"Kip's VRA financial newsletter is a MUST read for every saavy investor in this country. Disregard it at your own peril. His mantra is my mantra. Kip Herriage's newsletter is my financial Bible."

--Wayne Allyn Root
2008 Libertarian Vice Presidential candidate
Author, "The Conscience of a Libertarian"

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Journal Archive
Twitter: @kherriage

Friday
Nov022018

VRA Update: The Lows Are in Place. 3 Points of Importance. Mid Term Election Pattern Says we MUST Own Stocks Now.

Good Friday morning all,

The markets lows are in place, for all of the reasons we’ve been covering here. The combination of incredibly strong US economic conditions, surging corporate earnings and seasonality investment factors tell us that we must be in this market.

3 points of importance:

1) We must get back above the 200 dma in each of our major indexes, the DOW is there now. Another good day of gains like we saw this week would take care of this for all indexes except the Russell 2000, which has a bit further to go.

2) Market internals must continue to improve. Yesterday featured 3–1 positives in advance/decline and even better in numbers in up/down volume. Solid. But new highs to lows came in at 92 new highs to 285 new lows…this is the lone indicator that continues to trouble us most. Again, these readings are improving, but until we see marked improvement in this single indicator, we cannot discount a retest of the lows.

3) Get past the midterms. 2 trading days left after today. It’s my belief that the market enjoys a divided DC. We remember well how US markets soared under both Clinton and Obama…both presidents had divided governments.

Regardless, getting past 11/6 will remove the current volatility. You know my views…expect a strong move higher into year end/Q1 ‘19.

As we’ve covered, every midterm election year since 1946 has seen stocks soar over the next 12 months. Here, we also see that every midterm year since 1946 the S&P 500 has been higher from the October lows to the end of the year. 18 for 18 with an average gain of 10.6%. Repeating patterns like this are hard to find. Almost impossible to find. Repeating patterns tend to be an investors best friend.

Employment

Minutes ago we learned that US employers added 250,000 jobs in September, blowing away estimates, with wages rising 3.1%, best in a decade. Unemployment rate of 3.7%, best in something like 50 years.

I’m a broken record on this but lets review some basics, one more time:

Trump was elected, to a large degree, because he is a businessman (and because HRC was an awful candidate with an intern loving dirtbag for a husband). Tax reform + regulation destruction + new trade deals = animal spirits unleashed. It’s that simple.

Next up; US GDP is headed to 4% growth for the full year (2019), with the very real likelihood that US GDP will break 5% by the end of Trumps first term.

Trump has crushed China. They’ve already lost…they know it. Now they can go the way of Japan from the 80’s/90’s or choose to implode.

Our view has not changed. The Dow Jones will break 40,000 by the end of 2020. The DJ will break 30,000 in “early” Q1 ’19. Pullbacks must continue to be bought.

The theme for 2019, as global equity markets rock and roll:

1) Nationalism beats globalism. The events in Hungary, Poland, Brazil, plus of course Brexit and Trump mark the beginnings of a massively important worldwide pattern change. HIGHLY bullish for stock prices. Even more bullish for human beings.

2) Global reflation trade. Oil, most commodities and metals and emerging market economies will soar over the next 2–3 years. But the real action will be in stocks, as the public falls back in love.

While real damage was done in October, not to worry, strong US fundamentals should now take over. The forward P/E on the S&P 500 now sits at 14.6. Far too low, IMO, with what will be another year (’19) of 13–15% earnings gains. I predicted 15% for ’18 and today we’re at 26%. Dollars to donuts I’ll be on the low side in ’19 as well.

Until next time, thanks again for reading…

Kip

For our latest updates tune in to our daily VRA Investing Podcast atVRAInsider.com

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 14/15 years.

Also, Find us on Twitter and Facebook

Thursday
Oct252018

VRA Update: Fear of the Unknown, Here We Come Again. VRA System Update. Sentiment at Extreme Fear with Volume Dropping. Hallmarks of a Bottom.

