David Lin Sep 21, 2026 35m 20m saved
With David Nicoski, CIO and Chief Technical Strategist at Vermilion Research
Consumer discretionary stocks have given back fifteen years of relative performance. On David Nicoski's charts the sector is back at relative strength lows last seen in 2011, while the index itself sits near a record.
The usual way to describe that is a narrow market. Nicoski's point is stronger: the sector-to-sector moves he is seeing do not look like anything in his data, and the index level is telling investors almost nothing about where their money should be.
"If you took the XLY chart and even the unweighted chart you're going back to relative strength lows going back to 2011 you wiped out 15 years of gains period."
Nicoski has been in the market for 39 years, runs the technical research at Vermilion and publishes his charts publicly, including a gold call he said he took a lot of criticism for two days earlier. He was last on the show in August, before the Fed's rate rise, oil's move back to $100 and the breakout in Bitcoin.
The full interview is covered here so you can skip it. 35 minutes of audio, 15 minutes of reading.
Here are the 12 calls that matter.
Key Takeaways
$4 of every $10 entering the market goes into the top 10 stocks, which is the risk if technology unwinds
Consumer discretionary is back at 2011 relative lows — fifteen years of relative gains gone while the index sits near a high
Energy is the best-performing sector this year and everyone still wants to short it
He says you would do better shorting technology names already down 80%
A tanker shortage is a multi-year story, not a spike — ships scrapped years ago cannot be replaced quickly
Voyages have gone from about 30 days to 45, and a 10-year-old tanker now costs more than a new one
Power is the bottleneck in AI, which is why he is looking at generation rather than chips
He expects the dollar and gold to rise together, which he says has no long-term precedent
High-yield spreads are his single biggest warning light, from the tightest levels he has ever seen
Tech, healthcare and energy are the three places he would be into year end
1. Financials Crack
David Lin opened on the Fed's 25-basis-point rise that week and asked whether a well-telegraphed decision changed anything tactically. Nicoski said it changed one sector.
Compressing the curve is a problem for banks
When you start to compress the yield curve that becomes a difficult situation for many financials.
David Nicoski
He said the breadth of the financial sector ETF has deteriorated and that he had posted the charts publicly: Goldman Sachs, Morgan Stanley, JPMorgan and Bank of New York all breaking uptrends. The sector had been where investors went looking for safety with some growth attached, and that is what has come apart.
2. Fifteen Years Wiped Out
Lin put up a chart of S&P 500 breadth and asked how to think about whether this tightening cycle does what the 500 basis points of 2022 did. Nicoski said the damage is already underneath the index.
Consumer discretionary is back where it was in 2011
If you took the XLY chart and even the unweighted chart you're going back to relative strength lows going back to 2011 you wiped out 15 years of gains period.
David Nicoski
Staples are weak, transports are weak on high energy prices, and industrials, which were at the top of his list two months ago, are close to a five-year relative strength low. He was careful to say he is not calling a bubble, because being wrong about one is not a way to build a reputation. What he will say is that the rotation is unlike anything on his charts, which is also why he will not forecast far ahead.
He does not forecast beyond two or three months
But that's the market we're in. I don't get to, make prognostications on anything more than 2 to 3 months at the rate we're going.
David Nicoski
3. The S&P's Critical Level
Asked how he would trade the index chart, Nicoski said the S&P broke down through a level on the day of the Fed meeting, which he reads as bearish, and then explained why that is not a signal on its own.
Intraday breaks in this market reverse violently
What's important about technical analysis and what I've seen more often than not in this market is you will break something intraday and reverse with a vengeance. It will not let you get a position or if you take it will wipe you out.
David Nicoski
He would only treat the chart as a short if the index took out the Wednesday low from the meeting and closed there. On the other side of his chart, the Nasdaq 100 ETF is close to a breakout and showing relative outperformance, and the largest technology names have broken a downtrend. He described that as the standard late-cycle move into the biggest companies, and was open about not knowing which it is.
The mega caps, he said, give investors liquidity, and what this market wants above all is liquidity.
