In this week's Stansberry Investor Hour, Dan welcomes Pete Carmasino back to the show. Pete is the chief market strategist at our corporate affiliate Chaikin Analytics. He's also editor of the Chaikin PowerTactics and Chaikin Power Portfolio newsletters.

Pete kicks things off by discussing the current trends he's seeing. He says that you can't focus on just one area because there are many moving parts that shape the market, including other investors. The goal, he states, is to react to the movements, not predict where things are headed. Predictions can be wrong, and folks who don't react wind up missing out on new opportunities. Pete then shares his investing process. He understands that sectors rotate, and when he sees a shift from one sector to another, he follows the signal on where to start moving money. He also looks at fundamentals and technicals to determine whether the stocks he's looking at are good buys at the moment. And he shares his thoughts on the Strait of Hormuz tension and how things might play out...

It's a geopolitical event. I don't think it's going away. I don't think it's going to be shrugged off as unimportant. I think it's more of a chess game than anything. And I've migrated to the style of game-theory analysis. And I haven't become an expert in it, but I've used it over the years... When you look at the [tariff tantrums] we were dealing with last year, it just made sense that eventually [the market thought], "This too shall pass," and it kind of did... [so] I feel like the Strait of Hormuz and the uranium situation is gameable.

Next, Pete shares his thoughts on the energy crisis. He says the root cause is less of a supply issue and more of a distribution problem. He believes that properly equipping refineries will encourage miners to produce more oil. According to him, if the supply can increase while conflict tensions decrease, we can have an equilibrium where consumers are comfortable with gas prices and miners are content to continue drilling. Then, he talks about the producers that he finds most promising in several different sectors...

We have sectors and then subsectors. We rank them by Power Gauge... Just looking at the Power Gauge, from the ranking of the Power Gauge, the top two subsectors right now couldn't be more opposite. [A banking exchange-traded fund] is No. 1. And the second one is [an oil and gas fund]. Sector-wise, it's energy... and then materials. And so materials are the other area [contributing to distribution].

Finally, Pete explains how his portfolio works. Using a "top-down analysis," he looks at themes throughout the year to find the best names in the strongest market sectors. He then shifts to the market corrections we've seen since the sell-off from last year's "Liberation Day." But he notes that the big names in the Magnificent Seven didn't recover with the rest of the broader market last November. And that implies that the baton could be getting passed from tech to energy. So he adjusted his portfolio to prepare for a sector rotation. He then wraps things up by stressing the importance of handling risk management in your portfolio...

Risk has two components. They always exist. One is the ability to take risk. You have the money, you have the ability to take this risk. And the second one is the willingness. Do you need to [take this risk]? A lot of people go into wealth-preservation mode because they've built a huge pool of money... [You should know] when to take a little more risk and when to back off... It's so personal that no one can give you a rule of thumb about how to figure that out, but the old adage is... "If it's keeping you up at night, you probably have too much of it."

Click on the image below to watch the video interview with Pete right now. For the audio version, click "Listen" above.

(Additional past episodes are located here.)

This Week's Guest

Pete Carmasino is the chief market strategist at our corporate affiliate Chaikin Analytics. He has more than 25 years in the financial-services industry. His years of knowledge in many different strategies help his thousands of subscribers decipher the markets.

Prior to joining Chaikin Analytics, Pete owned and operated a registered investment advisory firm where he managed his clients' portfolios using his proprietary methodologies. And he spent the bulk of his career as a portfolio manager for high-net-worth families, individuals, and institutions – including Prudential Securities, Lehman Brothers, Wachovia Securities, and PNC Investments.

Dan Ferris:                 Get out your pens and pencils. Ladies and gentlemen, lots of ticker symbols for you today with our guest, Pete Carmasino. Pete is a veteran trader. He always has lots of ideas and he is going to deliver today. He always does. We're going to talk about XME. We're going to talk about XES. We're even going to talk about Nucor, NUE.

                                    We're going to talk about DR Horton, DHI, and probably a bunch of others that I can't remember right now, but lots of names with Pete. It's always a fun time with lots of ideas, so let's do it. Let's talk with our guest, Pete Carmasino. Let's do it right now.

                                    Pete, welcome back to the show. It's always good to see you.

Pete Carmasino:         Dan, great to be here. Thanks for having me back again. I appreciate it.

Dan Ferris:                 You bet. So, you're going to be a regular on the show – obviously, this is your third or fourth time here. So, I think what I want to do is I want to find out what trends and what stocks and what stuff from macro down to stock level is, what are you obsessed with right now? What's top of mind for you? Yeah. What are you – what do you like the most? What do you hate the most? Whatever you have for me, I want it.

Pete Carmasino:         There's so much to talk about. We've been going, again, we've been in this business for some time, and we talk about the markets and the direction and sentiment and things of that nature. But I was saying prior to coming on that, if somebody had said to both of us, "Hey, oil's going to be around $120 a barrel. West Texas or Brent, whatever you want to talk about. And then we might have a small sell up, but we're going to continue on to new highs in a short amount of time." I think both of us would've said, I don't think so. I don't, typically doesn't work that way, but here we are, right?

                                    And so, it's what's top of mind, it's never one thing, and it's a multitude of things. And in so far in this administration, you've gotta really be on your toes because there's a lot of things moving at a very fast pace. And yet at the same time, what do we see? We see markets moving up to new highs even today as we record. And yet you have, I have to remind myself this sometimes that markets are designed to go higher. That's basically by design.

                                    And I said this on one of our internal videos here at Chaikin Analytics. It's that, just remember all of the people participating in this market, right? Everybody from us, the retail, money managers, registered investment advisors, wealth managers, banks, hedge funds, family offices, institutions, pensions, global.

Dan Ferris:                 Massive institutions. Yeah.

