Journal Archive

"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

Friday
Dec282018

The 1987 Stock Market Comparison to Today. Significant Lows Are in Place.

Good Friday morning all. I’ll repeat…December ’18 will be viewed as an aberration. A perfect storm of stock market negativity…90% of it structural/political…that marked significant long term lows. And we have some hard evidence to back it up.

First, I’ve been referring to this correction/bear market as the 2.5 month version of the 1 day 1987 crash. I lived and worked through the ’87 Black Monday and those that sold their positions on Monday would go on to forever view that as the single biggest mistake of their investment careers.

I watched as seasoned, 20–30–40 year stockbroker veterans, entered “market orders” at mid-day that Monday. Just doing whatever possible to get their clients OUT.

What a mistake. What they had no way of knowing at the time was that the floor of the NYSE was so overwhelmed by sell orders that anything sold at market on Monday would not receive a final fill price (confirmation) until 3 days later…Thursday. I’ve never seen more depressed and absolutely bewildered men, as they learned that their market orders had been filled at the “exact lows” from Mondays 21% crash.

By Thursday, when they got the awful news, the same positions that they sold…blue chip stocks all…had already recovered more than 1/2 of their losses. To make matters worse, by the end of 1987, the Dow Jones would actually close 2% higher on the year. Life-long careers were ended that week. Our firm was a morgue, for many months to come. Selling into a vacuum…like ’87 and like 12/18…is/was a mistake.

Take a look at the following, from Troy Bombardier. Like ’87, the S&P 500 just fell more than 1.5% for 4 consecutive days…it then rose more than 5.8% over the next 2 days. From 1927 on, this has occurred just 2 times. 1987 and 12/18. And like ’87, multi-year lows are likely in place, today.

This is the same chart that we’ve focused on since the Christmas eve capitulation, when the S&P 1500 reached its most oversold levels in the history of the S&P 1500 (1500 largest co’s in the US). As we wrote at the time, this is exactly what capitulation looks like…42% of all S&P 1500 stocks hit a 52 week low, this Christmas eve. But its what happened next that we want to key on; following the 2011 lows (37% at new 52 week lows), the S&P 500 began a move that would take it 105% higher. Then, following the 2016 lows (34% at new 52 week lows), the S&P 500 began a move that would take it 55% higher.

Importantly, yesterdays trading gave us exactly what we wanted to see. A big, near 900 point move higher in the DJ (from -630 to +260), and it took place with new 52 week lows putting up MUCH better readings of just -3% on the day. This was and is my most important market internal. It looks very much to have marked the lows.

Now, take a look at the S&P 500 percentage of stocks below their 200 dma. On Christmas eve, we hit the 3rd lowest reading on record, with just 12% of S&P 500 trading above its 200 dma. History tells us that the previous 3 low readings also marked important capitulation in the stock market.

By no means are we out of the woods. Should we retest and break the Christmas eve lows, then we have real trouble on our hands. I see the probability of this now as “extremely low”.

The smart play is to continue to use dips. Buying the dip is the only move that makes smart money sense, based on my 33 years of doing this and the historical data that tells us this goose was way too overcooked.

Like 1987, once the lows were in place, the gains that followed were superb. That’s our stock market, today.

Podcast

Lastly, we recorded an important podcast yesterday, where we got into the following topics

1) December will be remembered as an aberration. A mistake, fed by hedge fund forced liquidations, computer driven sell programs, a hostile Federal Reserve and an air pocket of selling. The Dow now has a 24,300 magnet tied to it (minimum target). 50% retrace. Buy the dips.

2) Dramatic reversal higher yesterdat…from a technical point of view it confirmed Wednesday’s reversal and 1080 point move higher (big). Again, buy the dips.

3) The internals did just what we were looking for yesterday. New 52 week lows, in particular.

4) Best looking sectors for the deep value investor; housing, financials and emerging markets/China. Each is trading at “recessionary levels”.

5) and finally, should we ever see the Fear & Greed Index hit 2 again, sell all of our worldly possessions and buy index call options.

