"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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Twitter: @kherriage

Thursday
Jun072018

VRA Update: Nailed it. Steroid-like Move Higher, Melt-up. VRA Market/Portfolio Review. 68% Average Gain on All VRA Buy Recommendations.

Good Thursday morning all. Another big green day in US and global stock markets as bears capitulate, by covering their shorts, and then add to the already surging buyside volumes by then going long themselves. This is the nature of how a big move higher in the stock market occurs…this one looks to be just getting started.

VRA Market/Portfolio Update

Another big move higher in the markets yesterday. If you’ve been able to join us on our end of day podcasts (sign up at vrainsider.com/podcast), you heard the following: yesterdays new highs to lows hit 859–172. Stunning broadening action. It also marked back to back to back days of 5–1+ readings.

Last time we saw this? Early January…just prior to a 1300 point move higher in the Dow Jones.

But…VRA System readings are getting stretched. Take a look:

Nasdaq: 97% overbought. Extreme readings…however, MFI and RSI still have a ways to go (avg of 73%).

Russell 2000: 96% overbought. Extreme as well…however, MFI and RSI have a ways to go (avg of 72%).

S&P 500: 92%. Extreme as well…however, MFI and RSI at just 50% avg.

Dow Jones: 69% overbought. Room to run. MFI and RSI 46%. The DJ…the most trade-centric of indexes…is in fine shape, which helps to explain why it is now leading the way…playing catch-up.

Bottom line: while I fully expect the move higher to continue, this is almost always when investors get greedy…when they make mistakes. No need to sell…no need to be overly concerned…but absolutely the time to pick our spots more carefully.

Note: Trump is KILLING it on trade. Wilbur Ross, Commerce Secretary and self made billionaire himself, is the freaking man.

We’re seeing some serious broadening patterns take place. There is no more bullish a market. But no…we’re nowhere as cheap as we had been.

This brings us to GDX (Miner ETF). And this chart.


From the initial breakout higher, which the VRA nailed pretty much to the day back in January 2016, GDX went on a tear, rising some 145% over the next 8 months. Then, it crapped out. Hit a big wall, which I completely missed. The result has been the 18 month sideways pattern you see below.

But its not all bad. This sideways action is one of the biggest coiled springs you’ll see. Should it break higher, which I fully expect, we’re looking at a measured move to something like $50 on GDX…or 120% higher than todays $22.50.

But first, we need a move back over the 200 dma. It’s close…just .25 away. Following that, and this will be the real kicker, we want to see GDX top $25/share. When this happens, look out above. And yes, these moves need to take place on volume as well.

Next up, take a look at this chart of oil (USO, Oil ETF). If you like channel trading (I do) and if your like probability investing (I do), oil looks like a screaming buy here. If you wanted to play this for a move higher you may want to use OILU (3 x Oil ETF). OILU has collapsed 25% in just 2 weeks. If my global reflation trade theme is accurate, and with the US dollar looking top heavy (oil is priced in USD), OILU could be an interesting short term play. We’ll take a closer look a bit later.

As a reminder, we use the VRA System to ensure we are on the right side of the market, and in the right sectors, primarily through the use of leveraged ETF’s. Leveraged ETF’s give us the greatest bang for our buck (up to 3 x times the move in broad market ETF’s) while removing the risks of owning a single large cap stock, where anything and everything can go wrong.

However, instead of putting on a new leveraged ETF position…like OILU (3 x Oil ETF)…we will be a bit more patient. We use leveraged ETF’s profit from broad market moves, while our small cap growth stocks give us our opportunity for 100%…300%…1000% moves higher. We’re watching a couple of additional small caps that could be added next. So, we’ll keep our 3 leveraged ETFs in the portfolio now without adding a new position here.

Our goal is to own 10–12 positions, max, giving us the ability to own larger position sizes than would be the case otherwise. This is how we crush Mr Market. Plus, once PM’s and the miners break out, we want to have room to add more back to the portfolio. This is my thinking.

Until next time, thanks again for reading..

