Welcome to real visions trade ideas today. We're sitting down with John Kohler voz of macro risk advisors
It is great to have you back. Thank you for having me
So I'd like to get your take on the current market environment to start out with sure so equities boy
I mean
What a what a pullback we've seen
I think we need to review this pullback within the context of a longer term uptrend
Right so systematically and objectively the trend for the US markets. This p500 is still positive, but the way in which the decline has
Occurred is a little bit troublesome and we need to keep a very close close eye on that
Okay
So then could you take us a little bit through that historical perspective versus what you see going on today specifically in equities
Sure. So as we made all-time highs and in approached this 3065 level that I've been throwing out all year
I think it made sense to be to be a bit cautious as you were getting to the high
And anticipating some sort of pullback why well seasonality
It tends to be weak this time of year from July into October
Also after the Fed cuts interest rates for the first time markets tend to act
Poorly for the ballot for about a month later after the cut, right?
So as we're seeing the markets roll over here
We need to view it within the context of what is I work tipple typically saying normal right weak seasonality xand weak
Performance after a Fed cut and so is this every single time after the Fed did its initial cut? We usually see the markets?
Well, what usually happens is and what I did was it did an interesting study is is like, all right
the feds cutting rates for the first time right and
Let's take a look at how equities
Performed after and bullets separate it from an uptrend into a downtrend
So if equities were in an uptrend and the Fed cut rates for the first time, how did equities perform well?
well
Actually at three months later stocks were higher but over the short term stocks were lower right, but what's interesting about that?
Is it only happened four times at the 17?
Observations that I saw so it's very unprecedented to see the Fed cut rates when equities are so strong
So as markets are coming in they're behaving in a way that they should
According to that study and again with the seasonality zand and all there's some other divergences that I'm seeing
But we have to start to study. Okay. Oh we
diverging if you will from what would be typically normal it is a rather small sample size to have
the fed cutting rates in a strong market environment
I mean
Do you see this time being?
Substantially a different environment though than possibly previous times
We have 15 trillion dollars of negative yielding debt, right? We have a global economy. That's potentially on the verge of a recession
Earnings are potentially slowing down
So do you see this time as being something that could be potentially worse than previously. Yes, I do
back in
Early 2018 when we had fallen again and right when the equity market came down
I was inclined to buy that almost blindly, right we were coming from a very strong perch with the equity markets
She had good breath good statistics technically into that high. You wanted to buy that pullback
Okay, and then now what we're seeing with this pullback?
There are a lot of divergences going on underneath the surface which has me a bit concerned. What are the divergences that they are?
Well, let's see
The S&P is an all-time high financials aren't industrials are not at an all-time high small caps are not on it all the time high
global markets or have rolled over significantly
Emerging markets or understand aberrant market they can't get out of their way
Same with Europe right your it looks like a big massive top formation. Right? So global breadth is weak as markets are coming down
So it is concerning, you know with this pullback sake okay as we come down to these support levels
We need to be very respectful of them. What do you see equity markets doing in the medium term
Is it sort of a muddle through for the time being is that something that you want to be and be out of okay?
So on a longer-term basis, I'm still still positive on the equity markets, right 3065. I think is the central tendency for this year
I think we can still work up there. Alright, but this is where it gets
We have to thread the needle a little bit, right?
I will maintain that bullish view so long as the the June 3rd lows on the sp500 holds
Ok, or you want to keep it real simple? That's approximately where the 200-day moving average is. That is huge
Well maintain my positive view for equities so long as we stay above. Let's say the 200-day moving average
It's a very simple proxy for trend, but it's incredibly useful. So as long you stay above it
I still think the trend for the market will stay higher
But what's incredibly important?
To consider with the to break of the 200-day moving average if we do break below it
We tend to go into an environment of lower for longer doesn't necessarily mean we're gonna go crash or something like that
But doesn't mean that we need to base out and to you know
Kind of go sideways a little bit and get our bearings before we stop pushing up higher
Okay, so then in terms of the equity markets, maybe it's something that you're a little bit cautious of right? Yes
I am cautious on that and
There's one other scenario
I know I forgot to mention about why this is a little bit different than other pull backs in the past
The SP is is following a pattern very similar to what we saw in the 1970s
I call it the bell-bottom Blues chart, okay
named after a great song from the derrick and dominos in the early seventies with Dwayne Tom and Eric Clapton great song, but
It's it's a bit worrisome. And and the analog is is quite striking to me and that back in the 70s
We saw higher highs and we so lower lows. Okay, we're seeing that now with the sp500, right?
It almost looks like a megaphone if you will or broadening formation
they represent extremes and bullishness and bearishness right extremes and sentiment right and how people feel about the environment and
What that means is is that they tend to be trend killers
okay, they tend to put an end to an uptrend and the implication of which if I
Am correct in saying that you know
This 200-day moving average is important if it gets violated my suspicion is will undercut the December lows
You know around 20
350 in a hurry so we could be down peep to trial 20% by November if we do not hold these levels
So it's incredibly important that we maintain the June low or the 200-day moving average is very very important. It's also
Interesting in my mind with that analog. It's not just the
Visualization of it right think about what was going on in the 70s and what's going on right now?
and I think the most important one would be the
Love affair that everyone has now with grow stocks and you had it back then in the 70s you had the nifty 50 then
Now you have you know the growth stocks you did the fangs and what-have-you
It's it's that to me
It's just it's just staring me right in the eye and the other thing would be that back in the 70s
We had a president that
Was going after the Fed today
We have a president that you know is very critical of the Fed also there were issues with OPEC back in the 70s
Of course, we've got him right now and instead of having a cold war with Russia
We're having a bit of a cold war at least on a trade front with China. So there's not just a visual
similarity, but I think from a
From a society stamp or social standpoint? Yeah, there's also
That those those comparison how do you see the bond market faring in that sort of scenario?