Good Thursday morning all. Once the break through DJ 24,768 occurred, SkyNet like AI technical selling pressure kicked in. Know this; the selling pressure from the final 30 minutes was purely algo related. This is a structural problem in the markets thats been with us for some time…90% of all trades are now ETF related…few investors today buy individual stocks, making mini-flash crashes possible.

This morning we’re seeing a bounceback of some 200 points. I’ve never been a big fan of buying higher opens. Wisdom from my mentors. However, I did notice a big positive when running VRA System screens this morning. Yesterdays sell-off occurred on 40% lower volumes than the 10/11 sell off in the DJ of 843 points. Reductions in sell side volume are common hallmarks of exhaustion to the downside.

Here’s another hallmark of a near term bottom. Check out both of the sentiment surveys we use at the VRA. AAII and CNN/Money. Both readings are at “extreme fear” levels.

 

Here’s the updated S&P 1500 new highs to lows. Again, until this reverses, the market lows will not be in place. Most typically we see this indicator bottom 1–3 days before a final low in the market.

 

 

And here’s another popular method of watching extremes in the internals. The Mcclellan Summation Index. As the horizontal lines indicate here as well, its a 1–3 day leading indicator of market bottoms.

 

 

As of yesterdays close, just 34% of all stocks are above their 200 dma. Just 13% are above their 50 dma. So if the market decline is not tied to economic slowdown/recession, why is it dropping?

Fear of the unknown

We still see NO signs of an impending economic slowdown in the US. Well, we are seeing housing stock prices tank (while actual housing remains strong) and financials are trading awfully. Are these signs of an impending economic slowdown? I don’t think so…here’s why; until the LEI (Leading Economic Indicators) begin to break down, there is NO reason to expect a recession. Until consumer confidence, freight/shipping and employment reverse lower, there is NO reason to expect a recession.

The fear of the unknown. For example….

 

 

Yes, in the 5 months leading up to 9/11, the Dow jones had already fallen by 11%.

Today, with pipe bombs and white powder, the fear is that something “major” could be next. That would not surprise me…but no…its not what I expect (meaning nothing major…like 9/11).

Instead, I see this as an overreaction by nervous markets. Here’s some evidence of that; if actual bad news was on the way, gold would be on fire. Today, gold is just slightly higher. Also, the VIX (fear index) is reading at 23.50 today. Elevated, sure…but a 30–40 VIX is the sign of real turmoil. Does not mean we won’t get there…but nowhere near it today.

At the same time, both the TRIN (short term trading index) and put/call ratio remain HIGHLY elevated for the 6th straight day. These work like rubber bands for the market…they stretch just so far and then they snap back….that snapback sends stock prices sharply higher. We’re reaching those levels now.

I DO NOT LIKE the fact that we’re under the 200 dma on each US indexes, and as covered earlier, I DO NOT like the fact that our internals are not improving.

The fear of the unknown almost always leads to great buying opps. I look for that to be the case here as well. We’re in the most seasonally bullish time of the year. MidOctober-May are THE time to be in the market (90%+ all gains occur). And the midterm election year pattern. 18/18 winning years, from 1946 on, with an average gain of 15%.

We may just have to get past the mid-terms first. If some group of idiots set off a bomb…or worse…we’re headed lower. Otherwise, this is very close to THE time to buy.

Until next time, thanks again for reading…

Kip

For our latest updates tune in to our daily VRA Investing Podcast at VRAInsider.com

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 14/15 years.

Also, Find us on Twitter and Facebook

Friday
Oct122018

VRA Update: Signs of Capitulation Everywhere We Look. My Short Term Prediction

Good Friday morning all. Hitting the most important bases this morning…clear signs that the velocity of the sell-off of the last 2 days (Dow Jones 1300 point loss) was algo driven with capitulation everywhere we look.

This is not a crash. If it were, gold would be catching a serious bid, debt markets would be showing signs of panic and circuit breakers would be going off. Instead, this is “elevator up, escalator down” market action that I’ve seen play out more times than I can count.