Pete Carmasino:         And guess what we're all doing? We're all just –

Dan Ferris:                 We're all buying, man.

Pete Carmasino:         We're trying to find an edge, right? We are looking for ways to get in. And I feel like a lot of folks hear the noise and they kind of stand up straight and they go, oh, uh-oh, I better try to get out. And I think that's really the maneuverability of what we do in our publications is basically just trying to react and not predict because there's a lot of folks who've been trying to predict and have been wrong, and those who don't react wind up missing out.

Dan Ferris:                 When you say react, it sounds like you're doing what a lot of traders we've had on the show have done and they're saying, I let the market tell me when to get in, when to get out, etc. I don't try to predict anything. That's what you're telling me.

Pete Carmasino:         Absolutely. I don't think anyone who's managed money in the past, current, or even in the future is going to say that I knew what was going to happen. We all have confidence in our procedures and our policies and the kind of way we invest. It's like I golf a lot, right? I have confidence when I hit a putt. Would I bet a million dollars that I'm going to make it. Probably not, right? But I have confidence that I'm doing the right things that need to be done to get there.

                                    And I think too many of us try to thread the needle and be perfect. Oh, I bought this stock a day early. In the grand scheme of things that one day may not make a difference. Depends on the day, of course, but I think it's about process and sticking to something that you believe in, you trust, and that you can actually continue to do with discipline.

Dan Ferris:                 All right, I'm sold. Let's talk about your process. Sold. I'll take one. Yeah, let's talk about your process.

Pete Carmasino:         For me it's always been about rotation. It's always been, once I found out when I started this business in the early 90s, that money managers in general tend to stay invested. But markets go down less times than they go up, but sometimes they go down pretty quick and rough, and it doesn't – it's not a lot of fun. But those managers and the institutions and pros at the time are still finding other ways to be invested in the market. And once I understood that funds in general typically don't use cash a lot, right? They'll move into another sector. They'll move into something that they consider safe, a defensive. And that kind of led me to where I am today by following the sector rotation process and just trying to see what the sectors are telling us.

                                    When we start to see consumer staples outperform tech, that's a signal. It's just like driving on the road. We all have a destination when we get in our car, but we have to obey the laws. We have to stop at the red and go with the green. And when you see things changing in the market, it's a signal. Just follow it. You'll get to your destination. So, sector rotation is part of the process that I've been bringing to the table here at Chaikin, but also fundamentals married with technicals. I know you're a fundamentalist and you're looking at balance sheets and income statements and making sure there's cash flow and all those good things, which is great.

                                    And our Power Gauge at Chaikin does a little bit of that heavy lifting for us. But we, especially me, I rely on the technicals. I just was taught this one thing – and I never forgot it – is that all stocks are bad until they go up. And that was, for me, it was like, let's just try to find the names that are setting up with a repeatable process and that have a real high probability of working, especially when the sectors are telling us what to do.

Dan Ferris:                 There's a fundamentalist bottom-up analog to that all stocks are bad until they go up, and that is, anything is attractive at the right price.

Pete Carmasino:         Yes.

Dan Ferris:                 Anything can be attractive at the right valuation, Ben Graham or somebody like that would say, but at the right price. Sure. Yeah. That makes a lot of sense to me.

Pete Carmasino:         I agree with that.

Dan Ferris:                 Now I just want to clarify something. You just talked about staples and tech. Was that just a hypothetical or is that what's happening now?

Pete Carmasino:         It was happening and that alerted me to some changes in the markets just in general. So, I look at ratio charts, and we also use what we call our – it's our ETF sort of comparison. And we look at the sector ETFs on the Chaikin system, and we try to see, all right, which ones –

Dan Ferris:                 You're talking about XLP, XLK, XLE, all those?

Pete Carmasino:         Yes, exactly right. Which are major sectors. And we'll go – I go a little bit, a step deeper to find out, what's the allocation to the S&P in these particular sectors. It would surprise, I think a lot of people, once they opened up the hood, so to speak, to see obviously the S&P has a high exposure to tech about 30% to 33% on any given day. But it has a very low exposure to utilities and even energy.

Dan Ferris:                 Yep.

Pete Carmasino:         Think about that. If those two are outperforming the S&P, let's just use them and the other staples like consumer staples and of course healthcare and utilities, they're the top three defensives. But we saw energy start to clear what we call our technical indicators on the upside back in December. And these are, again, they're traffic signals, right? We can see them. We are green, yellow, and red on our Power Gauge only because we've been taught those colors across decades of civilization. And you could see what's happening there. So, to me, it's never more a surprise. It's always a what if like wow, what if this continues? What's going to, what's driving it? A lot of people want to know why.

                                    For me, it's more about money flow, positioning. In other words, are we seeing more longs than shorts in these particular names or sectors? And are we really seeing good volume behind this move or is it just some sort of trade that someone decided to, that we better hedge ourselves with energy or something? We're trying to really put all of that recipe together. That's the process, right? So, if you miss one or two things, it's not going to taste the same. But more importantly for me, specifically for me is the technicals. I have to rely on that, because that's where I made most of my bread and butter over the years and the technicals kind of lead the way.

Dan Ferris:                 Right. But it sounds like the Chaikin Power Gauge is like the tool at the center of it all.

Pete Carmasino:         Yeah. Yeah. We have to rely on it. We, again we try to do our best research fundamentally that we can, based on what we know. There's plenty of access to information out now in our day and age, and we dive deep into these names and do full research reports on them. And then for me, in my publication, I really lean on the technical. So, when I get both set up, it is a fantastic opportunity, typically.

