The Big Reversal - How to spot market bottoms with Carley Garner

Join David Nelson on The Money Runner as he delves into the dynamic world of commodities trading with seasoned expert Carley Garner of DeCarley Trading. In this insightful interview, Carley reveals the nuances of trading commodities versus the stock market, shares her groundbreaking call on the S&P 500, and discusses the intricacies of futures trading. With her extensive background including appearances on CNBC and Bloomberg and a wealth of educational content, Carley offers a deep dive into how she approaches the often-turbulent financial markets.

Disclosure, I may discuss securities that are under consideration for future investment; however, discussing these securities is not a recommendation to buy, sell, or hold. My mention of these securities reflects my personal opinion and analysis at this moment and may change without notice. Please remember that all investments involve risks, including the possible loss of principal."

00:00 You think the stock market is crazy?
00:31 Carley Garner
01:23 Carley called the stock market bottom
02:50 Everyone was short
04:14 She has been doing this a long time
06:25 You were right and everyone else was wrong
08:28 I never traded commodities
09:48 Commodities trade sideways
10:45 Leverage
11:16 Patience
11:47 Oil Propaganda
13:43 Mark Cuban
14:58 Does OPEC matter
17:48 The Dollar
19:39 Cash isn't trash
20:21 The everything rally
21:49 Back to the beginning
22:46 Artificial Intelligence
24:45 Trading all night
28:15 How to follow Carley

Transcript

0:00

You think the stock market is crazy? Try trading commodities. You're not going to believe what I just heard from Carly Garner of DeCarley Trading. Welcome to the Money Runner. I'm David Nelson. -- If you work in the financial community or you're just an investor at home, you've more than likely seen today's guest, Carley Garner Carly's work is everywhere, including Tier one broadcast like CNBC, Mad Money with Jim Cramer. She's a frequent guest on a half dozen networks, including Bloomberg, Schwab, half a dozen others. She does an endless stream of webinars and training videos. She's a magna cum laude graduate from the University of Nevada in Las Vegas and the author of several books, three of which are required reading for anyone interested in commodity and futures trading. They're up on your screen right now. And finally, Carly is a senior analyst and broker DeCarley trading. Carly, I probably like something up, but thanks so much for joining us today. Welcome to The Money Runner. Thank you for having me, David. Now, it's awesome that you're here. I'm going to try something a little different. At the start of the show, I'm not going to do a linear interview. We're going to use maybe my stream of consciousness. But I saw something are, you know, just out there on YouTube. When I was doing some research for the show and I went back to it, it was about a month ago you called the bottom. I saw the trade. Can you talk about that? Can you walk us through that trade? Sure. Yeah. So. So if we're talking about the well, coincidentally, the S&P 500 and Treasuries bottomed right around the same time, which is actually normally what they do. Like mid to late October is generally when you see a low in both of those markets. Most people don't associate those two seasonals as as being correlated, but they are. And in this particular year, interest rates are obviously much higher than most people are used to, or at least in the last five years or even ten years. So interest rates were much higher than most people were hoping for, and that was putting pressure on a lot of risk assets. And so, in my eyes, if interest rates stabilized, then the rest of the, you know, that would kind of write the right, all the wrongs in the stock market and some other risk assets, such as commodities, particularly metals. And so we started looking at the seasonal lows, some overstretched technical analysis. And we also noticed that business investor well, not investor, but speculator positioning was overloaded. So in other words, most people that were participating in the futures markets were short, the S&P 500, and they were also very, very, very short Treasuries, in fact, more short treasuries than they've ever been. And in the history of futures got traded. So we knew that the jig was probably up. Everyone that was bearish in those two markets would probably express their opinion. And so there was a good chance we were going to get a reversal. And we did. The the trade I think you're referring to was an option spread that we did in the e-mini S&P 500. If I'm if I'm not. Yeah, what I want to talk about that because one of the things I liked about that call was and I want to go into the details of the options spread that you put on, but you pointed out that the sentiment was abysmal. And it was I remember it. It felt awful. It looked like the market was about to give back, you know, the entire year. At that point, I think the market was only up about maybe