"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"

Subscribe to our Blog!

* indicates required

Twitter: @kherriage

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

Thursday
Apr192018

Anatomy of the VRA Investing System. Crushing the Market. A Case Study From the Recent Market Correction.

The VRA System was built 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. We used the VRA System to book 150%+ in net gains from last September through January/February of this year, when we were stopped out. We avoided much of the pain from the 12–13% correction, as we went to cash on our broad market positions.

But all of that changed at the end of March. The VRA System compelled us to go long, once again.

 

 

Anatomy of the VRA System

The VRA System combines fundamentals, technicals and investor sentiment…the 3 most important elements of investing (in any/all asset classes).

Lets first take a look at the technicals. As we’ve covered here often, the double bottom we’ve just experienced is highly bullish and will serve as a springboard for the next major advance.

Here’s the 1 year chart of the S&P 500, the largest and most important stock index on the planet. Compare the points below (circled) to my comments.

1) While not a perfect double bottom (the Dow Jones was close to perfect), we see a .10% difference between the February and April lows. Double bottoms (that hold) are ultra bullish. This was, in fact, a “higher low”. Most bullish.

2) Importantly, the lows also occurred on declining volume. If volume had increased on the second bottom, it would have almost certainly sent the S&P 500 to new lows. If you see someone that says “volume does not matter”, know that you are listening to an investing charlatan. Volume analysis is a most important tool…one that I have used for 3 decades in technical analysis.

3) The S&P 500 held the 200 day moving average (dma) on each test. Had the 200 dma not held, we would likely be short the market today…rather than long and strong.

4) RSI (Relative Strength) never broke 30. Instead, it held this most important level twice…another double bottom retest.

5) MACD flashed a much less severe reaction to the second sell-off….another positive divergence that told us the lows were likely in place. It’s own “higher low”

6) Stochastics flashed a double bottom “heavily oversold” reading of 83%, on both occasions.

7) MFI (money flows) flashed “higher lows”….the upslope from the 2/9 lows told us that smart money investors (thats us) believed the lows would hold and it was time to “buy aggressively”…just as we did.

By learning the 3 most important sides of smart money market analysis (fundamentals, technicals and sentiment), for the rest of your investing days you will be able to apply this knowledge, enabling you to time the markets as well as individual stocks/ETF’s.

Heres a segment from our late March, early April VRA Updates on the fundamental reasons that we have remained bullish. It covers all of the bases.

As you know, I am bullish on the broad market (I’m even more bullish on our VRA Portfolio). We look to have double bottom lows in place, just as Q1 earnings are about to kick in. That’s just one of many reasons I’m bullish.

Should the lows be in place, those that are bearish on Trump, and out of the markets, will be forced to begin buying back in at higher prices. Those that are short, will be forced to cover (and then go long as well). And those huge numbers of put option buyers will be forced to sell those puts and then buy calls.

We look to be set up beautifully for a rocket-ship like move higher. When all 3 components of the VRA System line up (the fundamentals, technicals and investor sentiment), we must be long. Period.

We will look back at this time frame and realize a golden opportunity was staring us right in the face.

Major VRA System Points of Interest:

1) By Wednesday of next week, more than 150 S&P 500 co’s will have reported earnings. 90% of all earning reports will be out over the next 3 weeks. Earnings will be sensational…I expect CEO comments about Q2, Q3 and Q4 earnings will be rock solid as well.

2) The forward P/E multiple on the S&P 500 is now 16.3. Just 18 months ago it was 23. 12 months ago it was 20. Do you see a trend here?

Earnings growth of 15% is driving down P/E multiples to their lowest levels in years. Value investors have no choice but to find this overwhelmingly bullish…even the Trump haters must admit that an earnings revolution is taking place. US economic strength is powering ahead…and tax reform is only now making its way through the system. If you are underestimating the power of Trumps tax reform, you will likely miss one of the quickest surges in US economic growth, in history.

3) Once earnings are announced, reporting co’s are allowed to continue their share buyback plans. According to SEC rules, there is a roughly 5 week period (before earnings are announced) that prevents co’s from repurchasing their own stock. The market has missed this demand. Remember, it’s estimated that total buybacks in ’18 will top $850 billion, an all-time record times 15–20%.

4) Look for mega sized mergers and acquisitions to be announced during the 2nd quarter. $30 billion to $80 billion + in size. Again, tax reform is the reason. Some $4 trillion is headed back to the US financial system.

5) Finally, according to the VRA System, investor sentiment continues to flash “buying opportunity”. Bearish sentiment is at extreme fear levels, while the markets remain in “confirmed bull market” status. On Friday, the TRIN closed over 2.5 for just the 3rd time in the past year. This signals “investor panic”. As contrarians, we MUST use this as a buying opportunity.