Dan Ferris:                 Right. Yeah I hear that. It's funny, I've heard it over the years so often, boy, when the fundamentals and the technicals line up, wow, it's so great. And nobody ever convinced me until you guys came along, really, because I never saw anybody really demonstrate it consistently until you and Marc and you guys came along and said, wait a minute, we've got it, we've got the system. And it's a fairly impressive setup that you got there I have to say. Little jealous that I didn't come up with it myself.

Pete Carmasino:         And you know what's nice? A lot of people say it's intuitive, right? You see it and you're like, all right, we used to meet individuals back before we joined forces with MarketWise and Stansberry and people would ask me, "How do I know it works?" I was like, all right, let's give me the name of a stock, any stock, right? And we pull up a chart and say, well, here's where it went red, and then here's where it went green.

Dan Ferris:                 And then here's how it performed. Yeah.

Pete Carmasino:         This is what it did in between. And people would go, "Oh, OK." And that's really, it's honestly, it gets that simple, but the complex part is understanding the market, right? What kind of environment are we in? We were in a risk off environment, at least for 40 to 60 days, and now it seems that we've shrugged off the biggest worries out there and we're back to risk on.

Dan Ferris:                 Yeah, man, screw the Strait of Hormuz. We don't care. It's just away we go.

Pete Carmasino:         You bring that up, and it's incredibly important. It's a geopolitical event. I don't think it's going away.

Dan Ferris:                 No.

Pete Carmasino:         I don't think it's going to be shrugged off as unimportant. I just think it's more of a chess game than it is anything. And I've kind of migrated to the old style of game theory analysis, and I haven't become an expert in it, but I've used it over the years, and I used it last year almost to the day, probably maybe toward the end of April last year with the tariff and all the things that are going on.

Dan Ferris:                 Tariff tantrum.

Pete Carmasino:         I simply just – it's a four-box analysis, right? We just have to see what's really going to potentially happen here. And all of the moves in a rational game, right? Pointed to, well, there's probably going to be tariffs, but they're just not going to be that big, right? And that nobody, China doesn't want to not do business with us. We're their best customer. We don't want to not have them manufacture, do things for us either, we don't want to lose that.

                                    And we certainly don't want to mess up the global economy of which we are a pretty important part of, and a huge benefactor of, but we did want to shake it up to a degree of as the administration calls it, payback time. But when you look at the whole exposure to what we were dealing with last year it just made sense that eventually this too shall pass and it kind of did. Now it's creeping into inflation numbers now, and people are falling, all the tariffs are raising prices across the board. Of course, inflation's something that we're never going to get away from. But I feel like the Strait of Hormuz and the Iranian situation is gameable.

Dan Ferris:                 Yeah. When people talk about tariffs and inflation, it drives me nuts actually, because you and I both know that inflation is a monetary phenomenon.

Pete Carmasino:         Oh yeah.

Dan Ferris:                 It's not about changing trade policy and shutting down the Strait or whatever, raising oil prices, higher oil prices. People say, "Oh, higher oil prices will lead to inflation." That means you gotta draw a line from higher oil prices to more money-printing.

Pete Carmasino:         Yeah.

Dan Ferris:                 Because that's ultimately what inflation really is. It's more money creation.

Pete Carmasino:         Yeah. Milton Friedman said it best. It's created by government, typically.

Dan Ferris:                 Yeah. It's a monetary – I think the quote – a monetary phenomenon everywhere and always.

Pete Carmasino:         Yeah.

Dan Ferris:                 That's only what inflation is. Pet peeve.

Pete Carmasino:         I have to remind people. I'm glad you said that. It frustrates me, too. I have to remind people, I ask them one quick question. I said, "Do you happen to know what your parents paid for their first house?"

Dan Ferris:                 Yeah, I do. Do you?

Pete Carmasino:         I do. So, it was about less than $10,000.

Dan Ferris:                 Wow. What year?

Pete Carmasino:         Yeah. In the 50s. Yeah.

Dan Ferris:                 Yeah. Mine was in the 50s, it was $45,000. And I think when they died, they changed houses twice. The second time it was $62,000, maybe in the 70s or something, I want to say. Yeah. In the 70s, like '77. And then when they died, I think their house, what was a much smaller house was worth like, close to $400,000. It was like close to a 10X over their lifetime.

Pete Carmasino:         Yeah, exactly. Exactly. So, it's like, people, how much was a car? You look at old ads, look them up, they're actually hilarious to see, first of all, the cars that you could have bought for, $2,500, a brand-new car off the lot. Inflation's just part of our life. We have to understand it's, as you say, a phenomenon and it's related to income and things of that nature. Because that's the second question is, entry level positions in say, marketing or sales, in any kind of finance or any type of industry, you might be talking $50,000 to $60,000 walking out the door. Now that was a lot of money. You were making $60,000, $70,000 in the 50s, 60s, and 70s you were doing really well.

Dan Ferris:                 Yeah, man.

Pete Carmasino:         Today it's like, that's it?

Dan Ferris:                 My father got his salary doubled in the early 60s, I think it was, and it went from $7,000 a year to $14,000 as an attorney for the government.

Pete Carmasino:         Yeah. Huge. It's all relative, right? Isn't it? That's really kind of what we rely on, too, in the markets, and that's why we – I like to look at certain sectors versus the market, because it's a relative strength comparison.

Dan Ferris:                 I got one more for you.

Pete Carmasino:         Go ahead.

Dan Ferris:                 One more. Rick Rule's favorite illustration of this is Motel 6. Most people don't realize why it's called Motel 6, because when it started out it was $6 a night.

Pete Carmasino:         Yeah, exactly.

Dan Ferris:                 And now it's $120 or whatever.

Pete Carmasino:         And TV and air conditioning was included.

Dan Ferris:                 Yeah, man. So anyway...

Pete Carmasino:         It's amazing.

Dan Ferris:                 Our listeners should know that this is a common pet peeve of Pete Carmasino.

