lot of things and then I'm like wait you know this one's really working and I I wanna I wanna own more of it and get that position size up don't take out LeBron James keep him in the game right exactly um how do you how do you give him the ball more right exactly um so let's uh shift our attention to Microsoft which um again one of the one of the things we were talking about on IBD live this morning was how these companies that are able to reinvent themselves and Microsoft I think is a great example of that it was dead money for 16 years and then cloud computing really kind of Lights its fire again and now arguably AI could be another another way Microsoft is is lighting a new fire so what's uh what's your take on this one exactly what you said what's compelling is in a a filing last week Sacha Nadella their CEO said they expect to do 500 billion with a B annual revenues by 2030 in seven years so I said to myself well let me go back and look because I don't know off the top of my head they've been doing 50 to 52 billion a quarter so you know run rate of a little over 200 to 220 call it billion so they are expected to more than double revenues in the next seven years and that's an SEC filing I know like you know there they don't have to stick to everything but that type of guidance is again they're not good most of the time I grew up with Jack Welsh at GE guiding conservatively and Bill Gates guiding conservatively one penny here and all this stuff that type of guidance is if they're trying to be conservative is is very aggressive so I think again I'm trying to combine the story fundamentally with the strong technicals amazing unusual option activity a lot of put writing by the institutions because it's not just retail people who miss out on moves institutions miss out on moves in a way to catch up is to write puts so that if the stock goes down they're willing buyers and if it doesn't go down they can collect that premium so I'm seeing a lot of that type of activity in Microsoft which is again why as another the two biggest beneficiaries of AI in my opinion Nvidia and Microsoft that's why I'm sticking with these names yeah and and Microsoft here it looks like it's been going sideways for a close to a few weeks now maybe it sets up a flat base going right into earnings which would you know we should make it uh even more interesting here and let's talk a little bit about the area in which that's happening so this has gotten right up there to the highs back in 2021 so all of that bear Market angst that happen is now kind of in the rear view mirror for this so uh is your expectation for it to tighten up here uh before it maybe blasts through that level or uh do you think it can just continue continue higher and how much higher do you think it can go I mean I wouldn't be surprised um right now just with the holiday shortened type of weeks there's the the action's pretty slow but at least I still like to see that tight action but as you start to run up into earnings a lot of times Apple will do this Microsoft will run up five to ten days ahead of earnings ahead of earnings so you might start to see the move start to run up and in advance I believe the earnings are at the end of July but again this is a play for my time frame that's why I always encourage everybody work on your time frame fine tune your time frame if you're a short-term Trader that's fine if you're longer term that's fine but for my time frame of six to 12 months I I could see it going higher uh over that time I don't you know know exactly when it'll break out but yeah it would make sense to form a handle on the weekly and then maybe head higher in the second half of the year and do you ever look at I guess the velocity you know I mean Nvidia has certainly had a little bit higher velocity in terms of its move off of its bottom a lot of people get concerned when you get you know as large as Microsoft and like apple just passed the 3 trillion Mark and and market cap when you get that large uh I guess the the fear is that how much you know how much harder is it to make a 50 move one of those big outsized moves when you when you get to be that large is that a concern of yours it it normally would be but going back to adapting I I can't believe from roughly 200 billion they're guiding to 500 billion in seven years so this is where I have to adapt and I would normally say traditionally historically this thing's going to be dead money for a while there's no way they can keep growing but the growth is there and again I'm going to manage risk if I'm wrong I have no problem you know stopping myself out and and I'll have to listen to what the Market's telling me but uh I have I mean I still think there's more upside based on their guidance and based on uh the type of earnings power that can come come through through all their AI applications so it seems like you have a little bit you know quite a bit of conviction in both Nvidia and Microsoft does that give you you know a little bit more reason to add maybe a little bit more to these positions versus some of the other more normal positions in your portfolio yeah that's a that's a great point I mean I'm just trying to stick to the ones that I'm comfortable with that I know are really benefiting to Justin's Point earlier we haven't really heard it from a lot of companies but we've heard it from them so I'm sticking with so far the true leaders and I know they're not exactly names no one's heard of but I've talked to a lot of people more people I talk to are looking to short these stocks because of their moves rather than thinking outside the box of what type of Revenue growth and earnings growth can and power can come down the road and to say that these things can go higher in the next six to 12 months um I'm just sticking to what the institutions and what the charts are telling me so to kind of get back to our our Terminator fears you know we've got these two big AI behemoths what if we switch to robotics isrg intuitive surgical of course when they have their big move the da Vinci uh was the the big driving force behind