John Kosar of Asbury Research told Financial Sense Newshour in a recent interview they are expecting a defensive move in the markets during the second quarter with investors shifting towards utilities, gold, and Treasuries before a move higher towards the end of the year.
He cautions listeners that if they are not in the market now, it’s not time to get aggressive.
Asbury Research uses a wide variety of technical and quantitative indicators, including behavioral and sentiment readings, to make high probability forecasts over various time horizons.
One particularly well-followed measure, seasonality, did not perform well last year, which John says was largely overridden by the Fed backing off on its taper announcement. This year, however, he believes “Sell in May and go away” will have a much more dominant effect on market returns, citing its strong influence ever since 1957.
So, how deep of a correction is Asbury Research expecting if their second quarter defensive move plays out?
John said it wouldn’t be unreasonable for the market to get back towards its 200-day moving average, with an 8% correction from the highs.
One measure they use for gauging the potential depth of a downward move in the market is the Rydex S&P 500 ratio, which shows an extreme level of bullishness by investors only seen a handful of times since the 2007 top. John said:
“What it’s showing is that a lot of the money going into these funds is too one-sidedly positive or two one-sidedly bullish. And when that happens, it’s not necessarily a timing tool, but when the correction comes it could be larger than people expect.”
With any defensive or risk-off move in the market, John says Treasuries and gold will do well as investors rotate away from equities.
On gold, Asbury released a report showing that large commercial traders were placing large bets in the $1200 area.
In the interview, John explains how commercial traders use the futures market to hedge their physical holdings. Very rarely, they move to an unhedged position at certain prices, which indicates “that the smart guys who know the gold market more than anybody else are making aggressive bets,” he said.
In terms of the overall market, John projects another 15% upside on the S&P 500 later this year or perhaps extending into 2015, with any correction seen as a better buying opportunity.
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Audio link: https://www.financialsense.com/financial-sense-newshour/john-kosar/diver...