seven, seven, 8% tops. Right, or down quite hard. But you left statistics. Do the talking for you. And I like that. Could talk about that a little bit. Yeah. So so speculating and analysis is a really tough game because we're humans and humans have emotions and along with those emotions come fear. And with fear comes generally poor decision making. And so the goal is to try to to pull all the emotional ties out of it. And that's really, really hard to do. But fortunately, I've been doing this for a long time. I've had some really, really painful and tough lessons. So I've got thicker skin than what I what I had ten years ago. And so I recognize the pattern. And I knew, although it was very scary and I was kind of against the grain, so to speak, I felt pretty confident in my analysis. And so I recommended to our brokerage clients to do an option spread. And what it was off the top of my head, I don't recall the exact strike prices, but I basically the idea is we're buying a call spread. So buying a call on the S&P 500 and selling one above it. It was a 100 point spread. Our I think it was a 150 point spread. And I think it was 100. Was it a. Hundred? Okay. So the idea was we wanted to be long the S&P with a call spread and but we didn't want to pay a fortune for it. That's the problem with option trading. If you're buying options or even option spreads like a call spread of a vertical call, spread your probably spending a lot of money to get into the trade and most options expire worthless. So knowing that options are price to lose, we generally look to finance the position by selling some premium somewhere. It made sense to us to sell a put to pay for it. Now it's it's a risky trade because when you sell a put option, you have unlimited risk on the downside. So you have to be really careful and proactive with that. But with that said, we were positioning the the shorts, the put strike price well under support. And so we felt like unless we were just catastrophically wrong, there was a pretty good chance this trade either broke even, you know, I don't want to say worst case scenario, but if we were wrong in the direction it could have, it could have broke even even with us being wrong, because there is so much room between the current market price and where we were selling our put. But if we were right as we coincidently were, as the market goes higher, our put loses value very quickly and then the call spread pays off just as it would normally with a if you were buying it outright. So it's a little more aggressive than just buying options, but it also has it gives provides a lot more bang for your buck. The beauty of that sort of trade is you have lots of room for error. So we could have been wrong by several hundred points and not really lost money. Well, you were right. And and you were one of the few firms that were right, because I watched in a ten day period of time just about every long, short market timing, wrong tactical strategy out there lost their year in about ten trading days. They saw it just evaporate because they caught nothing of the upswing. In some cases, they might have even been short because one of the things I did some reading on this sometimes, you know, when things are very oversold, they can go down a lot further. But you used statistics, you were oversold and I thought it was a brilliant trade. Congratulations on that. Thank you for it. It one of the things that on your site, I want to bring this to our viewers watching this. This is a great statement. We believe the most valuable commodity is education. Right. I couldn't agree more. And the fact that you seem to do that with your with your clients, how did they appreciate that? Is that why they come to you? I would like to think so, yes. The thing is this, the futures and options industry is extremely it's brutal, it's challenging. It's very difficult for people to make money because they're dealing with leveraged products and humans tend to overuse that, leverage the they or they underestimate the risks. So it's a really tough game. And so our goal is we want to make sure that anybody that comes to trade with our brokerage knows exactly what they're going to get for what the risk rewards are respecting the risks because like I said, a lot of people are very complacent. They just don't understand how quickly things can go south. And so we want to make sure everybody understands completely how what the risks are, how to manage those risks if something goes wrong before they even get involved. So that's always been our goal. And other brokerages in our business are probably a little more aggressive on their sales. So they probably bring in clients a lot faster than we do. But it's it's okay for us if it takes longer to bring them in. But they know what they're doing when they're when they get here, it's perfect. So let me let me ask about that, because I'm a little bit of an alien, you know, to the commodities market. Never traded the commodities market. But I've been running money for, you know, a fair