that using robotics to do these surgeries um what's what's your take on isrg now and are you looking at the robotics creating Terminators uh to destroy us or for for more beneficial uses I mean intuitive surgical was a winner for a long time and they've become the gold standard for the you know the phrase is minimally invasive surgeries but the growth is again it's a way to play Ai and Robotics where it's it's growing into Orthopedics growing into Urology so they're not they're growing into more surgeries number two is they're becoming more uh they're becoming more common and more hospitals are adapting to them so they're be it's becoming more common to use robotics through that da Vinci Precision 3D it's really helping with surgeries and then the third thing is they're expanding internationally to a lot of hospitals um you know overseas and so forth you had UNH United Healthcare on their recent um conference call their earnings call noting that there's more robotic surgeries and noting the growth there so again great fundamental Story the pickup in earnings a lot of tight weeks as it's building the right side of its base on the weekly maybe again this puts in a handle but this is one uh also some unusual option activity going out to the end of July and January of 2024 doesn't mean it's going to work but that's nice to see as an added bonus so it just fits the mold of what I'm looking for is to try to combine as many factors as possible to help increase my probabilities of success fundamentals technicals the story smart money unusual option activity it doesn't mean it's going to work but it just helps increase the probabilities now you you kind of shared with us that hey look some of these earnings numbers can be uh you know forgiven because of the guidance that's coming out intuitive surgical is right there with some pretty mediocre earnings numbers some red quarters there in terms of growth um you know some single digit sales growth uh anything on guidance from this company that is exciting you I mean it's just it's slow and steady not everything is going to be that explosive guidance I was just trying to come up with something that was increasing hundreds of billions in Revenue software chips this kind of fits Medical Products so at least it's a little bit more um I didn't I mean I I easily could have discussed three software names easily um but I just wanted to come up with something where it's it's still slow and steady mid teen type of guidance and um I think there's more upside as far as uh as a longer term you know futuristic play if that's the right word very good well uh uh there's there's a little bit of a discussion that there's some uh you know some some viral videos on isrg systems being used to do surgery on grapes and bananas and all sorts of fruit uh so yeah I saw the video there's a video of It's like a remote surgery too uh where it's a banana and he he's taking the peel well he cuts the peel open first with the da Vinci and then he sutures it up and and and is remarkable but uh Alexis is also saying that there's one out there on a great does surgery on a grape uh so so I haven't seen that one but I I that it's mind-boggling when you see some of these Technologies especially when it's remote and they're actually doing that I mean that that in itself can you know it already is changing the world but if you it could even expedite it and uh make the open up even more possibilities well and then there's also you know a lot of people talking about the with travel um you know there was that kind of pent up demand uh after covid but is that happening you know happening now with some of the intuitive surgical some of these uh elective surgeries I know my aunt she just uh had surgery on you know her knee uh you know she's recovering from and it was one of those things that she kind of put off because you know during covet so is that something that you think is yeah that's another great point a lot of elective surgeries were postponed longer than we expected so they're picking up again that could be uh a reason for uh you know more upside there and I mean kind of joking I have some friends that are doctors once in a while they go out they have fun they drink and I'm like I don't want I don't want a doctor doing that surgery the next morning so I would trust the robot uh you know with more Precision than uh than some doctors I know but again they're not listening so or hopefully they're not well yeah yeah so the next uh well Joe uh thank you so much for sharing your thoughts on not only these stocks but also that uh ability to be flexible and adapt uh hopefully this is something that our listeners can take to heart and to make themselves better investors so thanks a lot for being here Joe as always a pleasure thank you for having me I really appreciate it okay and for those of you that uh have not you know joined Joe on on Twitter he is at jfomi um some really great stuff that he puts out there very very humorous as well um and uh he has some great Twitter spaces that he leads as well uh thanks a lot for joining us this week uh please join us next week we're going to have Simon Erickson back on the show we always have a great time talking about some fundamental stocks with him uh he he has some great stories to share and he does some deep Dives on stock so uh looking forward to getting his comments so hope you tune in for that thanks a lot we'll see you next time [Music]

Channel: Investor's Business Daily

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Keywords: investor's business daily, stocks, stock market, investing, investment, investments, invest smarter, investment tips, investment advice, exclusive stock lists, stock list, investing data, stock market research, financial news, business news, business, stock, stock market news, stock news, ibd, trading, stock trading, trade stocks, learn to trade stocks, stock trading advice, stock trading tips, Joe Fahmy: How To Handle Changing Market Trends And Improve Your Trading Edge

Id: Xrr_eT_qfys

Length: 53min 42sec (3222 seconds)

Published: Thu Jul 06 2023