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The Advantaged Investor: Talking Quantitative/Technical Analysis (Ep 97)

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Javed Mirza, Quantitative/Technical Strategist joins host Chris Cooksey to discuss quantitative and technical analysis, including:

  • Overview of technical analysis
  • Overview of quantitative analysis
  • You are a Chartered Market Technician® - what does it mean?
  • How does you use technical and quantitative analysis to inform your views on what is going on in markets?
  • What are you current views?

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Chris Cooksey: Hello, and welcome to the Advantaged Investor, a Raymond James limited podcast that provides perspective for Canadian investors who want to remain knowledgeable, informed, and focused on long term success. We are recording this on June 19, 2024. I'm Chris Cooksey from the Raymond James Corporate Communications and Marketing Department, and today, Javed Mirza, our quantitative and technical strategist here at the firm is joining us to discuss markets from his perspective, as well as explaining what technical and quantitative analysis. I probably said that wrong a little Javed, but I think our listeners will get the point. Javed joined Raymond James last year and is well known in the industry and has appeared on BNN and is widely sought by the press for his comments. Welcome to the Advantaged Investor, Javed, I really hope you're having a great day and thank you for taking the time today.

Javed Mirza: Awesome. Thanks so much for having me on board, Chris.

Chris Cooksey: Now I'm one of those people, I know that in technical analysis there's such things as head and shoulder patterns and candles, but I would be lying if I said I knew what those actually meant, so maybe we can just start off with a quick overview of technical analysis and what it is.

Javed Mirza: That's a great question. So what technical analysis is, it's the analysis of trends and a variety of different technical indicators, but stepping back even higher level, it's just essentially behavioural finance and what we believe in our industry, is that investors will continue to repeat the behaviour either in a positive or negative manner. And emotion is a big driver in our business. And the two main emotions that we see are fear and greed. So throughout history, going back to the tulip bubble, I think it was the 1600s and then more recently, the NASDAQ bubble, you see this human behaviour that repeats itself over time. So that's what we're focused on is looking at this behavior through our lens of perception. Price action. And then we also do something that's differentiated from the rest of the street, which is we look at cycles. So a lot of really interesting, cool stuff going on and it's pretty fantastic because I get to merge two of my loves in life, which are math and history.

Chris Cooksey: Okay. And that's sort of like you know, the super cycles and whatever you can have downturns within these, energy super cycles, which are I think 17 years if memory serves or something along those lines. So that's very interesting because I know, as you mentioned, when I first got into this business in the mid nineties, the broker I was working for told me there was only two things that I worry about fear and greed, and based on those two factors that helps me inform what I'm going to suggest to clients. Now, when it comes to quantitative analysis, what's the difference there with technical analysis?

Javed Mirza: So, great question, and I know we were just chatting before this about the Joe Carter Classic that's going on right now, so, I'm going to throw in a little baseball analogy. So, when I was back in school this was way back and I actually ran a baseball pool with buddies of mine. And I remember my math teacher shut it down because he thought it was a gambling. But the analogy I would use is way back in the day, scouts would look at players and they would just say, yeah, he's a good baseball player. Like he's built, he's like fast, et cetera, et cetera. And then you had the statistical revolution where people, and that's the beauty of baseball, I'm a big baseball fan as well, is they started looking at all the statistics and you got like the Bill James Abstract. And going through history, what you saw is just because a player looked great or physically looked the part of a baseball player that didn't matter. So, you just ran the numbers and there was a guy who looked out of shape, but he could be a great hitter, or a great fielder and you know, that's the analogy. I know it is funny because we were talking about a lot of things before we got started here, but if you think of fundamental analysis as kind of the caveman telling stories around the fire, the technical are us drawing the pictures of the woolly mammoths in the caves, we're essentially trying to do very similar things, but the quant is it totally strips out that story part. And it just tells you mathematically what's going on. So that's what we're seeing more and more in our industry is quantitative analysis playing a bigger role. And I'm not sure how many of our listeners have heard of Jim Simon, he really incorporated what I think was Renaissance macro and his returns have been far stronger than Warren Buffett, but Warren Buffett's been in the business longer, but if you extend those returns over the timeline, and then essentially, Jim Simon is quantitative and technical, he would be outperforming Warren Buffett.

Chris Cooksey: So we often talk in the industry about removing your emotions so you're not making emotional decisions. And that's quantitative analysis, I take out all emotions. Here's the numbers. Here's the decision.

Javed Mirza: That's exactly it. You're seeing this too in basketball, like with the shift towards a 3 point game. And I think people you're just seeing more and more numbers coming in and things being run based off them because now we're able to more with computers and have more data available to us. You're stripping out a lot of what we had before because we didn't have access to the data. And now we're using the data. And we're seeing things through a different lens. And I think that's the way we position that because, there's three disciplines: you have fundamental analysis, you have technical analysis, and you have quantitative analysis and historically, throughout my career, it's when those three align, that's when you have that really fist pumping high, all-in kind of opportunity that you really want to take advantage of.

