ALEX ROSENBERG: Welcome to Trade Ideas.
I’m Alex Rosenberg, sitting down with Dave Keller,
President of Sierra Alpha Research.
Dave, thanks for coming in today.
DAVE KELLER: Thanks, Alex. Good to see you.
ALEX ROSENBERG: So, we had to have you here because you
joined us in early April
with a trade on AT&T as a defensive play on the broader
Let’s play a clip of it for folks.
DAVE KELLER: So, I think with AT&T, part of it is based
part of it is based on the yield, the dividend component.
And then the other two are more macro factors.
So, a macro environment that’s going to favor more
defensive over offensive sectors and groups,
and then the seasonality.
So, we’re getting near to the seasonally week as part of
So, those four things together make it a compelling trade
ALEX ROSENBERG: So, at that point, the stock was at
And in the time since, we’ve risen up to about $34 a
Meanwhile, the broader market, as you predicted, has gone
nowhere to down,
dropping maybe 1% or so.
We’ll see how the day shakes out.
It could be up 5%, down 5% given these markets, but-
DAVE KELLER: It’s the environment now.
ALEX ROSENBERG: But pretty good trade.
So first of all, thanks for bringing it to us in early
But are you sticking with it?
Are you still looking for that $36, $37 level on AT&T?
DAVE KELLER: Yeah, I definitely believe it’s going to
continue to go higher.
And that’s where I’m looking.
I continue to think that there are plenty of headwinds to
And as we’ve started to see them materialize in the last
week or two.
But I think the signs of that have been, for the last
if not last month or two that we’ve really started to see
some signs of negativity.
When I think of the broad market, I’m thinking of a lot
of divergences that we’ve seen
and the two that come to mind, in particular,
the S&P 500 making higher highs going into the end of
RSI, a great measure of momentum going to lower highs.
And that divergence that you’ve seen, for me, suggests
if not some potential for downside, so at the very least,
you want to get cautious.
And then the second broad thing is just the divergence
between large caps, mid-caps and small caps.
And if you think of the last couple months, the S&P 500,
large caps making higher highs.
Mid-caps failing at resistance, they went right to the
same peak and then sold off.
And small caps have not even eclipsed their previous
So, that divergence of the smaller names having less
is not the type of environment where you’d expect a lot
of further upside
and in the juice, the high beta equity name,
so something like AT&T is a great defensive play I would
ALEX ROSENBERG: Yeah, and let’s get back to AT&T,
but definitely curious on your thoughts on making sense
of what’s going on in markets here.
It’s been quite a week, obviously, very news-oriented,
there’s the trade news,
there’s the multiple personality disorder of market
reactions to the Fed and to Powell.
So, looking really just in the days, weeks, and maybe
how are you making money sense of the next step here?
DAVE KELLER: It’s a really good question.
And I would say, to start with, a lot of people ask me in
a time like now,
when there are so many macro drivers of stock prices-
so the dollar, gold, US-China, the Fed,
any one of those things could move the market very
And so, a lot of people have asked me,
where’s the place for charts, when it’s just a macro
That’s just the Fed?
That’s just the dollar, whatever?
Why would you look at charts?
And I would argue, at a time like this, it is the best
time to look at charts,
because what charts do is they represent the
of all of the collective psychology of investors
that shows you where people are voting with their feet,
voting with their fear, and where they’re putting their
And so, when the Fed makes a change,
when the chairman makes an announcement, and the market
that’s the time then I automatically want to bring the
even the short-term chart- a five-minute chart, an hourly
just to see how the market’s reacting to that.
And it’s same thing I would say on the equity side
was something like an earnings release, even though
earnings are not a technical factor,
the reaction to earnings and how people process the
that is a very psychological behavioral technical factor.
So, I would say at a time like now, charts are really,
just to see how we react to sudden movements in the
So, what does that tell me about right now?
I would say the headwinds, the technical headwinds,
I would argue, have been building up for a little while.
And my general suggestion to clients has been limited
So, just because of the divergences that I mentioned
so you want to start to think defensive, look at places
where you could take profits.
The selloff that we’ve had this week, I think,
in my opinion, the beginning of the move,
with that big move down into Monday, Tuesday.
And it’s the characteristics of it was about I would call
it dead cat bounce,
which is a common slang term for a big selloff, followed
by a sudden quick recovery.
