Strategies for Navigating the Market Chop with Mish Schneider

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1:24And now to the top analysis of today's markets.

1:34How do you navigate the chop? Hi, everyone. Welcome to the Real Vision Daily Briefing. With me today is Mish Schneider, Chief Strategist at MarketGage.com. Hi, Mish. It's great to see you. Nice to see you too, Maggie. End of a long week. I know. We both joke that we're limping to the finish line. And Roy already posted that everyone's working really hard. We are, Roy, as are all of you. And we're all here to help each other. So hopefully we can do that. And I love ending the week with Mish because you can talk about anything. And we're going to try to sort of make our way around some of these markets.

2:08And so if we look at the action, even just today, we talked about the chop because it is like investors are dealing with a lot right now, right? So we saw stocks end lower. There weren't huge losses, a third for the Dow, a quarter for the NASDAQ, and a little bit less for the S &P. But investors clearly reacting negatively to news that the debt ceiling talks broke down in Washington. You've got bond yields, little change. They and the dollars seem to be keying off the Fed chair, Jerome Powell, sounding a little bit more dovish in remarks he made today. So there's just a lot to try to absorb. Everyone's trying to handicap both political risk and the Fed, and they're both really hard things to take into consideration.

2:54So I don't know, Mish, how are you feeling about these markets? Well, last time I was on with you, we talked about the fact that it looked like a couple of things were in place and that we could potentially see the rally that we actually saw this week. One was that certain things like junk bonds, even though they have been weak, they've been outperforming the long bonds. That's a risk-on situation. in fact at one point this week every risk factor that we look at was 100 % risk on which was amazing considering as you say all of the news that this market is trying to digest and that's really because at this point and this is again what we talked about is it possible that in this stagflation trading range environment that the economy and all the news that's coming out about the contraction of the economy actually is already baked in and that will hit some kind of low as a support area, as we're seeing in areas like the retail sector and the Russells.

4:01And that will be the bottom of the range. And what we've seen in the SPY, which literally went to the top of the range today, and that's it. We could extend a little further down. We can extend a little further up. But what we're really seeing is that we're stagnating, which means no deep recession, no deep depression, as some are saying. More like blah, stagnation. And yet inflation, which, you know, we were looking for major inflation to come in. And now here we are five months later, and we'll take a look at the CRB chart in a moment. Is that getting ready to kick into gear for the more flation part of the stagflation?

4:41And we know while people are trying to handicap all these situations, what we hear here is as soon as things get chaotic, that's inflationary. So I kind of think if you anticipate that we're going to be in CHOP and you're very patient in terms of picking your spots, in terms of hitting support right away, you know where you're wrong. and selling as you get closer into resistance, that's really where you're going to make money. And then you're going to get bonuses like AI and NVIDIA and Meta and Google and Microsoft that all rallied. And that would be evidence too, because they will clear these key areas like they have done and get some follow through.

5:23I like the way you describe that, because I know one of the things you talk about all the time when you come on is having strategy, right? And it seems like that's really important right now? Well, yes, absolutely. This has been a tough year and that's the good news for many because I think people are starting to understand that you trade differently and you need an education in a strategy in a tough year. And I always say, if you learn how to trade in a tough year, you're going to be golden in a good year. But it's also the bad news because it's so frustrating when you're trying to figure out, is this bullish or bearish?

6:02And in essence, it's really both in terms of where you are in this range. So the strategy is everything, knowing you're wrong, take advantage of when you're right, be patient in between. Yeah. It's funny, you were talking about stagflation and we will get to commodities in a moment. And since it's Friday, I'm not sure if TrillianX is with us, but I'm laughing if he's not because every time he asked about stagflation, no matter who's on, and we're finally talking about it, I have a feeling that he's out enjoying his Friday night. So we'll have to replay it for him. But you mentioned the sort of frustration.

6:39Raul was on yesterday for the DB and he was talking about tech. You just mentioned that, the names that are on fire, right? NVIDIA, a lot of the AI, the enthusiasm around AI. And he was sort of joking, calling it the rally that everyone loves to hate. And we heard that same sentiment a little bit from Michael Nicolettus, the CEO of DeFi Advisors. Andreas sat down with him for the latest installment of Buy Side Meets Sell Side. Let's hear a clip from that, and then we'll talk on the other side. I think what we're seeing right now, we're seeing the markets discounting that inflation is coming down, thus discounting that the fare and the ECB will stop raising rates sooner rather than later.