Kip

Thursday
May312018

VRA Update: VRA Investing System. 33 Years in Development. Crushing Mr. Market, Year After Year.

A big recovery day in the markets yesterday with 1.5% moves higher across the board and dynamite market internals including 603 fresh 52 week highs to just 145 new lows. The VRA System continues to recommend buying dips, with 9/12 VRA screens bullish.

As we grow and welcome new VRA Members each month it’s important that we’re all on the same page. That means understanding the VRA Investing System, ensuring that we are positioned to crush Mr. Market.

VRA Investing System; 33 Years in Development. Crushing Mr. Market, Year After Year

After my first few years on Wall Street, reality hit me right between the eyes. Fostered by a series of enlightening conversations with my first mentor (RIP Ted Parsons) I discovered that Wall Street analysts primary objective was not to make my clients money. The primary objective of Wall Street analysts was to make the firm money, working hand in glove with investment banking, where the serious money was (and is) made for brokerage firms.

Once this reality set in I had two choices; quit and find another profession I could believe in or find a way to make money for my clients. The VRA Investing System was born out of that decision.

The VRA system was built to uncover the best investments (at the best time) and to remove emotion from my investing. It was built to have us out of the markets in times of turmoil (or short) and in the market when the bull wants to run.

The VRA System combines fundamentals, technicals and investor sentiment…the 3 most important elements of investing (in any/all asset classes). We use broad market positions, employing leveraged ETF’s for maximum returns, combined with my ability to ferret out world class, small to mid-cap “growth stock, story stocks” for the opportunity of several hundred percent to more than 1000% in profits.

I rarely recommend more than 10–12 investments at any one time. If you want to own 30–40–50 stocks, buy an index fund. While I am as aggressive as they come, it is a “controlled aggression”; I know the companies that I recommend. I know their management teams, I know their business model and I know how to pick winners. Period. I also put my own money in the stocks that I recommend. Anything else would be Wall Street-like hypocrisy. Still, my investment style is not for everyone. I would never recommend placing all of your investment dollars into VRA Portfolio buy rec’s. However, for your “risk capital”…those funds that you put aside to make your retirement account everything that it could/should be, the VRA has been designed to get that job done.

I encourage you to resist the temptation to go “all in” on just 1–2 VRA Buy Rec’s. I only recommend 10–12 stocks at a time for a reason. Diversification is a hallmark of successful investors and reduces the risk of becoming emotional about our positions. “Loading up” can also lead to large daily/weekly swings in your portfolio…the kinds of swings that can lead to oversized losses. Emotional investors tend to “buy high and sell low”, or just the inverse of what we’re looking to accomplish.

For our broad market positions in leveraged ETF’s, the VRA System employs “trend following” methodology. The game plan with trend following is to capture 80% of the move, in our investments of choice. It’s not about calling market tops and bottoms (although the VRA has caught NUMEROUS significant market turning points over our 15 years). Instead, we want to capture that middle 80% of the move…that’s our sweet spot…that’s where the most reliable and predictable profits reside. This makes the VRA System most important…its the major predictor as to whether a stock/sector/market is in a bull or bear market. It’s been my primary trend go-to for 30+ years.

The VRA System has 12 Propriety Screens. Today, 9/12 screens remain in bullish mode. 70% of the screens are fundamental and 30% of the screens are technical. Here’s the breakdown of my 12 screens:

This is how the VRA System works…in bull markets or bear. Sure, its MUCH more fun making money in a bull market; making money as we watch the US economy rock and roll and US stock prices soar. This, of course, is the market we are in today. Making money in a bear market means we’re forced to be “pessimists”. And who wants to be pessimistic? I’ve been a glass is half full guy my whole life…its highly likely that 90% reading this identity the same way…but it’s not our job to tell the market what to do, based on our emotions. Our job is to make money. Period. At least when it comes to investing.

We are quite likely the most unique investment advisory you’ll find, as our objective is simple; make money for you…our valued clients…as we crush the markets, month after month and year after year. The VRA has outperformed the S&P 500 in 14/15 years. Since 2014 we have more than 2400% in net profits. We are positioned to crush Mr. Market in 2018.