4. No Sector Holds 30% Forever
Lin asked whether every consolidation since the financial crisis has simply led to another breakout. Nicoski answered with the weight of technology in the index.
No sector has ever held 30% of the market for long
With the type of structure the market has, there's never been a sector that's maintained 30% of the market for any astronomical period of time.
David Nicoski
With technology at about 40%, he said, either that comes down toward 30 or the rest of the market has to accelerate and take share. His own conclusion was to be patient, let the market do what it does and trade the sector rotations underneath rather than make the wrong call at the wrong time.
5. Oil Is The Wild Card
Lin listed what has changed since August: a Bitcoin breakout, a higher 10-year yield, Treasury intervention, the Fed's rise, oil back at $100 and diesel at an all-time high. Nicoski named the one he cannot model.
The most crowded wrong trade of the year
Oil energy is the best performing sector year to date.
David Nicoski
He said he has watched four months of people calling a top in oil and waiting to short it.
Short the broken technology names instead
As a matter of fact you would be better off shorting a significant amount of tech names that are down 80% year to date than to short energy.
David Nicoski
Then the news of that morning.
Saudi Arabia is sending Europe nothing next month
As a matter of fact, just this morning, Saudi Arabia announced they will not ship any oil to Europe next month. Zero.
David Nicoski
Lin asked whether a US diesel export ban goes through. Nicoski said it could lower domestic prices and would stop the rest of the world.
Halting exports creates counterparty risk everywhere
You have counterparty risk across every financial asset on the face of the planet.
David Nicoski
His broader argument is that economic nationalism is contagious: Russia is protecting its own supply as refineries are hit, and any country selling into the US will raise prices to protect itself. Lin pressed on where American diesel would otherwise come from, with refinery utilization at 98% and inventories at a five-year low. Nicoski's answer was that exports can be reduced but not halted, and that Europe is in a position he does not see a way out of.
European gas costs eight to ten times what American gas does
Their natural gas prices are 8 to 10 times higher than the US.
David Nicoski
Cutting diesel exports, he said, would also cut the flow of goods into US manufacturing and hit the international revenue of S&P 500 companies.
Asked which other sectors benefit from expensive energy, he reached back to the last cycle.
Chemicals used to rise with oil because they had pricing power
Historically when you got into high energy prices, believe it or not, like 2002 to 2009, chemical stocks moved up with oil because they had pricing power
David Nicoski
That is not happening now. What he expects instead is for the correlation between chemicals and gold to start moving with the oil price, the way it did between 2002 and 2009.
6. The Tanker Squeeze
Nicoski brought up a number he had seen on CNBC a few days earlier: a freight fund up 3,600%, which he looked into and found is a Breakwave tanker shipping ETF holding futures on shipping costs.
Somebody found a way to monetize the freight rate
They reported this freight fund up 3600%.
David Nicoski
His own position is in the tanker equities, and the reason is supply that no longer exists.
He has been bullish tankers, and has 39 years of cycles to compare it to
I've been bullish the tanker stocks.
David Nicoski
Between 1998 and 2002, he said, several hundred tankers were sold for scrap. Now the strait is shut, so the ships that remain are tied up for longer.
Voyages have gone from 30 days to 45
The duration of tanker shipments have moved from an average of 30 days to 45 days.
David Nicoski
Rates are above a million dollars a day
They're at all-time highs over a million dollars.
David Nicoski
He also pushed back on the idea that the problem is only in refined product: the rates do not distinguish between refined product and crude, and Saudi Arabia is now failing to ship the raw material. The clearest measure of the shortage is in the secondhand market.
A 10-year-old tanker costs more than a new one
If you look at the price of what a used tanker is right now that's 10 years old, it exceeds the price of a brand new tanker
David Nicoski
Asked how sticky the rates are, he said years, and gave the same 2002 to 2009 precedent. He added that an end to the war would make it worse before better, because it would trigger restocking and push countries to build strategic reserves.