Here are the “clear” capitulation signs that that tell us an important low is likely in place.

Yesterday:

  • VIX hit 29 (volatility index)
  • TRIN closed at 1.48
  • Put/call ratio closed at 1.21
  • Each major US equity index has pulled back to exactly (or just below) their 200 dma, with each hitting “extreme oversold” levels on VRA System

As of yesterdays close, the S&P 500 is now 3.8 standard deviations below its 50 dma. This has happened just 8 times since 1963…check out what happened next.

CNN/Money Fear and Greed Index is now at 5. This is the lowest reading in 3 years. Folks, we didnt even see a reading of 5 in February of this year or at the 19.9% S&P 500 brutal sell-off lows from 2016. As contrarians, there may not be a stronger buy signal.

This morning the Dow currently up 300 points higher. I’ll be closely watching the internals today…this is also the worst stretch of negative VRA System Market Internals since the February lows. That was THE time to buy.

With earnings reports resuming, so will share buybacks. That’s $80 billion/month in buying pressure.

It’s hard to buy low when everyone is bullish. We can only buy low when investors are panicky. When there is blood in the streets. The bottoming process is just that…a process that can take time to play itself out. So, while I do not recommend chasing this higher open, every VRA Portfolio buy rec remains a buy rec.

Big picture points to remember:

1) October is typically a wild month. It gives us our best buying opps. Mid-October to May are our most bullish months.

2) Midterm election buy signal. Since 1946, the markets have been higher 18/18 times with an average gain of 15%.

3) the FED has raised rates too quickly. Fed Chair Powell signaled “numerous” hikes were on the way back on 10/3, which kicked off the current sell-off. The bond market is rallying this morning…it will soon take stocks with it.

The Russell 2000 is now hitting Extreme Oversold across the board. These levels do not last long. Right behind the R2K is Nasdaq (heavily/extreme oversold) with the Dow and S&P 500 likely reaching these levels today.

Now take a look at XHB (homebuilder ETF). While still up 16% from election level lows, XHB is now down 25% from its January ’18 highs.

It’s now reached the worst levels of extreme oversold since the ’08 crisis (MACD, RSI, MFI and stochastics). Blood in the streets.

Bottom line: XHB has not been this oversold in a decade. This sell-off in the homebuilders is hugely overdone. I see a sharp recovery move higher in housing stocks, along with the broad market, into year end.

Here are some short term predictions from me:

1) Trump will succeed in getting the FED to put the breaks on rate hikes. We’ve now had 8 straight hikes and unless we want a repeat of 2007–2008 (the FED hiked 17 straight times from 04–06, which helped create the GFC), rate hikes must slow.

2) The ST spike in rates will soon end. I have no problem with a 3.25% 10 year yield…neither does the market…but its the velocity of the move that has had the markets attention.

3) Emerging markets have been crushed. We’ve crushed China with it. I continue to predict that China and the US will enter at minimum a basic agreement on trade, prior to year end.

4) Unless gold catches a serious bid, we are “very” close to the end of this reset. I see no systemic issues. An important low is near.

Until next time, thanks again for reading…

Kip

Friday
Sep282018

VRA Investing System, Overbought Market Pause. Fed Rate Hike. Investor Sentiment.

Good Friday morning all. I’ll be on the Wayne Root Show tonight at 8:30 EST, listen watch via NewsMaxtv.com or USARadio.com

Market update

Yesterday brought mixed/negative VRA System Internals for the 3rd consecutive day, as end of quarter window dressing by institutions results in portfolio rebalancing. Both the DJ and S&P 500 continue to work off their extreme overbought conditions, as we leave September (historically the worst month of the year) and head into the seasonally bullish October-May time frame.

We see no structurally negative issues in this market. We see a market that’s building energy, with powerful fund flows into US equities that continue to overwhelm would be sellers. The most pressing negative could be share buybacks, which are halted for companies soon to announce Q3 earnings (4–6 week blackout period).