amount of time in the commodities market to develop the portfolios. In the same way a stock portfolio manager develops a portfolio with well-diversified or is it a trade based trade situation? You see something, you go for it, and then you're in and you're out. There are some commodity like they call in our industry. They're called CTAs commodity trading advisors and they manage money for individual investors. Some commodity trading advisors do try to do a portfolio approach and that's and that's fine. It takes quite a bit of money to do it because they are. The idea is you have to reduce the leverage enough by over funding accounts to to create a risk reward that makes sense and isn't going to spook people or ruin their lives. So that's that's the goal. But I would say the a better approach is probably be for the second one you mentioned where you're it's highly speculative you’re in and you’re out. The thing about commodities is they're not like stocks or bonds. They're not forgiving you can't just go long and then expect at some point in the future those the prices of those assets are probably be higher in commodities. They trade sideways. I mean, if you look at crude oil, we've been we've gone from $40,$100 back to 60. You know, things move really, really quick, but they don't move upward over time like they do in stocks and bonds. That brings up a good point. So what were you describing to me? I would equate that equated to something like a prop desk, you know, at a at a firm like, say, Goldman or something. You know, there's you're looking for something. Do you go for long periods of time where you where the stars just don't align and you just sit in cash waiting for the trader to come to you? That's that's the difficult part. People have a hard time being patient and in commodities, the only way to survive. There's two ways to survive commodities. And you have to actually practice both and it's position sizing, making sure that you're eliminating or at least reducing most of the leverage that's built into the market. And what I mean by that is not using the full leverage the exchange allows. Let me give you an example in crude oil. Crude oil right now is trading at like $70 a barrel. So each contracts worth $70,000. But you can buy or sell that contract for like I think around 6000 is the current margin. So that leverage is where people get into trouble. But if you funded your account with 70,000 and you bought one crude oil future, you've eliminated all the leverage. So it gives you more room for error and more lasting power. So position sizing is is the biggest well, one of the biggest factors. The second is just being very, very patient commodities. Like I said, they don't trade in a particular direction over time. And the craziest thing about commodities, they go commodities go down more than they go up. So it's really important that we're very patient. Yes, that's exactly right. I did. I didn't know that. Yeah. Although at least the I traded from the stock side. It seems to be an area where I don't do well when I trade in materials stocks, sometimes I get it right, but most times I get it wrong. You mentioned oil. You brought some charts with you today. Maybe we can throw that up on the screen. Screen, I'm looking at a chart for you. References, number four, and it goes all the way back. This wow, this really goes back. This goes all the way back to 2002. And I want to talk about that peak oil day back in 2014, the run up into it and the absolute crash after. Were you in were you in the business at that time? I was actually the coincidentally that chart happens to begin right around where I entered the the industry so I think I march of 2003 specifically when I came in so I've been here basically the entire length of that chart and I've seen some things. And the biggest lesson I've learned in crude oil is to not not marry the mantra. And what I mean by that is like the media catches on to a some sort of I don't want to call it propaganda, but it almost is propaganda in some ways. It's a narrative. It's a story why crude oil is doing what it's doing. And then everybody adopts it and everybody believes it's gospel. And guess what? The price action ends up doing exactly opposite of what conventional wisdom would suggest it would do based on the opinions of of the masses. And so and I learned that very quickly with the peak oil, everybody thought we were running out of oil. Even the big, big shops, I want to say Goldman, I'm pretty sure, was one of them calling for like $250 oil. I remember that. I read that report and I remember the conversation back then. You know, some some of the propaganda that was out there. Well, there's no more dinosaurs anymore. It's natural, all these reasons to it. There was one gentleman that I remember that kind of called B.S. to it. I remember being on a Fox News I don't know, a hurricane was going on and oil was up that day. But Mark Cuban kind of a contrarian kind of guy, he was saying, you know what? Just doesn't smell right? And this