7. Power Is AI's Bottleneck
Lin read back a note Nicoski published on September 10 saying his firm was still a buyer of the AI areas because the lows were likely in. Nicoski said he sees a lot of technology names breaking out, named SMTC as one, and warned that stock selection matters because many individual names are bearish.
What he is actually looking at is not the chips.
The constraint is electricity, and the Generac order proves it
I think the biggest bottleneck to AI right now is power. And I think that Generac deal with Amazon is certainly outlining that.
David Nicoski
He said he missed Generac and has been looking at FPS instead, and acknowledged that these are industrial companies as much as AI ones.
8. Security Software, Not AGI
Lin raised artificial general intelligence, noting that Nvidia's Jensen Huang had said OpenAI reached it with a new model, that the claim is contested, and that a prediction market puts only a 28% chance on any company getting there before April 1. Nicoski declined the forecast and gave the trade instead: he said you want security software stocks, "because the dangers that it poses to the world right now I think is pretty significant." If AGI arrives, he said, security software is what people will want, and those areas should be attractive for years.
On the bubble question, his worry is the plumbing rather than the valuations.
Circular financing is the part nobody has answered
When it comes to the circular financing, if you trip up, one company or two companies, how does that flow through the rest of them?
David Nicoski
The reaction to that, he said, is shoot first and correct later. His read on where the value ends up is the same as the dot-com cycle: not in the model builders but in the companies that use the technology to cut costs and lift margins, and the field of model developers is too crowded to survive intact.
Lin asked what happens when Anthropic and OpenAI go public and turn out not to be profitable while sitting in the index. Nicoski said the disclosure is the problem: they talk about gross margins and leave out everything every other IPO has provided.
There is a hole where the financials should be
There's a dark hole there with a lot of gaps in it.
David Nicoski
9. Semis Over Software
Lin said semiconductors have been selling off since June and asked whether they have fallen far enough. Nicoski said the rotation has already turned.
Chips are holding up better than the market
you are seeing that software or the semis are actually holding up much better than the market here in the last several weeks
David Nicoski
He had published a chart on his Substack a few weeks earlier showing software slowing and semiconductors taking over, and said the relative strength has since inflected that way. His point was about the speed of it: going into January everyone was calling a software apocalypse, the two reversed, and now the money is moving back. Software is not breaking to new lows, so this is a push and pull rather than a collapse, what he called a compression of cycles.
10. Dollar And Gold Together
On the relationship between the 10-year yield and the dollar, Nicoski started from the textbook version, that a currency rises with its yields, and then said the geopolitical situation is producing something unusual.
He expects both the dollar and gold to go up
In my view, I think the dollar can go higher. And I also believe, contrary to what anyone would say, that gold may go with it.
David Nicoski
He was explicit that this has no precedent he can point to.
There is no long period where both rose together
There's no long-term period that I can denote or point to where the dollar moves up and gold moves with it.
David Nicoski
His explanation is that confusion itself is driving a hedge, whether against inflation or against geopolitics, and he put the Bitcoin breakout in the same category.
Lin asked whether he is surprised gold is still at $4,400 with the 10-year at 5%, the highest since 2007. Nicoski said no, and walked through the call he had taken criticism for: a head-and-shoulders top in gold broke its neckline on the day of the Fed meeting and then recovered back through support the same day.
A failed bearish pattern is a bullish signal
Gold has now taken out that high candle from the preceding day of the FOMC meeting.
David Nicoski
Two more days of that, he said, and he considers the call right, while allowing that things turn quickly.
Asked what would change his mind, he pointed at Iran rather than at the debt, and said that ending the war would not settle whether a weapon gets built. On how often the end has been announced, he said that "at this point in time I've heard the wars over 66 times."
11. The High-Yield Warning
Lin noted the VIX still at 15 despite the escalation. Nicoski said correlations across the market had fallen to extreme lows, which produced the sector dispersion he has been trading, and are now rising again, which is what can trip the volatility index.
His bigger concern is in credit. High-yield spreads have broken out to their highest in about six weeks since the Fed meeting, from what he described as the tightest levels in the history of the Bank of America high-yield index.