Chris Cooksey: Hit the center of that Venn diagram, I guess.

Javed Mirza: That's exactly it.

Chris Cooksey: You are a chartered market technician, I would assume this is a designation like similar to a CFA, I think people are probably fairly familiar with the CFA part of this But maybe just discuss the what that entails the chartered market technician.

Javed Mirza: Yeah, great question, Chris. So here's what I would say. I hold both designations and it's funny because I worked through the, the tech bubble and I had a more fundamental background. I did my Bachelor of Commerce at U of T and I majored in finance, and then I did my CFA became a CFA charterholder during the period of the tech bubble. And it was something that really confused or perplexed me. Perplex is probably a better term. It's like, how could these companies swing and value, like 50, 60, 70 percent during this timeframe. And that's when I started to get more into technical analysis, the funny story is my dad actually used to be a stockbroker for Wood Gundy back in the day and I used to actually do charts by hand, because they didn't have charting software, for my allowance out of the back of the Globe and Mail. So that's when you had the prices, so I'd be doing on balance volume, which is basically a very simple measure of tracking volume and whether the stock is seeing buying pressure or selling pressure. S I had that kind of that background way back in the day. And then I revisited that and I did my chartered market technician, I guess it was during the period, the transition from the tech bubble to the 2008 financial crisis. But what I would say, is the CMT designation is a fantastic - level one is a great way for people to get interested. I think they used to have something at the Canadian Securities Institute, but level one is fantastic because it gives you a broad overview of technicals and a lot of what technicals is, is herd behaviour. So you just want to be cognizant and aware of it. The CMT designation, three levels, same thing. I think you can take the exams more frequently now. I have a funny exam story. If we have time, I can get into it later as well, but the bottom line is it gives you a great introduction and it would probably give most investors 80 to 90 percent of what they needed to just give them an additional edge. I would say that when I was at one of the bigger banks, they actually sent me out to one of their wealth management arms to train them in technicals because it's like AI. AI is not going to replace you necessarily, but if there's someone who's got the same skill set as you, but they're better at using AI, then they've got that edge or advantage.

And that's where it is, so, it's the same thing with technical. If you have someone who's purely fundamental compared to someone who has fundamentals, but with a technical overlay, and you just get that additional three or five percent - you sell better and you get a better entry point that adds up over time. And that's all that is. It's just, we're adding these little edges over time that build in a big way.

Chris Cooksey: Okay. Well, it makes sense. Now, how do you use technical and quantitative, and I guess even some fundamental analysis, to inform your views on what's going on in the markets? How does that all get married together?

Javed Mirza: Perfect. What I would say is, you know, I'll kind of walk through our process is. We start off, it's funny because we kind of have a weird schedule because we work on the weekend, and what we do is we spend part of Friday and basically Saturday and Sunday reviewing all the stocks in the TSX and S&P 500. That is all the stocks. We look at it from a bottom up perspective. We're looking at the stocks individually. At the same time, we're looking through what's going on in the commodity complex. So energy, precious metals. I look at grains as well. Look at lumber, the softs. I look at orange juice, coffee. I just want to get a feel for what is going on. We look at currencies as well. And then we look through the fixed income universe. And once we go through all of that and we look at through the indices, it's going to paint a picture. And it's funny because sometimes I view myself kind of like Sherlock Holmes, the market's trying to give me some information and all I'm trying to do is kind of get ahead of it. So if I see, for instance, that the US dollar is peaking and that commodities are trying to bottom, then that to me says, “Hey, look, if the dollar US dollar is going to weaken, that's a tailwind for commodities and for commodities are bottoming.” And then that just gives me more conviction.

And then I'll see that flow through, or I should see that flow through into the stocks. Maybe the stocks are starting to see relative strength improve and you're starting to see volume showing signs of accumulation. I'll give you an example. Right now, the energy stocks have been under pressure. The U.S. dollar has been rallying. Our view is, probably, over the next month, two months, two months, this is a period of weak seasonality for energy. I think if things continue the way we see them going, I think this is going to be a great opportunity to add exposure to energy stocks once we kind of get through this corrective phase, and then that aligns really nicely with our cycle work, which suggests we're approaching the peak of this cycle, and that should take us through into the first half of next year.

Chris Cooksey: That totally makes sense. And I had a little giggle to myself when youe mentioned orange juice - I thought about the Duke brothers in Trading Places.