7:25And thus the market is seeing through and it's moving higher. Now that's happening with low volume because of the fact of, actually let me define this, low cash volume in terms of related because the options market is very, very active. And you see people not believing in the rally for all the right reasons. But again, the market's moving on the other side. And I think this rally will continue because as it moves higher, the formal or the underperformance is forcing active managers to chase the market, which would force it even higher. I think that if we get a correction, which I think we'll lose the correction, it will be late in the year, probably in the fall.

8:08And that full interview and the show, which is monthly, runs on our plus tier if you want to become a member or upgrade, just hit the QR code and you can go ahead and do that and jump on a trial. Mish, how much is sentiment, that idea of people, it's been such a tough year and people chasing that because they weren't in it, especially some of the professional managers. How much does sentiment like that play a role here? Well, there's certainly areas of history we can look at as an example. Of course, the most blatant one in recent times would be the dot-com bubble, where everybody put dot-com at the end of their name and everybody was afraid of missing the boat.

8:45And maybe the original FOMO occurred right then. And of course, we know what happened. Now, I don't necessarily feel the same way about this in that companies with very low balance sheets that were really basically have nothing much to offer other than it was taking advantage of the Internet boom is going to happen with AI or with Meta or with Microsoft. I mean, these are very well-established companies. But what we do know is that there's a great image that I keep in my mind all the time, and that's the rubber band image. And when a rubber band gets too stretched, and we've seen this over and over and over again in so many different examples, eventually that rubber band snaps.

9:28And so you have to say chasing at this point is making an assumption that we'll never get a correction in any of these stocks, that the P.E. ratios that are starting to explode in these areas are warranted and that, you know, A.I. is basically going to be the only place that we can go to see any kind of economic growth or to make money in the market. And I think all those assumptions are erroneous to make. So I believe that, yes, when you get too crowded, and this is exactly what happened in gold, by the way, because the gold market rallied, rallied. People were like, oh, that's it. Gold's going to 2200, 2300, 2400, 2400.

10:07The calls were becoming insane. Everybody who hadn't bought gold earlier was getting in and we could see what happened. And it just went, now that doesn't mean it won't come back. But really, basically what it proves is that things get crowded. They sell off. Good opportunity to get back in with a better risk. Hey, everyone, we're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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11:37Right. So especially if you're short-term, watch out. This is where the timeframe matters. longer term, maybe you wait for an opportunity if you have it to add. These are all things that you have to decide based on your situation. Colin, bringing up a really good point, we've heard this time and time again, with so few stocks driving indices higher, can investors be bullish at the moment? Does the narrow nature of the rally, is that a cause of concern for you? Well, I don't think that it pays to be bullish or it pays to be bearish. This is exactly the point. I think it pays to be opportunistic and open-minded right now.

12:14And that's what the name of this game is, clearly. Again, let's go back to history. I love looking at certain aspects of history, even though everything is different, the old square peg round hole. But we had a peak in 2000 after the dot-com bubble, and then we had a huge trow down. And anybody who bought near that peak thinking the market was going to go up obviously had to wait because we had another rally in 2008, but it wasn't as high as the peak in 2000. Then we had even a deeper trow down. So really wasn't until 2013 that we took out those highs and people started to make money who bought near the top.

12:55And I don't see why this would be any different. We had a peak of 4 ,800 in the SPY in the very beginning of 2022. And that's the point. Is it going to take a year, two years, three years, four years, five years, 10 years, 13 years? Look at Japan. There's inches from finally clearing the high peak that they had in the late 80s. And that's how you have to go into this market is you have to say everything has changed. So maybe it's not dot com. Maybe it's not a mortgage crisis. But in this case, it's the accelerated rate of how the Fed had to hike the interest rates in order to fight a runaway inflation that was caused by so many aspects of things like government spending and producers being short in terms of how much they've produced in raw materials and labor issues and supply.

13:47All of that has made this a unique situation, which means that the happy days that we saw after all the stimulus money is going to take a long time to work that out. And that's a very long way to say that I would be bullish near term if certain things set up. And certainly we kind of got there right last time we talked a little bit bullish. Right. The Q's, the semiconductors, certain areas, even the Russell's health key support. At this point now, though, we had a really interesting precipice. So maybe we should show a couple of those charts and talk about it. Yeah, so pull up what you want us to look at, Brian, standing by.