chart kind of kind of says a lot. You define your risk. And I have to admit, it does feel like propaganda, because if I think about, you know, back in 2000, what was during COVID oil went below zero. I've never seen that in my life. Yeah. And and then it ran and you couldn't get in fast enough because I remember when it did start to go, I think the first day it started to move, the XLE was up 15% in a day. So how do you even buy that? You know. Yeah. And now this lot of smart money has been burned very badly. This year, the smart trade was to be in high free cash flow. Names that generate a lot of cash. And a lot of those are oil companies, and that's been a losing trade this year. What are you seeing in the charts right now? Well, when it comes to the I can't speak on stocks, but I can speak on the commodity itself. And I like I said, I've learned a lot over the years. I've, you know, experience is something that you can't you can't learn in a book. And I'm not saying I'm perfect. I make mistakes, too, just like everyone else. But I've seen enough to kind of recognize some patterns. And the interesting thing about oil is all of these stories that get all the headlines, the, you know, OPEC production cuts war in Middle East, those types of things generally don't affect prices as much as we think they would. It's more of a story than a reality. And what's really going on in the in the behind the scenes is technology is making it a lot easier for U.S. shale producers to pull oil out of the ground with a lot less resources than they used to do. It. And also, like where demand is actually dropping, even though the economy is picking up, obviously, after the the COVID shutdown and everything's reopening and things are overall growing, but the consumption is down. And that's probably because the technology cars are getting more efficient. So we're using less energy per per capita, per person. And nobody wants to talk about those things because it's just not as exciting. It doesn't grab clicks, it doesn't grab headlines. So here we are. Yeah, $200 oil sells a lot more newspapers than oil going down to 40 right in here up. I want to go back to that S&P 500 trade or rather the S&P futures trade, because I saw a subsequent thing that you had written or was part of an interview I saw where you talked about, you know, treasury volatility and what that might mean for stocks. And I'm a stock guy and a lot of the listeners to this program are, in one way or another, invested in stocks. What you say along these lines are probably pretty important. Right? So what we recognized was earlier this year, we saw a really big collapse in the VIX. It was probably in the late September, October, early October timeframe. The VIX and I'm talking about the E-MINI, S&P 500 volatility collapsed and then that kind of opened the door for the stock market to move higher. When I see volatility collapse like that, it tells me that suddenly people aren't buying portfolio insurance as much. People aren't aggressively speculating on the downside. Maybe they've given up and thrown on the towel or everybody that wanted a position on it already has it on. So they've already bought their put puts and now demand for those puts are going down. So we saw then we saw the same thing in Treasuries and in my eyes Treasuries were that was the one wild card that was kind of holding everything else back. The higher interest rates were holding stocks back, holding gold back, and even some of the other commodities that we follow. So once we started seeing the volatility in Treasuries decline, we knew that there was a really good chance that Treasuries were at least stabilizing or if not reversing, which would push interest rates lower. And that, in my eyes, was the key to everything else falling into place, the dollar rolling over and heading lower and a lower dollar without any changes anywhere else. All else being equal is supportive for stocks. And so that's. Let's talk the dollar chart right now since you bring it bringing it up, it's been a big driver this year. We had that. I'm trying to learn I guess we're looking at what a uncharted three we're looking at. This is a. Monthly it's a monthly dollar chart. Yeah. All right. And it's a pretty long term chart that we're looking at. So that collapse in the big collapse, I guess in 2022 was that the first signs that inflation was abating at that moment? I guess I'm looking at the peak just before it and it seems almost in line with when we were looking at a CPI of at around 9%. Yeah, I think you're exactly right that it was definitely it was definitely telling a story there. And the interesting thing about this monthly chart for me is as long as it holds resistance, which I'm pretty confident will, I mean, I can't guarantee anything. Nobody can. But I'm pretty sure we hold the the upper resistance, which is 106 one or something, have somewhere in that ballpark and I don't even think we even retest that again. I think we just kind of make our way lower. But even at the levels we're