Pete Carmasino:         Yeah, 100%. Then we should talk about the Iranian situation. This is a situation where I know you've talked about it extensively in that this is a crisis situation in oil and potentially may be getting worse. For me I look at it as slightly different, but I don't think it's a supply issue. It's just a distribution issue at this point. And I do think that one of the sectors that we're leaning on, that I leaned on in our portfolio this particular quarter, happens to be energy, the oil and equipment services.

                                    Because I do believe that at some point higher oil is going to be – allow your refineries and everyone else to get going and start to refine at higher profit margins. But it also allows the drillers and producers and everyone else to get out there and start firing up rigs. Because we all know that there's a certain level that oil needs to be to actually increase the supply. So, I think –

Dan Ferris:                 Oh yeah. Every independent in the United States wakes up saying, "Please, God, just give me $70 oil."

Pete Carmasino:         Yes.

Dan Ferris:                 Because they know they'll do well at $70, and it won't crush us at the pump.

Pete Carmasino:         Yep, exactly. And so, I do think that there's some sort of lag, right? We're in this area where, we're not going to get political here, but it is a geopolitical issue. It is affecting markets in multiple areas. It's going to affect those who rely on transportation and logistics in their business. And let's hope that at this point it's a short-term situation because if we can get the supply numbers up and maybe get the threat of escalation of war down, I think that's a happy medium for $80 to $95 oil, which is not uncomfortable enough to kill demand, but comfortable enough to increase supply. I think there's got to be a happy medium.

Dan Ferris:                 Well, I'll tell you at triple digits I think a lot of people want to want to increase the supply.

Pete Carmasino:         Yes.

Dan Ferris:                 Of course, they feel like they can't rely on it, right? Your oil stocks might have done well over the past couple of months here, but there's a real question about whether or not the war will continue, maybe the Strait opens up, etc. I suspect that it'll be a problem for longer than most people realize, and that it'll hit people in a number of ways that they won't anticipate, because it's not just 20% of the world's crude oil, it's 40% of the world's sulfur, and 14% of the world's refined products, etc.

Pete Carmasino:         Oh, yeah.

Dan Ferris:                 So, a lot of those products we're cool. We don't import a lot of sulfur, very tiny amount, in fact. We make a lot of our own because we have the refining capacity and it's a byproduct. But, yeah. Yeah. It's a serious thing that has impacts that just, you know the tendrils, when you disrupt the crude oil, crude oil is like the mother commodity, and you disrupt that, and you don't even know where it's going to show up next. Sulfuric acid, helium, hydrogen, it's just like whoa, food, whatever. It's just you can't predict it.

Pete Carmasino:         What do you think about the Venezuelan situation? That's been like back burner. We don't even talk about it anymore, and that was something that happened.

Dan Ferris:                 No, we don't, but I think –

Pete Carmasino:         We got some oil supply there, right?

Dan Ferris:                 No, it's a nonsense. It's a nonstarter, and I'll tell you why. You're not going to get – Chevron's there, they've invested money, they're there, right? But it's a nonsense because – and Darren Woods said it. He said, "The country is un-investible," and he didn't say there wasn't a ton of oil there that we'd love to get at.

Pete Carmasino:         Sure.

Dan Ferris:                 He didn't say we can't fix the infrastructure, which is in horrible shape. He didn't say we can't attract people who have fled the country because of the government. He said the political situation has essentially not changed and it's unstable. So, you can't even begin to – these timelines, which he also said, they're 20-year timelines. You put tens of billions of dollars into this thing, and you need to get a return over a 20-, 30-year period, something like that. So that's why it's un-investible.

                                    And even if it does become investible, it's kind of a big project, Venezuela. Because it's the heavy sour crude. It's refrigerated, the consistency of refrigerated peanut butter and there's a whole different process for pulling out of the ground. The pipelines are different, the processing is different. Everything is different. And so, I was actually talking with a previous guest about this. [In] 2010, the super major spent $23 billion or $24 billion, something like 40,000 flowing barrels to get 600,000 or 650,000 new barrels of heavy sour crude on line.

Pete Carmasino:         Wow.

Dan Ferris:                 And today, if you did that, it would be like $100,000 per flowing barrel.

Pete Carmasino:         Wow.

Dan Ferris:                 Yeah, and that's, there's all kinds of infrastructure that's built into that. It includes that, but it's still a lot of money.

Pete Carmasino:         The exports are starting to move a little bit better than they have. Like we're over a million barrels a day, I think in March or something. Actually, that was a verified report or not. But I don't – to me it's like, as you say, it's almost like data centers, right? Remember the whole data-center thing? We're still talking about it and people, the data centers get up and running. You can build the building rather quickly. It's not like a residential condo or something like that. It's just a quick building and quick – construction is six to eight months, maybe 12.

Dan Ferris:                 Sure.

Pete Carmasino:         You still have infrastructure. You have to build roads, utilities there and all that kind of stuff. And it's like you don't just pop these things up like a plastic garage that you would put in your backyard from the apartment.

Dan Ferris:                 The shed in the backyard. Yeah, that's right.

Pete Carmasino:         Yeah. The old shed. No, it's not that quick, it takes time. There's a J-curve to a lot of this. So, you go down first, then you move higher, and that's why all of this kind of tech movement... The people were saying, "Oh, they jumped ahead of the gun." I don't really think they did. I think they're pretty good investors. I think they're looking ahead and they're planning properly. Plus, you've seen some of their balance sheets. They're not hurting. They've got the ability to go into a little bit of debt and use it strategically and then build this out and hopefully it pays off in the future. And if it doesn't, guess what?