Investing Tenets and Observations of the Day

My mentors (Ted Parsons and Michael Metz, RIP) were smart, market savvy and most importantly, patient! Here are some of their favorite investing lessons…

1) “Don’t fight the tape, don’t fight the FED”. Yes, the FED has started raising rates…at some point the markets will have to deal with this…but the rising “tape” says we must remain bullish.

2) “The trend is your friend”. When the major averages are in confirmed bull market status (according to the VRA System), we want to be long. Conversely, in a confirmed bear market, we want to invest primarily from the short side. Today, if you’re not long, you’re wrong.

3) “There is no more bullish sign than an overbought market/stock that continues to rise”. This is exactly what we’re seeing today. Overbought markets that continue to rise. Highly bullish

4) “It’s not a stock market….it’s a market of stocks”. One of the best investing lessons my mentors taught me. There’s always an opportunity to make money, by focusing on both VRA fundamental & technical research. This rule is at the heart of the VRA System.

Until next time, thanks again for reading…

Kip

Thursday
May102018

VRA Update: All Aboard. Buy Signals Galore. VRA System Review. Sentiment Update

Good Thursday morning all. It's finally happening. The broad market and key leadership sectors are breaking out of a downtrend. Bulls, as we expected, are starting to regain control of the narrative. The train is leaving the station. All aboard. 

If you've been joining our (brief) daily after-close VRA Podcasts, you've heard Tyler and I discuss the "many" signs of a market that was clearly bottoming. The VRA System was pointing to a positive resolution...the fact that the lows were being put into place, with each successive day of broadening, positive internals. You can join us each day, after the close, by signing up here: vrainsider.com/podcast (you'll receive email notification when the podcast has been posted). 

You should remember this chart from the last 3 weeks in. It was the chart that mattered most. 



The big-cap S&P 500 and the small-cap Russell 2000 are now breaking out of this three-month downtrend characterized by a series of lower highs (but higher lows). That is now reversing. We see it reversing in charts left and right. Highly bullish. Yesterday, when the S&P moved into the 2,680 range (as seen above)...the key breakout from that downtrend ...the market spiked. The S&P has now risen nearly 100 points, and the DJ more than 1,000 points, since Thursday's lows.

February, March and April were tough for bulls, as a series of weaker economic data, inflation concerns, and debates about "peak earnings" had bears on the ascendency. No more. The VRA is long and strong.

Combined with our "growth stock. story stock" positions I will be surprised if the VRA Portfolio does not put up (at minimum) a return of 50% this year. We've beaten the S&P 500 14/15 years....we had a very nice 37% net gain last year....and if I can be so bold; I know no one that finds grand slam stocks more frequently than yours truly (I say that in all modesty, Mr market...the investing gods are not big fans of bragging).

Bottom line; 2018 will see the Dow Jones hit 30,000. I see it at 28,000 by the mid-terms. And no, Dems have no shot at winning back either the house or the senate...thats not meant to be a political statement...I simply no longer know what Dems believe in, outside of "Russia Russia Russia" and "Impeach Trump". 

Politics absolutely matter to the markets...only investing novices believe otherwise. This is why I follow DC and global geopolitics so closely. You bet, who the president is matters...it matters a great deal.

Final points: yesterdays 52 week highs/lows was 578-240. Thats big, back to back days of a market surge, internally. We've now seen 13-18 days with positive internals. Thats BIG. The VRA System now shows 10/12 screens bullish. The highest in two months. 

We'll wrap this morning with last nights AAII Sentiment Survey. Bulls at 33.5%, bears at 25.5% and neutral investors at a big 41%. 

Folks, with the markets just a few % points below their all-time highs, this survey (that I have followed closely for 30 years) shows 66.5%of investors either bearish or neutral on stocks. Let that sink in. As contrarians, we know exactly what this means.

Until next time, thanks again for reading...