300 concerns him, 350 is a red flag
If that does move up and it moves up to the 300 level, I would be more concerned. 350 is certainly more red flags.
David Nicoski
He drew the comparison to February 20 of last year, when the 10-year yield rose and the high-yield ETF fell at the same time, and said he is not predicting a repeat, only watching the same shape.
12. Where To Put The Money
Lin asked whether Nicoski keeps a checklist of green and red flags. He said he does, but by sector.
Relative strength is what keeps you invested
Relative strength works extremely well in all periods. If you stuck with relative strength and rotated with it you can stay fully invested.
David Nicoski
Asked what in the Fed statement surprised him, he said he spends almost no time on it.
He watches the reaction, not the words
Honestly, I don't care anything about his comments. I care about the reaction in the market to his comments, right?
David Nicoski
He made the same point about economic data. A GDP reading above 5% tells him nothing he can act on while industrials, consumer cyclicals and consumer staples are all falling.
The only question he is answering
Tell me where I'm supposed to put my money. That's all I care about.
David Nicoski
And the answer, as of this conversation:
Three sectors into year end
And that's going to be, at this point in time, it's going to be tech, it's going to be healthcare and energy. Those would be my three areas that I see.
David Nicoski
Earlier in the conversation he had added a fourth watch item: the Bloomberg Commodity Index is close to breaking out to multi-year highs going back 15 years, and soft grains are part of it.
Bonus Insights
Defense stocks are breaking down in a war
Walking through the industrials ETF chart, Nicoski said the percentage of component names above their 200-day moving average has broken its uptrend, and that the share above the 50-day melted down quickly. The examples he named were the defense primes Raytheon, Lockheed Martin and General Dynamics, which he said are breaking down despite the war. He also said a reading of 10% of names above the 200-day has historically been a reasonable place to buy, barring a financial calamity.
The lone ranger
Asked whether an end to the war would sink oil, Nicoski said holding an unpopular view gets you beaten up, and described himself as feeling like the Lone Ranger with Tonto.
Where he publishes
Nicoski posts charts on X as @davevermilion, runs a daily markets show on the same platform, writes a Substack and publishes through Vermilion Research.
Nicoski's bottom line is that the index level has stopped carrying information: with $4 of every $10 going into ten stocks, fifteen years of relative gains gone in consumer discretionary and credit spreads turning off record tights, the only useful question is which sectors hold relative strength, and his answer is technology, healthcare and energy, with the tanker shortage as the trade nobody wants to be long.
Products, Companies & Tools Mentioned
Vermilion Research (His firm. He runs its technical research and directs clients by sector and group rather than by index target)
Goldman Sachs, Morgan Stanley, JPMorgan and BNY Mellon (The four financial names he said are breaking uptrends as the yield curve compresses)
Generac and Amazon (The generator order he says shows power is the binding constraint on AI build-out; he said he missed the move)
FPS (The power name he says he has been looking at instead, which he acknowledges is classified as an industrial)
Semtech (Named by its ticker, SMTC, as one of the technology names breaking out)
Nvidia and OpenAI (Jensen Huang's claim that OpenAI reached artificial general intelligence with a new model, which Lin said is contested)
Anthropic (The other private AI company Lin asked about; Nicoski's objection is that neither discloses what any other IPO would)
Raytheon, Lockheed Martin and General Dynamics (The defense names he said are breaking down in the middle of a war)
The Breakwave tanker shipping ETF (The freight fund CNBC reported up 3,600%, which holds futures on shipping rates)
Books & Resources Mentioned
Nicoski's September 10 note (Told clients Vermilion was still a buyer of the AI areas because the lows were likely in)
His X account (Where he posts the charts, including the gold call he says he took criticism for, and runs a daily markets show)
His Substack (Where he published the chart showing software slowing and semiconductors taking over)
The Bloomberg Commodity Index (Close to breaking out to highs not seen in 15 years, on his reading)
The Bank of America high-yield index (The spread series he is watching; he says it came off the tightest levels in its history)
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