                                    Tech has a lot of resources to lean back on. Amazing cash flow, amazing revenue streams. And I think that this, too, is still on the board, right? This is still a viable place to be. And this recent pullback changed some trends. And still, I think those trends will resume. I think that's what we're seeing. And I think we'll see the same thing as you said, potentially in oil and refinery. The refineries I think should do well. But I really, I'm leaning on equipment and suppliers as well in this, and that's the symbol. It's a subsector. XES is the symbol on that specific ETF, and it's got some fantastic stocks in there. It's pretty amazing.

Dan Ferris:                 What sector is that? XES?

Pete Carmasino:         It's the oil and gas supplier XES. [State Street SPDR S&P Oil & Gas Equipment & Services Fund]. That's the full name. And very bullish right now. I don't see any bearish names inside the stock, according to our Chaikin Power Gauge. And you could see this, the particular ETF is in a beautiful uptrend up today about a half a percent or so. So, my point is that trend started, you could clearly see the technical trends starting somewhere at the end of October, beginning of November.

                                    And that was on our radar when we were seeing oil names, equipment services and different types of oil patch companies starting to perform before the Iranian war. So, what does that tell you? That tells you that money was moving in that direction, because price doesn't go up out of thin air. You need money to move into it, and that's typically the bigger investors moving quick.

Dan Ferris:                 Yeah. I recommended the refiners in December, and we weren't predicting war or anything.

Pete Carmasino:         No.

Dan Ferris:                 It's just that when oil prices get low and people stop – Harold Hamm famously finally pulled out of the back in shale, which he discovered in January and people were hurting. So, the world runs on this stuff. We're not building any like new refineries, really. We're talking about it, but we're not doing it. We haven't done it since 1977, so I thought, well this, refineries are shutting down. It was all a fundamental play, and a contrarian play because things were getting cheaper. Oil was cheap in the middle of December, it was $60 or $58 or whatever the hell it was.

Pete Carmasino:         Right. We're shutting down, but we're producing more, right? The productivity levels have increased, no?

Dan Ferris:                 Sure. The refineries are more efficient than they were. Gasoline is still in, the demand for gasoline is still in its sort of, hallow long-term decline. Distillate fuel like diesel is going up, jet fuels, we use more of those things, but we use a little bit less gasoline. So, anyway. I just I like the refineries because we're not building anymore and we're shutting them down. So, the ones that remain have a huge advantage, right?

Pete Carmasino:         Amazing.

Dan Ferris:                 They're almost like cigarette companies or something, right? Who's going to start a new cigarette company, right?

Pete Carmasino:         Yeah. You mentioned something before, you used industrial gases, right? And this is a whole different segment. Helium specifically, which is used in, I think it's irreplaceable in semiconductor manufacturing according to the research that I've read. And there's only a few folks out there that produce and supply. Now, Exxon happens to be one of the largest producers. And then you've got your companies like Linde, LIN is the symbol. Air Products and Chemicals. They supply it.

                                    So, they buy it from Exxon, refine it and get it out the door. And there's two or three companies. Now, I didn't realize this, but Baker Hughes just picked up or purchased, I think it's called Chart Industries, who's also a large producer and supplier of helium gas. This is interesting. I think there's a play here, I really do. I think that those two or three stocks look interesting in the oil complex, if you will, of that whole sector.

Dan Ferris:                 Yeah. Oil refinery adjacent. I agree.

Pete Carmasino:         Yeah. Pretty cool stuff.

Dan Ferris:                 It is very cool stuff. And I noticed like I've been researching this stuff and I'm going to be writing about, I won't tell you which one, I'm going to be writing about one of these stocks in the next issue of The Ferris Report. And you just read tidbits and things and learn about these things. Hydrogen and helium are said to make up nearly 99% of the mass of the known universe. I'm like, that is hilarious because obviously they're hyper abundant in the universe. And when the price doubles, like it did on helium... Yeah. Their abundance doesn't stop them from being highly valuable and expensive, you know?

Pete Carmasino:         Yeah. I didn't realize they call it a noble gas and I didn't know why. And I was like, "What does that mean?" And yeah, across the research. Because it doesn't mix well with other gasses. So, that was like it's the royalty of gas, so to speak. It doesn't have time to mix with the peons of the other industrial-gas complex.

Dan Ferris:                 Well put. Yeah.

Pete Carmasino:         And so, it's interesting that's one item of it. And the other one was that it's hard to transport. It evaporates quickly apparently. So, it's pretty amazing. This is a volatile, interesting component that semiconductors and tech rely on once again, another supply issue that no one saw coming.

Dan Ferris:                 Yep. It's a strange new world. Do you have any other like commodity-oriented themes that you like?

Pete Carmasino:         No, I typically, as we said earlier, we let the cards fall and then we play the cards. And so, it's just the way things have been moving. If you look at, this is really interesting. We have sectors and then sub-sectors. We rank them by Power Gauge and we have other ways to rank them. You can rank them by, of course, by performance and year-to-date movement and all that kind of stuff. But just looking at the Power Gauge from the ranking of the Power Gauge, so the top two subsectors right now couldn't be more opposite. It's the State Street [SPDR S&P] Regional Banking ETF, is No. 1. And the second one is, as I said, the oil and gas equipment services.

                                    And so, that's the subsector. Sector-wise it's energy, XLE and then materials. And so, materials are really the other area, which inside and I did a video on this a while back and I remember talking to individual investors. I was a wealth manager and [registered investment advisor] for many years. I had to talk about this so much, I wrote something about it and just started handing it out. Because it was like, I want to buy construction materials, so I should buy the materials ETF. I'm like, nope. That's mostly a chemical ETF, right? So, if you look inside, there's some, certainly some hard assets in there. You'll see Freeport McMoRan and Nucor.

                                    But the real metals in mining ETF is XME, which has done very well based on data centers and things of that nature. But I do like the material sector. So, XLB is another area that we're leaning toward, and I actually have exposure to in the power portfolio. And you can see some of the names in there. You're going to find Freeport McMoRan and copper producer Nucor, the No. 1 steel producer in North America, huge reliance on data-center activity.