Kip

Thursday
May032018

VRA Update: May to October Seasonality. Fearful Investor Sentiment Readings. Q1 Has Been Nothing Short of Sensational.

Yesterday’s late day selling pressure was interesting, as the Dj and S&P 500 closed .81% lower and Nasdaq .40% lower but the Russell 2000 (small caps) actually put in a positive .30%.

But here’s what really caught our attention; the internals were actually flat on the day. Volume, new highs/lows and advance/decline came in a net flat…thats a win for the VRA System. This makes 9/13 days that the internals have been positive, which makes the fact that the S&P 500/DJ has been negative 8/13 days even more interesting.

But here are the facts; May-October is the worst 6 month period of the year and essentially ALL stock market gains have occurred between November to April. The following is from the Stock Traders Almanac and my friend Yale Hirsch:

“Think about this: Every single point made in the Dow Jones Industrial Average from 1950–2016 was made between November 1st and April 30th. That’s an astounding statistic. The Dow gained 20,790.89 points during just these 6 months over 67 years. The remaining May-October months actually lost 64.71 points.”

So no….I’m not blind to the reality of May-October. However, with what you’ll see next from investor sentiment and US corporate earnings, the VRA System still sees little to no chance that a major bear market move lower is in front of us.

Sentiment

Here’s last nights readings from AAII. Bulls at just 28.4% while bears sit at 30.2% and neutral investors at a huge 41.4%. To put these readings in a different perspective, with the broad market indexes just 5–10% below their all-time highs, 71.6% of all investors are bearish/neutral. Folks, I’ve followed this survey since the late 1980’s and while anything is possible, major market declines do not typically occur when investors are out of the market. As a contrarian, these readings tell us that the level of pessimism for stocks is high. That’s rarely a bad thing for the stock market, over the medium to long term (but we’re also not at “extreme fear” readings).


 

Here’s the weekly sentiment reading from CNN/Money. As of yesterday, this survey sits at “fearful”.


But more than anything, here’s the primary reason I remain optimistic. Thanks to Earnings Scout for these great visuals on corporate earnings and revenue growth of the last 3 years. With 75% of all S&P 500 co’s reporting Q1, earnings are growing by an average of 24.6% with revenue growing by an average of 9.7%. Stunning…

 

Both the S&P 500 and DJ are approaching their 200 dma, once again, while the Nasdaq and R2k remain some 4–5% above their 200 dma. We want to see these important moving average levels hold. They’re important for one primary reason; they are closely watched by so many.

Reasons to remain bullish

The VRA System remains bullish, with 7/12 screens positive. Being that May is the month that has some investors on edge, as over the last 50 years its been the 3rd worst month. A bit more sideways action may be in order but unless sell-side volumes begin to pick up and the broad markets break through their all-important 200 day moving averages, we must remain bullish.

While European and Asian economies are showing clear signs of showing (as Trumps “America First” policies continue to reduce their US exports/income), the US economy is on incredibly sound footing.

Here are the 3 US economic metrics that matter most:

1) Growth: With earnings growing at a 20%+ annual rate, US growth is in “stunning” mode.

2) Valuation: with a forward p/e of 16, the S&P 500 is now trading at a level that could even be called “cheap” historically, when factoring in revenue and earnings growth of 10–20%/year.

3) Sentiment: two sentiment points matter most. a) consumer sentiment is at a 17 year high (based on late April readings). Animal spirits are back. b) investor sentiment is currently at “fearful” readings. As a contrarian indicator, this bodes well for the markets short to medium term direction.

These 3 measurable metrics tell us that the markets/economy are in excellent shape. My target for 30,000 in 2018 may be a bit on the optimistic side, as it would imply a 7 month gain of 25% from current levels, but the most important point I could make here is that the short term, medium term and long term bullish trends remains “higher” on the VRA System. Sharply higher.

Lets see if a lower open can lead to a mid-day rally and a higher close. The market needs to break this pattern of final hour sell-offs.