at now on the dollar index, we're still a lot like if you look historically, we're actually still very elevated. So even though we've come down a lot, we haven't come down to what I would consider normalization area in the dollar. And I think that will happen if we drop below 100 and that would be really the green light for an everything rally. I think we start getting stocks and bonds pushed higher, in my opinion. Just the the weaker dollar alone, unless there's some other surprise that we don't know about, fundamentally, that's enough to to get things going on the on the other side. And there's a lot of talk from what I've been hearing and seeing, there's a lot of cash on the sidelines. So I know it seems a little bit crazy in. A test of the cash side, because I would say the most popular trade at my firm Bell Point for a lot of advisors this year, once, once, T-bills over 5%. Or if there was more of that being bought, then Nvidia, Apple, Microsoft combined every day. It was just an endless stream of that. So that that is fuel. And I would let me ask you this. So if the dollar does start to get down, let's throw that up again. That dollar chart, if it starts to get down to your target, is that your target 100? Is that kind of like your magnet? That's the initial debt that is a magnet. I actually think we go into the nineties like mid nineties. That's going to take some time though. I mean, we're not talking weeks, we're talking several months, maybe even next year. And when I say next year, I'm talking. Like could that help extend the overall you said the everything rally and that's that that's a bullish scenario because kind of what I'm seeing right now I wanted to talk to you about it. Maybe maybe it's a little bit out of your wheelhouse since the rally, since your call in in late October, it started off with an everything rally. Everything seemed to work smallcaps. And then we differentiated and I would have thought this time of year there's usually a lot of tax loss selling. People take their losses. If you have big winners, you know, you kind of push that off until early January. I see the trade that's taking place right now where a lot of the winners are being sold and a lot of the losers are being bought. It's almost the opposite of what I would have thought. And it seems like the market price to inflict the most pain. It's certainly inflicting pain on me. Yeah, it's you know, I always say the holiday basically from Thanksgiving through the new year is I consider the holiday period. And this time of year like and like no other exposes pain trades it just it just does. And so sometimes you see some really weird and abnormal things I've kind of learned over the years to keep everything really small during this time of year and just goes through. I've ruined enough holidays. I don't need to do that anymore. All right. I said this was going to be stream of consciousness, so I'm going to go way back. Okay. University of Nevada, Las Vegas, how do you go from that to commodity trading? I mean, I wish there is some glorious story. It's really not that exciting. So I it you be I originally was I, I changed my major multiple times. I wasn't sure what it you know, they expect an 18 year old kid to know what they want to do. No, you know, you just don't. So I went from, like, medical to accounting and then finally landed on finance. I ended up getting my accounting degree. And then I also got a finance degree and I thought I wanted to be a stockbroker. So I did an internship for the stock brokerage. And it just it just wasn't for me. It was a lot of heavy sales loaded, mutual funds kind of stuff. And I'm not a very good salesperson, so it wasn't working out and there just happened to be a little shop in town with the commodities. And I thought, Why not? What do I have to lose? And that was it and doing it ever since. That's awesome. One topic that's it's hugely important in my world today it's kind of like they just chose the that the the woman of the year or are in Time magazine. It was it was it was Taylor Swift. Right. Maybe not surprising for some, but I actually would have thought it would have been Sam Altman with Open Ai and how it's become the buzzword everybody's talking about. Artificial intelligence is certainly affecting my world. I'm using it on the research side. There are sure a lot of firms using it on the trading side. Sure. Are we seeing it yet in the commodities markets in terms of, you know, just systematic trades? We are system trading has been pretty sizable in commodities for quite some time, especially because we're we're a little bit different that in that commodities trade 24 hours a day or I take it back 23 hours a day, there is an hour that they close in the afternoon. So they're around the clock and they even trade on some holidays. So while everybody else assumes the New York Stock Exchange is closed and nothing's going on, futures trading is taking place and that opens the door to algo is just literally running wild all around the clock. So you can