                                    As a matter of fact, I think in their August report last year for the second quarter they said they've never seen this before, but they have a backlog in their girder division of their company. They've never seen this, and it's all due to projects and pre-purchasing for data centers. And so, Nucor.

Dan Ferris:                 Yeah, Nucor. Ticker is NUE. It's part of that portfolio. I have a soft spot for Nucor because 20 some years ago, it was one of the first companies I ever covered in this business. And I read that book, I can't remember the name of it by a guy named Richard Preston, but it was about the founding of Nucor.

Pete Carmasino:         Oh, no way.

Dan Ferris:                 And it was like an incredible story, like people dying because they got steel poured on them and all kinds of crazy things. But yeah, it was a pretty cool book. I wish I could remember the name of it, but that first plant, I think it was in Indiana.

Pete Carmasino:         Yep, absolutely. No doubt.

Dan Ferris:                 And they make steel by basically they melt used Cadillacs with electricity. It's not virgin. It's not like new steel. It's steel recycling.

Pete Carmasino:         Repurposed. Yeah, exactly. I love it. That's great.

Dan Ferris:                 Yeah.

Pete Carmasino:         So, there's a lot of themes inside of that materials sector. You've got oil, you've got fertilizer, you've got copper, you've got steel, you've got chemical. Dow Chemical is one of the names, DOW, which is an interesting setup both fundamentally and technically right now. And so, that's kind of why we lean toward these names. And so, the themes find us, right? I look through charts and I say this to people, and they say, "There's no way you do that." And I said, "I do. I look at hundreds of charts a day through screeners and scanners and things of that nature." I get alerts all day and I'm just looking for certain technical indicators to tell me to, hey, go look at this stock. And then I just cross reference it quickly into A) The theme and B) What is the general market saying about this sector? And then C) What does the Power Gauge say?

Dan Ferris:                 The hundreds of charts thing is credible. I just want everybody to know, because we've had other guests on the show like Jeff Clark, my old friend from a long time ago who actually lives right down the street from me in Northern California, and he does the same thing. He looks at hundreds of charts in a single day, just to find the right setups.

Pete Carmasino:         Absolutely.

Dan Ferris:                 It's just what you have to do, man. Yeah. You just have to do it. But are there – clarify something for me, Pete, I don't remember this about you. Do you only recommend trades in ETFs, or do you do individual names as well?

Pete Carmasino:         Individual names, yeah, absolutely. What's cool about the portfolio that we're running – it's five ETFs and then five names from those specific ETFs. So, I'm trying to find the macro theme, right? I want to be in the right sector. And then we're trying to find the best stock inside that ETF that's set up technically and actually has a theme behind it that the sector is flashing, right? So, it's nice, it's a top-down analysis. It's something that I've been using for years and to be able to then put it into a publication where people can follow along, because it's pretty simple. We equal weight and we try to find, again the series of themes throughout the year.

                                    Right now, I would say we're most likely about 25% exposed to energy and a little bit more defensive than aggressive. And right now, that's not been the worst place to be. But the last 10 days have reversed and now we start to see indexes pushing new highs again. So, it's pretty amazing how fast and furious the market can turn once confidence is restored. And I'm not sure where the confidence is coming from specifically, but if they're willing to take the risk and able, the money comes in rather quickly. I just think people were looking for ways to get in this market instead of getting out of it.

Dan Ferris:                 That's a valuable insight. I was just going to ask you if you are, how convinced are you, or do you even care to tell me how convinced you are that we're kind of past the worst of it as far as this little near correction or whatever you want to call it is concerned?

Pete Carmasino:         Yeah. This is a little different than "Liberation Day." Tariffs and all that kind of thing. It is the second year of a presidential cycle. There is some validity to that being the worst kind of performing year in that. And that's just one way to look at it. We don't rely on one thing when we're looking at the macro themes. You have to weigh that with the pro-business administration, a lot of tax incentives, things of that nature. There's plenty of movement still, as we talked about, data-center tech and materials and construction and engineering in between all of that. And so, you really do have more participants per index on the upside than we've seen in many years now.

                                    Now, Mag Seven and all these other names, I wish we could show a chart here, but if I looked at just Microsoft or the tag names, the Apples, Googles, all those names, they were rolling over back in November and never recovered with the market. Just continued to move lower. Again, another signal. Another traffic signal on Wall Street, so to speak. When the generals start to roll over, you really have to take notice and say, "Wait a minute, these names make up a high weight in some of the biggest indexes, the Nasdaq 100 and the S&P 500."

                                    And so, you're going to see a pullback. Now, to see these names and the indexes run back higher and not have the generals hitting new highs, that has to tell you that there's more participants per index than there has been in the past. And that is more – [crosstalk]

Dan Ferris:                 Wait a minute, more participants per index? What are you talking about? What does that mean?

Pete Carmasino:         So, in other words, you've got the Mag Seven, right? They made up, what, almost 40% of some of the indexes out there?

Dan Ferris:                 Yeah.

Pete Carmasino:         So, if the 40% are not making new highs and the S&P is, that means the other 493 names are participating more than they ever have where the Mag Seven is kind of taking sort of a backseat and handing the baton over, so to speak, to the rest of those names and industries. That's why you're seeing energy, even utilities to a certain degree, move higher, materials, consumer staples. These names have been doing pretty well. And yet at the same time, the tech-heavy names we call the generals, the Mag Seven, whatever we'll call them, have not been doing well. Underperformance is clear, relative to the S&P.