8/12 VRA System Screens remain bullish.

https://soundcloud.com/user-640389393/vra-podcast-kip-and-tyler-herriage-daily-investing-podcast-dec-27-2018

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

Kip

Experience the Vertical Research Advisory free for 2 weeks!! For a limited time we are offering a 2 week free trial to the Vertical Research Advisory, visit vrainsider.com for more details.

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

For our latest free updates tune in to our daily VRA Investing Podcast atVRAInsider.com or subscribe to our free blog at kipherriage.com

Also, Find us on Twitter and Facebook

Thursday
Dec202018

VRA Update: Fed Rate Hike. J Powell Owns a Dubious Record. Fear and Panic. Blood in the Streets.

Good Thursday morning all. As expected, J Powell’s Fed hiked rates to 2.5% yesterday. The DJ had hit an intraday high of +330 just moments earlier…then Powell started talking…. -500 DJ within 30 minutes, before closing -351.

Powell said two things that sent the markets lower (850 point swing in the DJ):

1) Going forward, he pegged US GDP at 2% to 2.5% (‘19). It sounded very much as if that is his preferred target…not the 3% to 4% to 5% that Trump is targeting.

Who needs more and better paying jobs? Who needs wage increases? Powell sounded very much like an ivory tower policy wonk that is out of touch with the reality of everyday Americans.

2) Powell made it clear that the Fed’s $50 billion/month runoff of Fed holdings will continue, apparently regardless of how the economy reacts.

J Powell now has the unique distinction of having the equity markets sell off every time he gives an FOMC speech. Stocks have a well established pattern of moving higher during FOMC Fed Chair speeches…but Powell has sent the markets lower, each time.

Having said this, Powell got a lot right too. The US economy IS strong. The Fed does need to continue to reduce its balance sheet, which reached $4.5 trillion under Obama. And Powell’s Fed did reduce expected rate hikes in 2019 to two, from three, while also mentioning that even those hikes would be data dependent.

What’s the Wall Street/social media whisper conspiracy theory (it’s actually much more than a whisper)? This tweet sums it up pretty well. The deep state Fed, hard at work. Fear of the unknown takes over.

VRA Market, System Update

The VRA Investing System sits at 8/12 Screens bullish. We stand by our call yesterday that a sharp move higher is coming. Late last night we got the latest from the Fear and Greed Index…a reading of 4. This is the lowest reading in history. All time lows.

Combined with this weeks AAII Sentiment Survey readings (24.9% bulls and 47.3% bears), one thing we know for certain; investors are in full on panic mode. Blood in the streets, a fact that was confirmed last week by all time record weekly fund outflows of $46 billion.

As you’ve seen us discuss this week, at minimum we are due for a counter move higher. A significant one. Thats exactly how I see this year wrapping up. The VRA Market Internals from this move higher will determine what happens next.

Also, consider that the Russell 2000 is already down 25%. The S&P 500 is down 16%. Bear markets are defined by 20% moves lower….we’re there folks…assuming it stops at 20%. Again, I see us as being there, today.

And this; assuming we were to actually have a recession, according to Barrons banks stocks (on average) fall 31% (peak to trough) during a recession. As of yesterday, large cap banks/brokers are down 32%. Again, we’re there.

And this tweet from Dave Bergstrom (another good follow) is most interesting. SPX futures closed at the bottom 30% of their daily range for the 5th straight day. This has happened just 3 other times. As you can see, following each of these, the markets have roared higher. Another solid example of “extreme fear”.

And this from Bullmarkets.co. Yesterday the VIX actually fell, while the S&P 500 dropped 1.5%. Historically, this is a harbinger of sharp falls for the VIX (which is a major market positive), with the “average” decline in the VIX over the next year of 44%.

And my tweet from last night. Below is the chart of gold from 2006–2008, just as the housing crisis was kicking off and financial panic was nearing. Gold did its job as a predictor of systemic issues to come, rising from $500/oz to $1000/oz, a 100% move higher. But today, gold has risen just 8% since August. Does not mean that it won’t spike higher from here, just that as of today, gold is not predicting a systemic issue is on the horizon.