And it’s usually just the first bounce before we continue
So, those divergences, those long-term divergences are
They haven’t changed.
It’s not like they fixed just because we’ve corrected a
So, in my opinion, I think you still have a situation of
I would argue there’s going to be a lot of backing and
And seasonally, we’re going toward that weaker part of
going into the fall when most stock market bottoms have
So, I wouldn’t be surprised for my base case is weaker,
lower into the fall,
and then a recovery to year end, not far from where we’re
at right now.
But I think there’s plenty of downside potential within
ALEX ROSENBERG: So, given this setup, are you one of
who’s looking for maybe a sign of capitulation,
a sign of flushing out that this is like a feel
like a very old saying of flushing out the weak hands,
people used to say and seeing the VIX rise to 30 or 40?
And then would that be a sign to get in maybe earlier
Or would that be a sign that actually, it’s getting even
DAVE KELLER: So, that’s the trick right now.
And that’s why the game is just not easy.
Because it’s a question of, have we done enough?
Have we capitulated, have we sold off enough?
Or is this the first leg of a multiple leg down
and there are a lot of people that are Elliott Wave
I am not one that have a whole wave methodology of
expecting what could come next.
For me, I like to look one level down.
So, if I’ve seen a broad market movement, a selloff,
I then want to look second and third level, look at
and also look at individual stocks and groups.
So, something like restaurants, which have been pretty
thinking like Starbucks, Yum Brands, Chipotle even,
these are names that overall especially like a Starbucks
has just been a long and strong up into the right
pulled back a little bit, which most things have.
But it’s held a lot of support levels very easily.
It’s not retested, it’s less swing low.
It’s nowhere near its 50-Day Moving Average.
If I would see names like that
that have been really good start to break down through
that would be the confirmation to me that there’s further
If something like that, if buyers aren’t coming in,
and holding up a really good long-term winner like that,
that tells you want to expect a little further downside
getting more defensive.
So, for me, thinking of AT&T, I think it’s a good price
but it’s also a good defensive play, which is why I think
it’s so compelling right here.
ALEX ROSENBERG: Yeah, so talk to us a little about that
maybe remind us what you were looking at, at the time,
because those signals obviously works
so we want to remember the signals that work
and then what we’ve seen since to perhaps confirm your
DAVE KELLER: So for me, the fat pitch chart, the ultimate
the idealized chart that you wish you saw all the time
is a strong long-term trend and a week short-term trend,
meaning long-term outperformer, the last six to 12 months
is pretty strong,
good relative performance, ideally.
And then a short-term weaker movement, some pullback,
which is seeing some profit-taking
but means you can get in at a pretty optimal level
instead of buying into a vertical stock,
which a lot of times trends really poorly.
You can buy into the weakness.
And if you’re running a decent amount of money,
you can get in without shocking the market,
you can accumulate a position without too much trouble.
So, that is the sweet spot combination.
AT&T back in April wasn’t bad, it didn’t have the
relative strength support.
It had been an underperformer as a lot of stocks had just
gone vertical and done very, very well.
But I think what’s happened now
is you’ve seen the relative strength in AT&T really start
you’re starting to see it outperform on a relative basis,
meaning price appreciation is there relative to the broad
as it’s held up, and a lot of other stocks have broken
But you also have the dividend component, which was a big
part of the thesis there.
I don’t remember exactly what the dividend yield was back
but it probably at 6.5%,
it’s probably down to 6%,
maybe a little lower with price appreciation,
that’s still pretty good with the Fed lowering rates,
the 10-Year Yield down at 173 or whatever it is.
6% not too bad.
ALEX ROSENBERG: It’s better than the German bund.
DAVE KELLER: So, as investors search for yield,
and as any fear materializes with price downturns across
I think you flock to something like an AT&T, a defensive
place with good dividends.
That’s why telecoms, real estate, I think are pretty
And something with a good price setup as well,
you’re getting both the price appreciation and a dividend
yield. It’s pretty compelling.
ALEX ROSENBERG: Now, speaking of bonds here, AT&T and
we’re talking about the equity.
They’re somewhat a bit of a player in the bond market
with $200 billion worth of corporate debt.
