Market in High-Risk Oversold Condition, Says Macro Risk Advisors' John Kolovos

Market Assessment: High-Risk Oversold

• ⚠️ The market is currently in a high-risk oversold condition, described as not being a garden variety type.
• 🎯 For the market to prove itself, it needs to recover at least two-thirds of its recent decline, aiming for the 50-day moving average.
• 📈 A 90% up day was a positive step, but confirmation and follow-through are crucial.

Key Indicators for Market Health

• 💡 Bitcoin needs to stabilize and start outperforming gold as a key metric.
• 📊 Gold is expected to reach around 3,100, and its stabilization alongside Bitcoin's rise is important.
• 📉 Credit markets have shown some upward push, and CDX experts breaking out of a base suggests a potential trend reversal, but this needs to calm down.
• 🔀 The 3-month to 10-year curve needs to stop inverting and rolling over, as its peak coincided with the momentum factor peaking in January.

Momentum and Recession Concerns

• ⚡ The momentum unwind is highly correlated with the market itself, and its bottoming is linked to the market's overall condition.
• 📉 If not falling into a recessionary bear market (odds have increased but are not overwhelming), the momentum factor is close to bottoming.
• 💰 Kolovos is interested in buying names that led the market down on the way up.

Rotation and Market Endings

• ⚠️ A rotation into value is seen as defensive, not a long-term winner, with growth still dominant.
• 📉 Historically, when average stocks or small caps outperform on a relative basis, it signals a correction or bear market, often how bull markets end with mega-caps catching down.

Rally's Future and Bottoming Process

• 🎯 Kolovos maintains an upside target of 6,100, but believes the market needs a period of basing, potentially a double bottom.
• 🚫 The market will bottom when it stops ignoring bad news, and we are not there yet, as evidenced by the reaction to potential tariff headlines.