As a reminder from yesterdays update, all 4 broad market US indexes are now at “extreme oversold” levels. Again, time after time, we see panic occurring in sentiment and technicals. While at the same time, the US economy continues to expand, rather than decline.

And here’s a positive to keep in mind. To date, for ’18, a record $800 billion in share buybacks has already occurred. But from corporate commitments, we know that another $300 billion remains left to be bought back, which will take the record number of buybacks to $1.1 trillion this year.

I believe we are on the cusp of a 50% retracement from the current move lower. This would take the DJ back to roughly 25,000 (closed at 23.323 yesterday).

In our next update we’ll get into VRA growth stocks…they are primed for great things in ‘19.

Until next time, thanks again for reading…

Kip

Experience the Vertical Research Advisory free for 2 weeks!! For a limited time we are offering a 2 week free trial to the Vertical Research Advisory, visit vrainsider.com for more details.

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

For our latest free updates tune in to our daily VRA Investing Podcast atVRAInsider.com or subscribe to our free blog at kipherriage.com

Also, Find us on Twitter and Facebook

Thursday
Dec132018

VRA Update: VRA System Market Internals, Pattern Change. China Outperformance Continues. Investors in Extreme Fear.

Good Thursday morning all. While US markets gave up more than half of their gains yesterday, with the DJ closing +157 (from 450 pt highs), we did see a pattern change. Maybe an important one.

Check out the internals from yesterday. Better than 2–1 advance/decline and a big 3–1 up/down volume. For our markets to find solid footing and have an opportunity to regain their 200 dma, its important that we have multiple days of positive readings, at least somewhat as good as these.

 

 

Bottoms are messy but the internals continue to improve (by just a bit). Our pattern of higher lows for the years is still intact but some work to do to get back over 200 dma.

Which is my one primary concern about this market. The longer we remain below the 200 dma in our broad market indexes, the more emboldened short sellers will become. Watching closely.

Emerging Markets

We’ve also said consistently that the US-China trade war is not actually a trade war. It’s always been about China opening their markets, legitimately, to the entire world. Long term, both the Chinese people and the entire world will thank Trump. One man…with guts apparently made of steel…all American, through and through. Thank you Mr President.

 

 

Asian and emerging markets continue to recover. We saw solid, 1% + gains across the board earlier this week. Below is the updated chart we’ve been focusing on; FXI (China ETF) vs SPY (S&P 500). The outperformance of FXI since mid-October is striking. BTW, FXI is now just 5% below its 200 dma.

 

 

Investor Sentiment

An important component of the VRA Investing System is sentiment, and man is it ever bearish today. This post from the fat pitch blog makes the point well. Market timers are as bearish right now as at any point in history.

 

 

Our tried and true sentiment indicators hit deep into “fear” mode…another sign that the sell-off was coming to a close. The lowest reading I can remember seeing (ever) was 5. But todays reading of 9 tells us that theres “blood in the streets”. We know what that means…

 

 

If you’ve been here for a while, you know that we warn you when the markets are hitting extreme overbought/oversold and when investor sentiment reaches exuberance/fear. We took a combined 135% in net profits in the first quarter of this year for just that reason (AAII hit 60 and our momentum oscillators hit extreme overbought). We are contrarians. When everyone is going right, we want to go left. Lemmings, we are not.

If you’re bearish, you’re in the big majority. We do not want to be part of this majority.

 

 

Below is a 2 year chart of the DJ, but its this years trading we want to look at today. For ’18 we’ve been stuck in one big trading range, from 23,500 to 26,500. Like a ping pong ball, we’ve bounced back and forth all year.

Lets take a closer look…I continue to believe the technical positives outweigh the negatives.

1) Sell side volume pressures have declined.

2) Both RSI and MFI have continued to improve, even as the market declined.

3) While stochastics never reached heavily/extreme oversold on this last decline, I’m good with that. The Santa Claus rally was due to kick in…I believe the move higher extends.