9/12 VRA System Screens remain bullish. The rising tide of a strong US economy should result in broad based moves higher. My views have not changed. We are in the early stages of a broad based market melt-up. Dow Jones 28,000 by mid terms and 30,000 by year end/early Q1.

I do have one note of caution. As Q3 ends, we will increasingly see co’s that are forced to suspend their share buy back programs, as the 4–6 week SEC imposed “Blackout Period” goes into place. Co’s that will soon report earnings must suspend their share buybacks for 30–45 days (there are exceptions and each co’s blackout period is different). Still, with buybacks on track to top $1 trillion this year (for the first time in history), its a macro data point that we must be aware of.

Bottom line: if we’re going to get a sell-off prior to the seasonally bullish October/November to May time frame, right about now could be that time.

Russell 2000 (IWM)

While big cap indices have hit extreme overbought readings, take a look at this 1 year chart of IWM (Russell 2000 ETF). Small caps have traced out a repeating stair step pattern over the last 12 months, with each pause creating the next important buying opportunity. While not yet at extreme oversold levels, small caps have performed so powerfully this year that its likely they will not hit extreme oversold. The VRA Portfolio holds a number of small caps. I continue to look for a melt-up move higher into year end.

FED Rate Hike

The Fed raised rates for the 3rd time in 2018, as we have discussed here, the markets do not fear rate hikes…rising interest rates have been ultra bullish for US economy and equity markets. Next up, as European and Asian bond markets begin to normalize…as interest rates move higher there as well…we can expect international GDP growth to pick up, with a catch-up move higher in many European/Asian equity markets.

Finally for this morning, here is this weeks AAII Investor Sentiment Survey. 36% bulls with 31% bears…not even close to sniffing investor euphoria. Remember, I see no significant market top (meaning that dips must continue to be bought) until bulls hit 70%, for weeks on end.

Until next time, thanks again for reading….have a great weekend.

Kip

Thursday
Sep132018

VRA Update: Transports hit all-time high, US-China Trade Deal. VRA Chart Analysis

Good Thursday morning all. If you listened to our daily VRA Investing System Podcast yesterday (vrainsider.com/podcast or iTunes Podcasts. Always free, usually < 5 minutes) you heard what we believe is the advance playbook on a US/China Trade Deal. It’s coming…we continue to believe in advance of mid-terms.

VRA Bottom Line:

The US (Trump) invited China back for new round of negotiations. The invite from Trump allows China to save face, as they ultimately bend to Trumps will. Make no mistake…this is exactly what’s happening here. Chinas markets/economy have been hit HARD, all while the US economy/markets continue to soar. While the US media will be hesitant to give DJT credit, here at the VRA we know/report the truth. Trump has kicked China’s ass…entirely and absolutely.

The playbook from yesterdays trading was most enlightening, once the news hit. The US Dollar weakened, the Yuan strengthen, precious metals/miners ramped higher, US trade-centric industrials, deep value, including housing stocks, rallied hard, Chinese stocks jumped 2–3% (futures, then overnight) and US markets (Dow Jones) saw 200 points in gains (from -50 to +150) inside of 30 minutes. This is our advance playback. We are positioned well for it.

The US economy continues to roll…the Trump Economic Miracle picking up steam. This week the transportation index hit new all time highs, even as perma bears continue to scream “a recession is coming”. Each week, mainstream financial publications run a feature piece with dire warnings of economic fall-out, just around the corner. Last time I checked, when record amounts of products are being produced/shipped throughout the US, with an economy that is picking up steam, “recession” is not the first thought that comes to mind.

 

 

If you were able to listen to the VRA Podcasts this week (each day at market close, sign up at vrainsider.com/podcast) you hear Tyler’s description of small business growth that is ramping up from Tuesday. Small businesses are the heartbeat of the US economy, responsible for 70% of all job growth nationally.