Okay, so I think the trend for rates is lower. Okay, and I think we have to
Stay with the trend, you know for lower rates
but I would put a big a strict on that and this is hugely important as well because equity markets and
Interest rates have correlated with each other on a 26-week basis since 2000. Okay, so if interest rates go down
Stock should go down and vice-versa
So this decline that we just saw and interest rates?
Has brought them to the most oversold level since 2002 on a weekly basis
Okay, and maybe like the 15th most Oversoul interest rates have been since 1980, right?
So what that's telling me is this we're getting close to an important flexion point for interest rates
We could go down a little bit lower. You know, I have an objective somewhere around 160
I wouldn't be surprised if we drift a little bit lower towards you know 150
But over the next 8 to 12 weeks we should see interest rates start to plateau and start to move up higher
So then in this potentially risk-on environment, what do you see happening to gold? So gold is two things going on with gold
There's a long-term break out for gold which implies 1800m, okay
Big base breakout, you know technical, you know breakout everyone likes it and it's true
It's a good breakout, but on a short-term basis, I think gold can pull back and consolidate here right now and same with silver
Silver actually have more conviction on a silver pullback then then on the gold
So what has lagged the price action of gold up to this point and if you look at longer-term chart of silver
It's bumping up against resistance here right now in an overbought state in
An environment where everybody's so risk off and so on edge that I think a pullback here makes makes a bit of sense
Okay. So with all that being said, where do you see the opportunity for a trade in this market?
Okay, so a couple things I have my eye on right?
I think it still makes sense to be cautious on the near-term
right
And I think it always makes sense to to protect yourself and I think one interesting trade out there
Particularly giving that a currency volatility is very very low right now. I
Would look to be long the yen here. Okay, and so that would be because of
Strength in the yen or potentially weakness in the dollar. What side? I think I see more of as the young gaining
Flows for for safe haven, okay purposes right for more of the risk off so to protect myself
Maintain being long the yen thinking we got down to about 103 and a half
Okay on an intermediate term basis, but no I would I would maintain being along the yen in this environment here right now
Okay, and that being a safe haven?
Asset how do you justify that with the idea that we might be in a risk on environment? Well, I think it's just good
It's more like a hedge. Okay, I think it just makes sense
So so the way that again I keep going back into how the equity market had declined very quickly
Okay, that's the markets message of telling us. Hey, something's going on. Okay, and let's pay attention to it one interesting study
I did recently was to take a look at when the S&P 500 declines through the 50-day moving average
All right, and then did so when the one we created change was already 5% or worse?
Okay, and what I found there is that while returns are slightly positive going forward for the next three months or so
The downside risks are very very high
So what that means is from a trend standpoint we could be
Reversing. So I think a yen trade right would make sense in the context of also low currency volatility
So if we get into a trade war with China
Right currency volatility is going to to rip and accelerate and I think the yen is a good way to play interesting
So then what would be your time horizon on the street? And can you review your levels again?
So the time frame for the yen would be about two or three months thinking about 103 and a half is my initial
Objective there are there other
Sectors or other commodities or other areas that you're looking at to trade right now oil, okay
I think oil is in a secular bear market I think is so long as oil stays below $60
I think it's a sell they're looking to
Selling it here pressing shorts below 50
Ultimately thinking that we do get underneath the December lows
38 or so over the next
Six six months or so when you put a stop on that 60 bucks 60 60. Yeah
I'll just maintain the bearish view on it so long
We stay below 60 Wow, and and then their only risk there to that would be
What's going on? And in the Gulf right with our Iran, right?
I think there's that risk that there's an accidental war or something along those lines where oil could spike
But you just look at the secular trend
It's it's down
So even in the 90s when we had the Gulf War then oil did spike but it still was within
The context of a secular bear market from that era I would still view oil even if we do get a spike
Hope not for that reason, but it would still be within the context of a secular bear market
And what is your time horizon for that trade? So the trade would be you know six months. Plus it's more of a longer-term view
If you if you want to say six, that's fine, you know, but yeah longer-term
Making new lows on oil and would you be doing this through the futures market or futures, right?
You can also use the USO which is an ETF
That could also be a good way to play and then akin to that would be the energy sector XLE right? I think oil
Makes that sector on investable a on a relative basis
Alright, can you review your general market thesis as well as specifically your view on oil and the n okay
So so yeah, you got for 30 seconds. Yeah. Alright so for Freight for equities, right?
I think on a long-term basis you need to maintain your positive view so longer stay about the June 3rd lows or the 200-day moving
Average to keep it really simple still looking at around 30 65 as your potential upside
Objective all bets are off underneath that level
We want to falling into that bell-bottom blues scenario where we have a quick decline lower on on stock
so critically important there in terms of the yen since currency volatility is very low and there's high risk of
Lower risk assets if you will, I think it makes sense to be long the yen down to about 103 and a half
Okay, and then finally when it comes to oil
Oil secular bear trend is in place momentum has reasserted itself to the downside would look to you know play yen on the table
So I play oil to the downside to at least 50 if not lower to new all-time lows
To about 38 or so great John
Thank you so much for joining us and we'll have you back soon to give us a little bit of an update as to where
Things are going thank you for having me
So John is bullish on the yen
Specifically he likes buying at current levels with the target of 103 50 over the next two to three months
Since the interview was recorded John has updated his stop-loss to 108
Additionally, he likes shorting oil at current levels with the target of $38 over the next six months and a stop loss at 16
Just remember this is a trade idea and not investment advice. Make sure to do your own research consider your risk tolerance and
Investing Lee for real vision. I'm Justine under health
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