Javed Mirza: I just did a bet with one of our head traders Bob McDonald. So what's going on right now? I'm a big fan of the commitment of trader data, and I'm not sure if you know what that is, so I can explain it. Every Friday at 3:30 on the Chicago Board of Trade, they aggregate the positions of the futures being traded and they put it into three buckets. One is the commercial hedgers, and that would be something like banks or producers. The second is large traders, which is essentially hedge funds. And then the third bucket is small traders, which is lawyers and dentists. What's going on right now is the hedge funds are extremely short the Canadian dollar. And so I think people are quite bearish on Canada. I'm sure you've had conversations about why that potentially is the case, but commercial hedgers are very long and typically you want to be on the side of the commercial hedgers. They're known as the quote unquote smart money. So Bob and I just made the Duke and Duke, literally referencing that, because that movie is one thing that really kind of got me excited and into the business. Trading places, they could never make it now. They could never make it today. It's a great movie, but we literally did that bet. So I think that the Canadian dollar is going to outperform and potentially get into the 77 cents range. I'm talking about CAD/USD and Bob thinks it's going to break down and potentially go to 69 cents. So we've got that $1 bet on right now.

Chris Cooksey: Awesome. So maybe we just get into your current views and what has informed current views and maybe just go over what you're seeing out there.

Javed Mirza: Perfect. Right now we're seeing a little bit of a divergence because the price action is quite positive. We're seeing the S&P 500 and the NASDAQ make new all time highs. That's very bullish. In fact, it's funny. Last year, most market participants were quite bearish, but we were very bullish. We had a 27% percent target on the S&P 500 and it actually returned 24%. Our target is 5466. I literally think we're trading around that level right now. So a lot of investors ask me what we think is going to happen. I think there is going to be some sort of correction. I'm not sure if it's going to be in the next couple of months or sooner than that or later than that. But the bottom line is, our view is that we talk about these four year cycles and we believe we're in the middle to late stage of a four year cycle. We think we've got more upside into at least the first half the next year. But what happens is as we get to the peak of this cycle, the economy starts running on all cylinders and that means resources are better bid. So basic materials and energy, they're going to be in high demand. And that's why I was talking about, I'd use weakness here over the next couple of months to add exposure to energy. I think what you're going to see is rotation ultimately out of some of these leaders in AI and out of these industrial names. I think that market peak is likely coming in the next six to nine months, and you have these cycles going back all the way to the forties that typically last every three to five years.

We think this new cycle began October 13, 2022, and it's true to have upside into ballpark the second half of 2025. We're in kind of what we call the boring middle. We think the markets are going to grind higher for another six, nine months, but we are slowly getting into kind of that danger zone.

Chris Cooksey: Right. I think we saw US consumers slowing down a tiny bit as well. Obviously, there's an election in the United States coming up. And if we talk about how technical analysis is market sentiment, I mean, if that happens, who knows, I would imagine that a technician like yourself, you're sort of interested to see what happens when there is a sentiment change or improvement, depending on your views.

Javed Mirza: Yeah, that's a great point. It's funny. We were talking to some clients and one of the clients we're talking to said, potentially, maybe what's going on is the market is pricing in a Trump election. And so if that is the case, maybe we get a sell the news event when he does get elected. So there's a lot of interesting things going on. We look at the presidential cycle, but the four-year cycle, that's one of the big drivers of the work we do. In the four-year cycle, there's different phases where different sectors do well. And so far everything's tracking really well in terms of where we are in the cycle. We've been really, really happy with our market calls over the last couple of years. So hopefully so far so good for this year, but the bottom line is we think it's going to be a boring grind here for the next six, nine months. But the good news is, given our view, that resources are going to be better bid over the next six, nine months. I think there's a strong probability that the TSX could outperform the S&P 500, because I think for a lot of clients and investors listening to the call, they've seen the TSX underperform over the last two years, and that could be frustrating when you see NVIDIA busting higher and then you're seeing, it's funny, because, you know, on our sales trading, we have this internal chat and one of the traders sent out in the U.S. there's companies making billions that essentially allow you to send out memes, but in Canada, it's companies producing real things underperformed, but I think the next six to nine months, I think will be pretty good for resources. Ergo should be really good for Canada.

Chris Cooksey: Well, why don't you hit us with that exam story on the way out here and we'll let you get back to your day.

Javed Mirza: Yeah. So for anyone in this area, they'll understand. First of all, I was going to, you can choose these exam centers and I was driving to Hamilton, and for people who don't know Hamilton, it's a city of one-way streets. So first of all, I kind of got lost. But my wife was awesome. I was actually talking to her and she's kind of guiding me into where I needed to go. Then I was writing the exam and I'm sitting at my desk and I was kind of reviewing it and then I just kind of like, lean back in the chair and kick my legs up and all of a sudden the screen went blank and I was like, are you kidding me? But it turns out I was super lucky because I didn't disconnect the computer. I disconnected the monitor. So all of that was, after I like spent two and a half hours, I was just reviewing my answers, so happy I dodged the bullet there, but that's my CMT exam story.

Chris Cooksey: Oh, man That would be than stressful. I want to thank you for your time today Javed, I hope we make this a regular thing if you're game for it.

Javed Mirza: 100 percent. This was great chatting with you.

Chris Cooksey: Perfect. Really enjoyed this. And we'll talk to you soon. Reach out to us at Subscribe through Apple, Spotify, or wherever you get your podcasts. Please contact your advisor with any questions you have. Thank you for taking the time to listen today. Until next time, stay well.


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