 

 

As we’ve been discussing here, over the last 3 weeks (even as the markets have taken a hit) relative strength in important areas began to improve. One chart we focused on last week was the semiconductors. With the DJ down earlier in the week, the semis went green. What led the way down is now leading the way higher. We want to see tech lead the way out of this correction.

 

 

Speaking of relative strength, gold has been trading exceptionally well and is now approaching its 200 dma for the first time since June. Short term, its reaching overbought levels, but with the FED about to cease rate hikes and the US dollar topping and reversing, this bodes very well for gold and the miners.

 

 

At the heart of the global bull market to come will be the worlds transformation from globalism to populism. Its occurring everywhere we look…massive long term positive. And we’re getting good news again on the US-China trade war (it’s not), as China continues to bend to the will of one man…DJT.

 

 

Until next time, thanks again for reading…

Kip

Experience the Vertical Research Advisory free for 2 weeks!! For a limited time we are offering a 2 week free trial to the Vertical Research Advisory, visit vrainsider.com for more details.

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

For our latest free updates tune in to our daily VRA Investing Podcast at VRAInsider.com or subscribe to our free blog at kipherriage.com

Also, Find us on Twitter and Facebook

Friday
Dec072018

VRA Market and System Update. In Memory of Pearl Harbor. November Employment Data Soft. NewsMaxTV Interview.

Good Friday afternoon all and what a week it has been. Markets were closed this Wednesday for the DC memorial of former President George HW Bush, and today we remember the attack on Pearl Harbor and the 2400 American lives lost. I had not seen the video below until today. If you’ve visited the memorial site in Hawaii you know what a moving experience it is. Thank you to all of our military veterans, past and present, and to those that made the ultimate sacrifice. We’ll never forget you.

https://twitter.com/ArmyChiefStaff/status/1071030062839848960

The November jobs report is out, with a slight miss to estimates of 155,000 jobs created and an unemployment rate of 3.7%. As far as the markets are concerned, it looks like a Goldilocks number. DJ Futures were -180 this morning…went positive... now back down this afternoon.

The furious rally higher yesterday, from -800 to -78 at the close, came on the backs of the news we’ve been expecting here, as the WSJ broke insider news from the FED that they will take their boot off the threats of the US economy and will “review their previous rate hike plans, going forward”.

We’re still likely to get this months hike…but next year is a different story. The pattern of “higher lows” we’ve been talking about here is still intact. We look to have just had a double bottom.

And this news was barely covered yesterday…doesnt fit the MSM narrative. Real progress is being made between the US and China. Obviously, a big plus for US and global markets.

 

One of our biggest macro themes has gone like this; the global reset occurring today…from China trade and business policies to the global transition from globalism to nationalism/populism…is a MAJOR long term positive for both the US and global economies/markets.

This reset is setting the stage for a global boom, with the US leading the way. This is a fundamental reason that we have remained positive on the markets, along with readings from the VRA Investing System, which today sits at 8/12 screens positive (gotta get back over 200 dma in our major averages).

TV Interview with Wayne Allyn Root

Last night I had the opportunity to go on WAR NOW with Wayne Allyn Root to discuss this weeks volatility, to get my full take tune in here. My segment begins at 23 Minutes

https://www.newsmaxtv.com/Shows/The-Wayne-Allyn-Root-Show

Bearish sentiment

After Tuesdays 799 point loss in the DJ the bears seemed to come out in full force. The culprit (according to MSM) is the arrest of Chinese tech behemoth Huawei CFO in Canada (with extradition requested to the US). The comparison being made is this would be the equivalent of Apples CFO being arrested by China….aka, not exactly great news for already strained US-China relationship.

Now, the bears are growling, calling Tuesdays 799 drop a “crash”…except that it was not, as I prove in this tweet from yesterday. Lotta fake news out there…

And this from Ryan Detrick, a solid follow with LPL. 3% losses in December are rare…but not the kiss of death by any stretch.

Its important that the DJ level of 24,122 holds…thats the 10/29 lows. We closed at 25,027 on Tuesday and 24,947 yesterday. Market bottoms are typically ugly and a bit scary. Thats what I believe this will prove to be.