                                    And if you look at the Google, let me just look at Google real quick. We're bullish on – Google's actually had a better chart than most of the Mag Seven. Amazon has just turned around and I think that's actually coming back up to a better price level than it's been. And so, you have this mixed bag, and so you can get a few of the names start to participate, but the other names were really kind of keeping the indexes a little bit higher than they normally would've been if everything started to roll over. So, I do think more participants, investors, institutions are playing sector rotation than they ever have, and just finding the pockets of opportunities inside other sectors, not just tech.

Dan Ferris:                 Sounds good. I will tell you that I think there's a fundamental behind that underperformance of the, especially the hyperscalers and the big tech because I think data centers are, there's plenty of money behind them. Google and the hyperscalers and Microsoft, the hyperscalers are Microsoft, Google, Amazon, Meta. They're 10 times better businesses and 10 times better finance and have 10 times better balance sheets than WorldCom and Global Crossing and all the idiots –

Pete Carmasino:         One hundred percent, yes.

Dan Ferris:                 Bankrupt in the dot-com boom, because they laid all that fiber and spent all that money. They weren't, they didn't have the cash flow, they didn't have the businesses. They weren't anything like these companies.

Pete Carmasino:         I agree.

Dan Ferris:                 So, that I get. What I don't get is how all that finance is going to perform when it hits the iron wall of physics, which it's starting to do, right? What's the, where's the backlog? Well, it's in gas turbines, and it's in helium, and it's in hydrogen, and it's in sulfuric acid and refined products. 95% of those data centers are backed up by diesel generators.

Pete Carmasino:         Yeah.

Dan Ferris:                 Even in California, it's 90%. Like you can't get away from diesel with these data centers. For me, it makes sense to me like if a bunch, if the headlines are that a bunch of data-center projects are getting canceled later this year or sometime soon, that will make all the sense in the world to me. That's where the iron wall of physics is. That's where the real true bottleneck is.

Pete Carmasino:         That's interesting. I can't disagree with what you said. There's only a certain amount of supply that you can build and create and deliver, as you said, turbines.

Dan Ferris:                 Yeah. There's three companies that make gas turbines.

Pete Carmasino:         They can only do so much, right? They can only do so much. So, that I agree with, I think that's why you're seeing other sectors in there. Solar was on the move for a bit because it's quicker and easier, but it's less reliable, right? You're not going to get enough power that you need. Coal was moving a little bit better than normal. Because that's really something you could just dump on the side of the data center and just leave it there in all kinds of weather. Nobody cares. It's just getting it there and getting it.

                                    But I look at the debt level, and I did a deep dive or a deeper dive on say, Oracle, if memory serves me correctly. And based off the tax incentives and all the things they did, they went out to the market, and I think they did $20 billion in loans at I forget exactly [inaudible] whatever, four. It came out to 6.75% on these bonds. First of all, the bonds were sucked up in five seconds, right? Everybody bought them locally, but by the time all the tax incentives come in and all that, their expense, true expense ratio on those bonds comes down to below 4%.

                                    So, it's not financial engineering, it's strategic use of debt at a small amount compared to as you just said, balance sheets and all the other resources that they have. And so, a lot of people were, "Oh, tech's going into debt for the first time ever." I kind of was – it didn't much matter to me, but as you say, in the next, in the coming months, in quarters, maybe we do see a data center get canceled. That would be interesting. I would wonder how that would affect, would trickle down through the whole complex from construction and engineering names to Nucor. I wonder what that would do to some of these.

Dan Ferris:                 Yeah. That's a good question. And yeah I think that you would see, it's what do you call it? It'll be the domino effect, right?

Pete Carmasino:         Yeah. I agree.

Dan Ferris:                 There are companies that are supplying all kinds of things like racks and servers, the computers are obviously a big component. But beside the computers, building the girders, all of it. Yeah.

Pete Carmasino:         Yeah. It's pretty amazing. So, to me, I think it's definitely touched a lot of industries. So, what used to be an inch deep, and a mile wide got a lot deeper and maybe not a mile wide, but it got wider than it's ever been. And so, you saw names like, if I put a name out there, Tudor Perini Construction and Engineering, no one's heard of that stock ever, right?

Dan Ferris:                 That's right.

Pete Carmasino:         But here's a name that I think went from $27 and it hit $90 in less than a year. So, that's why we try to find the breakouts and try to get alerted to the fact that something's changing here. Why? What's the theme that's connecting it? I've written about this many, many times. From a technical standpoint I want to know the theme. I want to understand what's going on, but I don't really need to know why, like, why comes out later, and we don't know why all the time. You can say anything you want to say, but at the same time, I think I recommended DR Horton last year, and it was just breaking out.

                                    And I was like, I don't understand what's going on. But the technicals were set up, the fundamentals were strong, everything was in order. We recommended it. And then lo and behold, a few days later, Warren Buffett was buying it. Well, there was the why. So, sometimes you kind of step in front of the elephant or jump on the giant wave and actually ride their coattails. But there's all kinds of signs out there on the market. That's what's great about this business. If you can stay in the game there's always a game to play and so –

Dan Ferris:                 Right. If you can survive and not blow yourself up, there's always another opportunity.

Pete Carmasino:         Exactly. Always another opportunity. And it's amazing to me. It's just amazing.

Dan Ferris:                 Are you still in DHI?

Pete Carmasino:         No. No, we sold it, we took a quick profit. It was just a quick turnaround and that was in power tactics. And that turned into a downtrending move. And that's what's amazing. You could see a stock in one year, I think it was Intel. We had a nice recommendation on Intel. We made a, I forget, 25%, 30%, it was a quicker turnaround. We took the profit and then that's the year that it went from 40 down to 19 or something. And it was like we were just in it at the right time and sold it only because it had a spike high by technical term that moved too quick, too fast.