argue well both ways. It brings liquidity to the market and that's great. But it also sometimes brings quite a bit of volatility during holidays and off market hours. And so it's kind of a double edged sword, but it is something that's definitely prevalent. I personally I mean, I'm I'm kind of old school. I like I'm more of a discretionary kind of person. I have my I just have the things I look at and I don't I haven't really jumped on board with it. Who knows? Maybe things will change going forward. It's a tough space. I'm just learning it right now. I'm learning large, large language models and they're going to be people better suited for for four that are out there. You mentioned, you know, some of these things they trade all night. Are those markets, are they are they truly liquid? I see some pretty bizarre things just the other day at night, I saw gold. I woke up. I don't know why I woke up at 1:00 in the morning. I looked at gold had broken to an all time high. Yeah, I think it was an all time high. And I said, wow, it's really breaking out. It's going to be up huge in the morning. I woke up in the morning and was down. Dow is down. Yeah, that's that's pretty bizarre. I hate to see things like that. I really do. The problem is I, I, I used to think that I wanted 24 hour markets. It seems like a really great idea because you can react to something going on overseas and in many ways it is a great idea. The market access is awesome, but it does come with side effects and that side effect is one of the biggest problems with trading futures overnight. They're pretty liquid. Like if you go in and want to buy or sell crude oil or gold, there's a type of desk all you know, any time of day you want to trade it. But when we start getting into situations where markets are pushing up against resistance or, you know, there are extremes and there's lots of stop orders, then those stops get run and it's like it's just a vacuum. It's all buys, no sells or vice versa. On the other. Hand, what it is, is it's like, you know, a, you know, somebody has got to stop order in there. They might not even be awake. Yeah. It's just going off and it's just the machines go nuts. A lot of is stop orders. Another factor that a lot of people don't realize is a lot of futures trading. A lot of futures brokers have auto liquidation on their platforms. So if a client gets to a certain area where they're overleveraged and they don't have enough money in their account to hold the risk that they have on the system kicks in and out of liquidates everything. And sometimes, like in some firms, especially big firms, imagine like a really big brokers, it has thousands of clients trading gold or crude or whatever. Sometimes those auto licks will trigger all around the same time. I'm not sure exactly sure why, but people tend to run out of money all at the same time. And it just so it just ends up just being a fiasco like what you saw on gold. Yeah. It's not. I've, I've. I'm sure that's true. My biggest reason for not liking the overnight stuff are I had a ten year period where I ran, I ran a hedge fund and I thought futures would be a great. How awesome would that be. Yeah. You know to be able to do that and I found myself I never actually turned that on, but even without it, I found myself up all night that the best thing I ever did was shutting it down. It wasn't for me. Ah, I'm kind of, you know, I like the fact that the markets do close and that there are few days off. I don't know how you guys deal with it. You got to work on the holidays. It's brutal. And I will add one more thing. The worst part about being a futures broker in overnight markets is seeing clients panic overnight. So like, imagine if you were short gold and you're at three in the morning, you see gold's up $50. You're like, oops, I can't take this anymore. You get out and then you wake up the next morning and gold literally $10 lower than where you you know what I mean? That's hard to watch. It's horrible. Yeah, it's a very humbling. We all get humbled at one point or another. Carly, this has been great. My, you know, our listeners, I'm sure got a lot out of this today. I hope you can come back, by the way. Happy birthday. Thank you. Appreciate it. I saw that. I saw that on my Facebook feed this morning. All right. Tell us, how can how can our viewers follow you? And what's the best way to reach out to you or DeCarley trading? If you're interested in following us on social media, Twitter's probably the best place to go. My handle is @carleygarner, and that's Carley Garner. If you're if you want to learn like via articles and educational videos, go to our website decarleytrading.com. That's decarleytrading.com. Lots of educational material on the site. And then if you do decide you want to trade commodities, hopefully you consider us awesome. Carly, thanks so much for being with us today. Really appreciate it. You've been listening to our guest today, Carly Garner of DeCarley Trading. This is the Money Runner. Thanks for joining. I'm David Nelson.