14:23Let's start with the good news, and that would be the Qs and the SPY chart. Okay, so I really think that one of the issues with this market is that people are getting so far into the weeds. are we going to have a debt ceiling? They walked out today. Was Powell hawkish today or was he dovish today? Janet Yellen, she's talking about bank mergers. Does that mean we're going to have more defaults in the banking? If you start going there and try to become an analyst in terms of what's being fed to you by these stats and by the media, you're going to lose your mind. So I really want to make this simple okay and don't confuse simplicity with ignorance because some people do no it's actually the years of experience that i've discovered sometimes simple is better or less is more as they say so i've really narrowed it down and i explained a little bit about this uh before but a quick explanation there is uh a thing and and there was a couple of economists throughout the years, even in the 1800s, who talked about these mini business cycles within bigger business cycles.

15:35And what's really, really amazing to me right now is that the blue line you're seeing in the queue and the SPY chart is a 23-month moving average, just shy of a two-year business cycle. And the green line is an 80-month moving average, about a six or seven-year business cycle, which is kind of the norm. So we are seeing after 2021 bullish, 2022 bearish, we're in the midst of this short-term business cycle. We don't know which way yet it's going to resolve, truly. But my guess is if we look at the queues right now, we've expanded outside of that 23 months. Now, it's not the end of May. It could sell off in the next two weeks, of course, and that would be the end of that, it would be a false breakout.

16:21But I'm not saying wait necessarily two weeks, but what it's suggesting right now is that the growth area of the market is solid. The S &P 500, on the other hand, is right at the top of that trading range right now, right at the precipice of that 23-month moving average two-year business cycle. So the 500 stocks, those Fortune 500 companies are going, hmm, maybe the worst is over, but we're not quite there yet. Now let's go to the next two, which would be the IWM and the XRT.

16:58Completely different picture, right? So you look at these two charts. And now forget the 23-month. We're nowhere near the 23-month. In fact, if anything, what the 23-month proved was that it was great resistance for the small caps, right? So That's 2 ,000 stocks, 2 ,000 companies within the U.S. That's really where we're seeing the contraction. And retail was kind of hanging in today. It was a really bad day for the retail space because we had dismal earnings in Dick's Sporting Goods, in Foot Locker. And that is really also bearing the brunt right now. So now, as we're looking at potential expansion in growth and in Fortune 500 companies, we're looking at possibly more contraction.

17:42by that 80 month moving average or that six to seven year cycle, which it has not been below except for the blip during COVID for years and years. And if there's anything that explains how confusing it is, it's looking at these four charts. Certainly the granddaddy of the U.S. economy and certainly the consumer is going to drive what happens next in this economy. And it's not going to be AI. We're not there yet where it's going to be able to say, OK, nobody has to work anymore. And don't worry about shopping because AI is going to take care of everything. I mean, that's kind of absurd, but it may get there.

18:20It doesn't grow food, that's for sure. So so there you go. And and I think if we hold here, we certainly proved better this week in the Russell's that it held. And if granny retail can absorb these latest earnings and look forward as opposed to back and hold here, then we know we're going to be a little bit bullish for a while until such time that the Russells get to the 23 month, don't get to the 23 month or get a little bit closer to the 23 month and then roll over. And then I don't care what's happening in the spies and the queues. It'll be really, really hard for them to continue moving up.

18:57So interesting. I love that because you really can. It gives you a clear visual mesh to sort of cut through some of the other mixed signals we're seeing. And some of it is because some of it's very backward looking and some of it is more forward and present. So let's do CRB too, since we're here and kind of round out the macro. I want to make sure we leave time though, because you've got some really interesting picks. So we'll leave, this will be the last sort of, well, should we do CRB or should we do dollar? What do you want to do? Let's talk about the dollar for a quick second. Okay, let's do dollar.

19:26Because I have a dollar gold chart there. Okay. We have a question about gold, so let's do that. Okay. Well, a lot of people are saying, well, the dollar went up. That's why the gold went down. And we know that that relationship is wonky. It's not pure. But the reason why I want to show the dollar is because after this dramatic drop that we had, let's look at that two-year business cycle, right? That 23 months, look where it stopped, right on it. I've never seen a moving average work as good as this one has in so many instruments this year. And so you can see that it stopped right dead and it's had a bounce.

20:00Now, I happened to talk to somebody recently who lived in China for years, and he told me about a book that was written called Strategic Warfare in 1998 by two men who were Chinese. And they said that the strategic plan of the Chinese China has been to get yuan as the world's reserve currency. They don't think like the U.S. knee-jerk reaction, what's happening in the news now, they are long-term planners. And we know that the buzz around that has gotten a lot greater in terms of the yuan. I spoke with a pretty big family in India. The rupee is now being used to buy oil instead of the dollar, we know, and then eventually they could be switching to the yuan.