                                    And we were in it, and I said, we should probably take the profit and move on. And then DR Horton kind of did the same thing. Moved higher and then went sideways to the downside, but still a value stock here – it's trading at 145 or so. [Price-to-earnings ratio] of 13, a small yield. They're not, they look pretty good, right? They're bearish on the Power Gauge, only because of trend. But typically, once that firm's up, these could be opportunities at some point.

Dan Ferris:                 At some point. At some point you would think that record high home prices would incentivize somebody to build a fricking house.

Pete Carmasino:         I know. It's amazing. It's amazing.

Dan Ferris:                 So far that situation is just so persistent. Yeah. It's strange. Well, I suppose not strange, but it's troubling.

Pete Carmasino:         Yeah. It is. There's a lot of folks out there struggling, first time home buyers, things of that nature. I'm in Florida, so there's a lot of boom and bust in areas, right? You see a lot of building and then prices come down. People come in, buy them up, then they go to another spot, build them up to a certain level. Prices trickle back down a little bit. They get bought up and they seem to find the pockets of available land that's buildable and be viable commuting distances to large cities.

                                    They do their work. These aren't just haphazard projects. But you just, you do see them slow. The sales slow a lot quickly. It takes time to sell a whole project, a whole sort of building complex or a neighborhood, whatever they're building. But it's pretty amazing to me, there's a shortage, yet there's not enough buyers.

Dan Ferris:                 Yeah. It's a cyclical bet and it's tough to get it right, but when you do, it can be really cool.

Pete Carmasino:         I agree.

Dan Ferris:                 So, let's, wow we covered a lot of ground here.

Pete Carmasino:         We did.

Dan Ferris:                 It's time for our final question and thanks for all the ticker symbols and everything. Our listeners are like, they now have a list of five or six or seven ticker symbols that they're going to be interested in. But our final question is the same for every guest, no matter what the topic, even if it's a nonfinancial topic. It's just for our listener, Pete. If you could give them a single takeaway, a single thought for today, what would you like that to be?

Pete Carmasino:         Yeah, it's probably something I've said before and it'll always be the same. It's about the definition of risk. And I had to explain this to many people many times. And again, as an advisor over the years and wealth manager, portfolio manager, my own RIA, we'd have to sit people down and say, you have to understand the risk here, and risk has two components. They always exist. One is the ability to take risk, right? You have the money, you have the ability to take this risk. And the second one is the willingness. Do you need to? Do you need to take risk?

                                    A lot of people go into wealth preservation mode because they built a huge pool of money and that's great. But for me it's been risk management is really the No. 1 takeaway. Position sizing, understanding what the upside and the downside is, and knowing when to take a little bit more risk and then when to back off. It's so personal that no one can give you a rule of thumb about how to figure that out. But the old adage is, the rule of thumb so to speak, is if it's keeping you up at night, you probably have too much of it.

                                    Risk management, I think, is the No. 1 takeaway, and that comes down to willingness and ability and then position sizing. Don't overextend in a position one name because you love it. You might be a product owner, you might own the product and love the manufacturer of whatever this person or this company does, but just don't get married to it. Keep your risk discipline, keep your stops if you have that kind of mentality, and then follow that process and stick to it because you don't want to override that at the wrong time. I've seen it happen before. People kind of blow up, and risk management's really the No. 1 thing.

Dan Ferris:                 All right. Doesn't surprise me that you say that. Every good trader we have on the show always, we always wind up here.

Pete Carmasino:         Oh, really?

Dan Ferris:                 Yeah, always. Everybody. We've interviewed turtle traders and market wizards and all those people, and they all wind up right where you just were. So, I'm glad to hear that.

Pete Carmasino:         Oh, wow.

Dan Ferris:                 It's a necessary place to be. Thanks a lot, Pete. I'm really glad we could talk to you again, and I know we'll be talking to you again soon.

Pete Carmasino:         These are fun, man. I really enjoyed it. It's been great and again, there's so much to talk about. You can make this a two-hour show.

Dan Ferris:                 That's right. All right. Thanks a lot, man.

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                                    See, told you he delivered. He always does. My friend Pete Carmasino is a great trader, and he always has all kinds of good ticker symbols for us to do our own research and do our own trading with. XME, XES.

                                    We talked a little bit about D.R. Horton. He is not in that one right now, DHI, and we talked about Nucor in the context of the overall material sector being a good place to be and Nucor just being a really good business. That was an excellent point that Pete made how he looks at a sector and then he goes inside the sector and finds the really good stock, the one that's got the fundamentals and the momentum behind it, and that he can focus a really good trade on. I thought that was a really valuable thing. Now I know what they're up to over there at Chaikin.

                                    I don't always know because I can't keep track of what everybody around here does, but that is just kind of an intuitive way of looking at it, isn't it? You know the oil sector is moving. Well, what's the best oil stock right now? You know the material sector overall is moving. What's the best material stock overall right now? So, I'm glad that he gave us an example of how that works. So, he really likes XME. He really likes XES. So, maybe you and I should go into those ETFs and find out the stocks that we like the best. It's a cool way of looking at things and it always is with Pete. He's a great trader, and I hope that you noted where he wound up when I asked him for a takeaway at the end.

                                    We got to the same place that I am always happy to get to, which is risk management, position sizing, honoring your stops, knowing when you want to get in, when you want to get out, all that good stuff. And maintaining discipline. Discipline is a boring subject. No one wants to talk about it, but it's what keeps you in the game so that you can stay alive for the next opportunity. So, it's really important. I can always rely on Pete to talk about risk management too. That's another reason I like him. But yeah, another great interview and another great episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I really, truly did, and remember to hit subscribe, hit like, and subscribe to our daily e-mail.

Announcer:                 Opinions expressed on this program are solely those of the contributor and do not necessarily reflect the opinions of Stansberry Research, its parent company or affiliates.

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