Using ETFs to Hedge the S&P 500 (w/ John Kolovos) | Trade Ideas

John Kolovos, CFA, CMT, chief technical strategist at Macro Risk Advisors, reaffirms his trade from early May where he suggested going long the S&P 500. He updates his original thesis and reviews the price action since he last appeared. Kolovos then suggests two ways to hedge a potential breakdown in his thesis through the ETFs $GLD and $TLT, in this interview with Justine Underhill. Filmed on June 18, 2019.

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Using ETFs to Hedge the S&P 500 (w/ John Kolovos)

Transcript:
JUSTINE UNDERHILL: So, you were here about six weeks ago, and you were quite bullish on the S&P
500. You saw it in this long term trend channel. You had a year-end target of 3065 and a stop loss at
2850. Since then, we've had a lot of things going on in the markets. We had the selloff in May. It's
rebounded up past 2900. Can you give us a little bit of an update as to what your levels are right now?
JOHN KOLOVOS: Okay. Sure. First and foremost, thanks for having me again. And number two, I
would say yeah, my objective for the S&P 500 is still the same. 3065, I could even say get as high as 3100.
The pullback that we saw in May was just that. It pulled back, a minor correction. We saw an acceleration
in downside momentum, but not enough to tilt trend. So, trend is still positive. And I still want to stay on the
side of trend.
JUSTINE UNDERHILL: In terms of staying on the side of trend, what technicals are you looking at right
now?
JOHN KOLOVOS: Sure. So, I'd say this market's strongest attribute here right now, besides trend is
sentiment. And I would say that sentiment is so bearish right now, that is as bearish as it was back at the
cyclical bear market low of 2016. And one indicator that I look at is the AAII bull-bear ratio. And that is,
like I said, at the same level as it was back in 2016. We're only a couple percentage points away from a
new all-time high. And sentiment is as if we were at a multiyear low. So, to me, I want to look at the other
side and be contrarian. So, sentiment is quite compelling.
Also, on the sentiment front to put call ratio during the May pullback reached about three standard deviation
levels, you want to be on the other side of that so on a put-call basis that was quite high. Also, the bond
VIX, the move index, also hit about a three or four standard deviation level. When you have the combination
of your put-call spiking and your move index spiking, you tend to have very positive for returns for the S&P
500. So, sentiment would be the other indicator that I've been looking at.
And the other category of indicators I'll be watching closely would be- or I'm watching closely is momentum.
So, as we came down to around that 2700 level in the S&P 500 during the May pullback, the market always
responded exactly what it was supposed to. I wrote in my reports that the markets move and as part of a
three-act play. You have initial down move, which is Act One. Act Two would be the oversold rally, and
then Act Three would be the lower low. And that's what corrections are, tend to be a three-part sequence.
And the way you measured it, a technician will come up the measured objective or whatever. And you get
down to around this 2700 level. That's where we got to in the market, we spotted off of it. And then when
we spotted off of it, it responded off with a very robust price momentum. And also, with a very strong
advanced decline ratios. We had like a 90% right off the low, we were able to shoot up higher to about
where we are right now. So, price momentum has been very, very strong.

[deevog]

Today we can say Market high and over valued, Hedge now a better option while inflation can attack market badly

[luciaconk]

Rates may affect the price of gold and copper but to me, stating that the price of either is going to influence the Feds decision on rates... I question if Powell has the price of gold or copper on his radar screen...

[bnotyet]

I like John's way of determining market-direction relying on sentiment and breadth. I searched but I could not find Mr. Kolovos's Twitter handle ... does he have a Twitter account???

[Playonstereo]

GLD and SP500 are good choices, but not TLT - during next few months USD and bonds will fall