Actually it was AT&T in particular was one of five stocks
brought up by Raoul and his Is Recession Coming video
where he pointed out they’re BBB rated with a huge amount
If you see the economy slow down, roll over into
that debt is going to be pretty hard to at least maintain
for BBB rating,
who knows what happens from there?
What do you make of that whole argument?
And how does it play into the way you’re thinking about
AT&T going forward?
DAVE KELLER: That’s a tough one.
And I would I guess, the way I would summarize it,
there’s so many unknowns to this thesis, as with
So for me, as a technical analyst, as a behavioral
I want to look at price and I want to see where price is
because regardless of what- the AT&T argument with the
debt that could totally play out.
But in my mind, that’s what should happen based on what
this series of events,
it’s a narrative, which could absolutely play out.
But I’m going to look with the price.
And if I see the price appreciating and I see it
that tells me regardless of their debt situation,
there are more buyers and sellers, there’s accumulation,
and that’s what I want to bet with.
So again, you have to balance all of that
with are people going to be so desperate for yield,
desperate for defense that they go to a place like AT&T?
And again, what I’m seeing on the charts tells me that’s
starting to happen.
In April, I would say was a little early in terms of the
telling you that there were funds rotating there,
the relative outperformance tells you that people are
sticking with it,
even given all the potential headwinds that we see.
So for me, it’s pretty promising.
ALEX ROSENBERG: So in April, you gave us a target of $36
to $37 with a six-month time horizon,
it’s gone, pretty much going to plan here because we’re
four months in and we’re at $34.
Are you sticking with- now, it’s a shorter term trade
with a two-month time horizon,
would you update your time horizon as well as your
Or if you want to put it on now, what would people do?
DAVE KELLER: Yeah. So $37, the level there came from the
So, if you look at the weekly chart of AT&T, the market
has a memory.
And there’s a level at which you’d expect profit-taking,
you’d expect people to be made whole and be comfortable
$37 is a perfect target for that.
So, that was really the start of that target.
I think that still makes a ton of sense.
I would feel really comfortable writing it to there
and then reevaluating where we’re at, at that point and
when you think about support and resistance levels-
in this case, the resistance level,
it’s all about what the price behavior is as we get to
So, in terms of short-term risk for AT&T,
you have on the daily chart a bearish divergence of
higher highs in the last week or two
and lower highs in the RSI, suggesting there’s a little
lightning of momentum,
you can expect a little sideways pullback thing,
which I would argue is a good time to accumulate if you
have that long-term bullish thesis.
But for me, when we get to $37, it’s going to be a
what does the price action do between now and then?
And are you seeing any signs of profit-taking,
of distribution that might make you want to rotate
But for me, that timeframe is going to line up pretty
with where you might expect a market correction,
market bottom, that sort of that same calendar timeframe.
So for me, it might be the time to rotate away from AT&T
into something more growth,
the more higher beta but let the charts tell us then.
ALEX ROSENBERG: And in terms of a stop loss, would you
I think it was somewhere down around 29 $28?
Would you bring that up?
DAVE KELLER: Yes. Yeah, you’d want to bring that up a
And for me, it’s all about the swing lows.
And what I mean is the market never goes from point A to
point B in a straight line.
It’s a series of impulses and corrections and analyzing
those relative movements
and how they relate to the long-term trend,
I would argue is the value of technical analysis.
That’s what you should be doing to understand trends and
how they’re evolving.
So for me, I always want to see as AT&T goes higher,
if it does pull back a little bit on the next leg up,
you want to make sure it’s going to new highs.
On the next pullback, is it staying above the previous
So, as long as that’s the case, I think you bumped the
stop up to most recent swing low.
And I think that’s pretty fair here.
ALEX ROSENBERG: All right. Very good. So, we’re in a good
place for this trade.
And so basically, looking for to it play out over the
next two months up to that $37 level.
DAVE KELLER: That’s right.
ALEX ROSENBERG: Dave, thanks so much for joining us today
on trade ideas.
DAVE KELLER: Absolutely.
ALEX ROSENBERG: So, Dave is still bullish on AT&T and why
He’s been crushing it.
He still has a price target of $37, still looking for
that by October.
However, he’s raising his stop loss to recent swing lows.
All right, Dave, thanks so much for joining us on Trade
and for Real Vision, I’m Alex Rosenberg.