20:46Anyway, the point is this. The dollar right here, in spite of all that news, just goes to show you how news can sometimes be so lagging, is holding key support. That doesn't mean it'll fail. If it does, this gold chart next to it, which also is above the 23-month moving average, ran into this great resistance. You can see if you look back, the three highs, three big spiky highs we've had are all around the same level. Now, this is GLD. It's not gold futures, but it's okay. It's close enough. So that tells me very simply that we're still in a big uptrend in gold. But that doesn't mean we can't see a little bit of a dip here.

21:24But I would still consider that. And I think this is exactly what I said last time. So I'm going with it. If you're not long gold, you either have to wait for a more substantial dip, maybe to around 1970 in terms of feuds, maybe to this, it would be more closer to like 178, 180. Or I would just get in over those highs and not worry about it because it's telling you that things are really getting chaotic and out of control. And that's what gold is measuring right now. And the dollar is hanging in there with some level of optimism that all this crap isn't going to occur. Yeah. So Bob was asking, what is your favorite way to express the gold trade?

22:05Well, you know, it's funny for years and years and years and years, I've been trading ETFs for a lot of the commodities. And I started out as a futures trader for 14 years. And it's kind of dawned on me recently, as I've been looking more and more at futures chart, then I actually would like to go back to futures trading. And so if you can, same rules apply. Risk reward, moving averages, opening ranges, all this stuff that we could talk about more in the future. The point is pick a strategy, have a strategy, and don't do what many futures traders do, which is, first of all, average down, number one, or number two is sit with deep, deep losses.

22:45It's not necessary. These commodities will continue to be volatile. And I think we should probably move to the CRB chart next because that's a good segue. OK, let's do it. Let's hit that if you have that, Brian. So what do you so this is this is the overall commodity index, a good overall basket. What are you what are you watching here? Because, boy, that certainly when it comes to if energy feeds into it, the energy trade has been very disappointing for people. So what are we looking at here? Well, you know, and this is this is when I started out this year, my talk about my real vision, my real clear vision was a stagnating economy and a super cycling commodities.

23:21Well, here we are in May, five months later, and people are going, oh, miss, you were so wrong. We are going into deflation. We are going into disinflation. And I'm saying, you know, no, I am patient. This is commodities. and the proof that people are saying that the reason why there's not going to be any super cycling commodities is because the CRB is at 52-week lows. So that's why I thought, oh man, this is going to be a real interesting chart to have a look at right now, because energy has picked up this week. Possible XLE, the ETF for energy, has bottomed. Oil, all right, it's not wowing anybody, but it's very close to potentially breaking out.

23:58And people are saying, oh, recession oil is going to go down, but yet we also are seasonally going into a higher usage, consumption could increase, not to mention all the other geopolitical stuff, which we're not going to get into. But more importantly is at this 52-week low, a couple of things have happened. One is we've had a mean reversion, which means basically that the momentum is holding a key moving average and is moving back up. Number two is we possibly, just like we've seen in these IWM and XRT charts is we've potentially gotten down to a very key area of support, holding the October lows, and it looks like a double bottom could be forming.

24:37So I'm looking at numbers with the CRB. If you like to look at the CRB index, to me, it looks like if we get through 265. So you see what I'm talking about? We're kind of near those March lows. I shouldn't say even October lows. It was higher in October. That's why I like to look at a chart because It's a lot to memorize every chart. But anyway, right here, March lows, pardon me for that. And on the bottom is the real motion chart showing that we've actually now held the 200. Look how far down the 200 day moving average is in price versus where it is in momentum. So if the momentum starts to move up and we get through that sort of Bollinger Band on the price chart, which is around 265, we actually start to look more like a double bottom.

25:16And that would put me very keen in starting not only to continue to look at gold, but some of the other commodities and particularly the energy commodities that have been so beaten up, but may actually come back into the forefront as we get into the second half of this year. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

25:45Yeah, so that's a little bit further out that play. Okay, I want to get to some of the trades that are interesting for you. And this is what Miss is interested in. This isn't necessarily investment bikes for you. As we always say, regular viewers, you know this, only you can know your risk profile. So I just want to put that caveat out there. But I love these. I have to start with the one that really caught my eye formula one so the ticker is f-w-o-n-a f-w-o-n-k by the way there are actually two tickers for this right wow okay yeah yeah so and that's something i just learned i mean you this is such an interesting business to be in because you can learn something every single day um and so we can put the charts up i'm just going to rifle through because i don't know if we're going to get a chance to talk about formula one Right.