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

Kip

Experience the Vertical Research Advisory free for 2 weeks!! For a limited time we are offering a 2 week free trial to the Vertical Research Advisory, visit vrainsider.com for more details.

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

For our latest free updates tune in to our daily VRA Investing Podcast atVRAInsider.com or subscribe to our free blog at kipherriage.com

Also, Find us on Twitter and Facebook

Friday
Nov302018

The Psychology of Investing. DJ Technical Analysis, Bullish. Investor Sentiment, Extreme Fear. Housing is a Buy.

Good Friday morning all. What a week. The Fed admits they screwed up and the DJ rallies 1000 points for the week. The 10%+ correction that should never have happened. My mentors (RIP Ted Parsons and Michael Metz) taught me so much about the psychology of investing. The emotions of money…wow.

Ted and Michael also taught me the value of being a contrarian. When everyone is bullish, watch out below. When everyone is bearish, its time to buy. Simple, yes. Difficult, hell yes.

 

 

Dow Jones — Technical Analysis

As of today, only the DJ is above its 200 dma (day moving average). The 200 day is the bible for many/most technicians and trend followers. Its a key to the VRA Investing System.

Lets take a quick look at this one year chart of the DJ. Here’s what we see:

1) above the 200 dma (bullish)

2) Series of “higher lows” for the entire year (bullish)

3) RSI (Relative Strength) and MFI (Money Flows) have continued to trend higher, even in the face of the 10% correction. MFI has been trending higher since May. I find that most interesting…the buyers continued to buy.

4) Sell side volume pressure steadily declined into the correction. Again, highly bullish (thanks again Ted and Michael…they were big volume analysis guys).

5) MACD just flashed “bullish” yesterday.

 

 

Bottom line; the DJ has led the way higher. The DJ is made up of MANY co’s that would be impacted by a “trade war” (its not) with China. It appears the markets believe the worst is over….certainly the DJ is giving that signal. Now we need the S&P 500, Nasdaq and Russell 2000 to follow the DJ higher. I continue to expect thats just what we will see. China does not want to repeat the mistakes of Japan.

 

 

INVESTOR SENTIMENT

Below are this weeks sentiment surveys from AAII and CNN/Business. Both continue to tell us that investors are still at “extreme fear”, with AAII showing just 33.9% bulls and CNN/Business showing a reading of 23. As contrarians, we know what this means…its impossible to by low when everyone is bullish.

 

 

HOUSING IS A BUY!

I encourage you to read this piece about Blackstones views on US housing. Here’s the quote that sums up pretty much exactly my views:

“How do you feel about the residential real estate market in the U.S. right now. I’m still pretty positive on U.S. residential real estate. We like to look at the world in a simple way. So if you look at the data historically you would say we need about a million six homes being built in the United States. And I think to trailing 12 months we’re at a million 250.

That deficit is leading to the upward pressure in home prices. Now some people will say well we’re starting to see a little bit of a slowdown as people adjust to higher mortgage rates. OK. We saw that two or three years ago but ultimately the laws of supply and demand determine the value assets. And there’s a shortage of housing today in the United States. So I would generally be positive.”

https://www.valuewalk.com/2018/11/blackstones-jon-gray-bullish-us-housing/?utm_source=dlvr.it&utm_medium=twitter

MACRO PICTURE

Finally for this morning, a macro thought that I believe is important. One that I’ve heard no one else mention. Over most of this year, global equity markets have been battered. They dropped sharply after the January top…and then just kept falling…even as US markets recovered and moved higher.

I believe this recent correction in US markets was a “global capitulation”. The strongest always falls last. Now it important that US and global markets continue their recovery. Gotta get back over those 200 dma.

Capitulation bottoms are something that I’m very familiar with. My mentors teaching, once again. Here’s the key…the 10/29 lows MUST hold, or it invalidates my capitulation low theory. Just some food for thought.

Make sure and login to your VRA Members site to ensure you are positioned properly. And please sign up for our daily after market podcasts at vrainsider.com/podcasts!

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

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

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