Tuesday, the NFIB Small Business Optimism Index hit a 35 year high reading of 108.8, best reading since Reagan was in office. Like Reagans tax reform, we continue to expect the US economy to surge. Also like Reagans tax reform, which sent the Dow Jones 120% higher inside of 3 years, we expect the DJ to more than double in Trumps first term. Our target remains DJ 40,000 by end of 2020.

Even more signs of a US economy that is gathering steam. Middle class income hitting all time highs. #TrumpEconomicMiracle

 

 

As I mentioned earlier, Trump has announced he wants trade talks to resume with China. It’s been my belief that Trump wants a deal with China prior to the midterms. If you’ve read The Art of the Deal, Trumps actions to date appear right out of his 1987 mega-best seller. US markets rallied higher on the news.

 

 

VRA CHART ANALYSIS

As we get into these charts, remember that technical analysis makes up roughly 30% of the VRA Investing System. I find it incredibly helpful for timing purposes (entries and exits), but my go-to is fundamental analysis. I know lots of successful money managers that focus primarily on the fundamentals (macro and micro), but I know very few that focus primarily on technicals. Either way, this was the style of my mentors and it remains mine today.

S&P 500

As the largest global equity index, we’ll start here. Beautiful, ascending wedge pattern. From our “extreme overbought” levels of last week, this pause looks to be playing out with perfection. Septembers aren’t my favorite month, but so far, so good.

 

FXI (China ETF)

Below is a 5 year chart of FXI . As you can see, China is not immune to big swings, up and down. During the 2015–16 emerging market meltdown, FXI fell some 27% beneath its 200 dma, the largest gap since the ’08 crisis. Today, that gap to the 200 dma sits at 11%, second biggest in 10 years. I see some interesting parallels to previous sell-offs and should a trade deal get done, look for China to jump in fairly short order. Trump has cleaned China’s clock. I remain doubtful that China wants to repeat the mistakes of Japan, from the 80’s and 90’s. Lets hope not; Japan saw 75% losses in their stock market and a 19 year bear market in real estate. China, get a deal done!

 

Speaking of Japan, while we have no holdings here, I found this chart interesting. It confirms for us that not all Asian markets have been weak. Japan’s Nikkei is up 12% from the March lows and less than 6% away from new all-time highs.

 

 

OIL

Below we see a clear cut pattern of higher highs and higher lows. Based purely on technicals, I see a measured move to $100/barrel +. Fundamentally, the supply/demand story for oil could hardly be more bullish. And watch what happens to the price of oil once a US/China trade deal is done. I was bearish on oil at $100 (2014) and became ultra bullish on oil at $32 (2017). I’m as bullish today…at $70.41…as I was at $32.

 

 

HGX (Housing Index)

HGX resides some 6% below its 200 dma, and if you’ve been here for any length of time, you know that I do not buy stocks below their 200 dma. Still, the fundamental side of housing remains incredibly bullish. Again, the fundamentals override the technicals in the VRA System. In this chart, I do see a rounded turn higher developing. A break above 307 on this chart will confirm the (sharp) move higher. In other words, I may be early…but I don’t believe I’ll be wrong.

 

 

Precious Metals (Gold/Silver)

We own both gold and silver (I always recommend physical over ETF’s like GLD or SLV and I also prefer something like Gold/silver Eagles over numismatics). Below is a 5 year chart of gold. Yes, it remains in a well defined and bullish uptrend, from those late 2015 lows, but 2018 has been brutal to precious metals. The primary culprit has been a vey strong US dollar. But I believe the even stronger culprit has been a weakened China. From 2009 to 2014, China purchased more than 50% of the worlds commodities, from base metals to precious metals. Trade deal disputes have severely dampened China’s appetite. Again, I see a reversal in the near future.

 

 

Looking for BIG gains today in VRA Portfolio holdings. To sign up to receive our free daily podcasts visit VRAInsider.com/podcast.

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 14/15 years.

Also, Find us on Twitter and Facebook