VRA Podcast

Lastly, we hope you all have enjoyed the launch of the VRA Daily Podcast. If you have a specific market question or idea you would like to hear myself or Tyler discuss, just send them over. They’ll be out each day by 5PM EST and will be available on ITunes podcasts as “VRA” or you can always listen via vrainsider.com/podcast

Until next time, thanks again for reading…

Kip

Thursday
Apr262018

Earnings are Absolutely Crushing it. Biggest Day of Q1, Today. Higher Interest Rates Are BULLISH. Sentiment Update

A quick heads up; I’ll be on with the great Wayne Allyn Root tomorrow night at 7:30 PM EST (USA Radio- http://usaradio.com/). Please mark your calendars and join us. If my read on these markets is accurate, we’ll be talking about the strong close to the week for the markets, and yes, the likelihood that the lows are in place.

 

VRA Alert

There was one major issue that spooked me this week…that spooked everyone really…and that was the solid earnings release from CAT and then the absolute takedown in its share price that followed. We saw the same from Google earlier in the week and this is NOT the pattern that bulls want to see. Not close. Remember, it’s not the news that matters, its the markets reaction to the news that we care about. CAT’s reversal sent an ominous signal to investors…including me. But then, Boeing reported earnings yesterday and the flip scripted. BA opened $4 higher and then just kept going higher, finishing just off the highs of the day (+$14/share). Boeing’s price action sent a powerful signal to market watchers. A signal that said the chop of the correction should have a positive outcome and that rumors of “peak earnings” will prove to be a myth.

Then, just after the close, Facebook (FB) reported blow-out numbers and showed the same pattern (so far, that is) that Boeing did. FB opened $2 higher and as I write is trading up $12. Big time positive for the broad markets to see solid earnings result in sharp moves higher. I cannot overstate this.

Today, we get Amazon, Intel and Microsoft…to name a few…the biggest earnings day of Q1 so far.

Here’s the tally for Q1 to date. With 155 S&P 500 co’s reporting, 79% have beaten estimates on 27.5% growth. TWENTY SEVEN PERCENT EARNINGS GROWTH! Holy cow…and guess what folks, Trumps tax reform is just beginning to kick in. 21% corporate tax rate is here to stay. What I’ve found especially interesting is that 75% of all co’s reporting have also raised their full year 2018 estimates. This means they expect business to only get better. Again, peak earnings will almost certainly be a myth.

Now, take a look at each of these charts. What do we see? Each of the major indexes…S&P 500, DJ, QQQ (nasdaq 100) and IWM (Russell 2000)…are showing us two very important things:

1) each is on a pattern of “higher lows” (from the 2/9 bottom)

2) each decline is taking place on decline selling pressure, aka lower volume.

The chop of this correction has been awful. And no, it may not be over. But, if these patterns hold up (higher lows and declining volume), then we are very close to a major spike higher. A move higher that will break these descending trend lines and take us to new highs.

*** We’ll know the lows are in place when the markets open higher and then continue moving higher. With a strong close. This is the pattern change that we are looking for. ***

Of the 4 indexes below, R2k (IWM) is the best looking, followed by SPY and QQQ. This is where my focus is.

 

Finally, for those concerned about higher interest rates destroying the market, check this out:

 

The average move higher in the S&P 500 (as interest rates rose) since 1998 (5 cycles) has been 39.98%, over a roughly 2 year time frame. This confirms what we’ve discussed. The first stage of higher rates is a major positive for stock prices. Ignore the bears (on this point). Higher rates are exactly what we would expect to see in a rapidly growing economy. Highly bullish.

In the VRA Portfolio We have one broad market position; Once the VRA System flashes “all clear” we will look to add 1–2 additional leveraged ETF positions. Stay frosty. Again, it is highly likely that the lows are in place. Lots of bears to squeeze.

Finally, here are the weekly sentiment readings from AAII. Bulls at 36%, bears at 25% with neutral investors still in the lead at 37%. CNN/Money sentiment reading sits at 36 (fear). As contrarians, we know what these readings mean; we remain bullish.

Until next time, thanks again for reading…

Kip