— -

Late last night we got the latest investor sentiment readings from AAII. Looks very much like the two year lows in sentiment, from late March, matched up exactly with the correction lows.

No system is perfect. But I’ll put the VRA System up against all comers. I believe the results speak to this. Combined with our small cap VRA Portfolio holdings, in my view, we could not be positioned better today.

The VRA Portfolio has 2400%+ net gains since 2014.

Until Next time, thanks for reading…

Kip

Tuesday
Apr172018

Market Melt Up is Here. My Top Stock Picks of all Time. Nothing Beats Fundamental Research.

It appears that the shorts have been trapped. They’re on the wrong side of the market and must now cover their shorts and go long. This is usually a process that plays out over weeks, but the process should provide a strong underpinning for US stock prices going forward. Combined with strong earnings, a rocketship like move higher looks to be directly ahead.

Combined with the many reasons that I remain bullish, the odds remain high that the 2/9 lows will be “cycle lows”, meaning that any pullbacks must be bought.

Take a look at how the S&P 500 has performed when investor sentiment has reached “extreme bearishness”, as it sits today:


 

The melt-up looks to be here. As of writing this DJ up +250 points. The shorts are about to help us make money (as they cover and then go long as well).

Stay long and strong…looks like a big move higher is here.

My Top Stock Picks of All Time

The following is from a VRA Update from around this time last year. Making 1000% returns is the best way to fund our retirement accounts.

“VRA Update (from March 14th, 2017)

I found some interesting notes in my research. The following are my best all-time stock picks (in chronological order). On each of these, know this; a) I did the original research and b) I had my clients in them “heavy”:

One: Ultra Petroleum. This was my first monster grand slam. Most of you know this story as I’ve shared it often. Recommended at .15/share and it went to $200/share (in roughly 8 years). But yes, I did sell “most” of my own shares by $7. I felt super smart at the time…not so much today…but I had many clients in Ultra as it soared towards $200. (Ultra was the #1 performing US stock of the decade). $10,000 turned into more than $5 million in 8 years.

Two: JB Oxford (one of the first online brokers). Had everyone buy it below $1/share and within a year it went to $23. Hand to God, we sold all of our shares in the $22 range. 2000% Profits.

Three: Dynegy (energy provider). A local company that I got to know pretty well. Following the Enron scam, many believed that Dynegy would follow with their own implosion. The stock got hammered from $110/share to .50/share…but I began buying and recommending it aggressively at .75/share. In 8 months, we sold our positions in the $6 to $7.50 range.700% Profits

Four: Ivanhoe Mines Following the onset of the 2008 financial crisis, I began recommending Ivanhoe in the $2’s. In roughly 11 months, we sold our positions at an average price of $22. 1000% + Profits

Over my 33 years in the investment industry, I’ve built my business by ferreting out 10–1 return, home run growth stocks. Frankly, if more “investment gurus” paid attention to research fundamentals, instead of over the top marketing nonsense, they might be able to pick winners like this as well.”

Until next time, thanks again for reading…

Kip

Friday
Apr132018

VRA Update: Trump Bull Market, Phase 2. Q1 Earnings, Buybacks, M&A Take Center Stage

Good Friday (the 13th) all. Other than avoiding black cats, I have no superstitions for today. Instead, following yesterdays sharp move higher, DJ futures are ramping higher again this am, following dynamite earnings from JP Morgan and Citi, kicking off what should be the best quarter for US earnings in more than a decade. Possibly two.

I’ll repeat; if you’re not long, you are almost certainly wrong.

I continue to be stunned by feedback from the bears. They see things in the charts (and stars even) that simply do not make sense to me. We have what looks to be a MAJOR double bottom low in place…and a highly bullish technical backdrop…that tells us that we MUST be in this market.

I’ll draw your attention once again to my late night update from Tuesday:

“If my theory is correct…if we are in fact living through a mirror image of the Obama bull market…then we likely know which segment of the country is OUT of the stock market. We also know which segment of the country is short the market/buying puts on the market.

Half the country is bearish. I believe that half is on exactly the wrong side of this bull market. A bull market that could take the DJ to 40,000 by the end of 2020.

Fear…and lots of it…is everywhere. As contrarians, we know what to do.

I’m a Trump fan. I am hyper bullish on the US economy and the future for US stock markets. I believe we should use the mirror image of the previous bull market to stay very long and very strong. The VRA System is highly bullish…right now. We must be greedy when others are fearful…especially when what they are most fearful of is President Trump.”

I well remember the pain that I felt being on the wrong side of the bull market during the second year of Obamas first term (because we nailed the 3/09 final bear market lows within 5 minutes). But in that second year, and following the flash crash lows, it was very hard for me to even consider being bullish. I believed that Obama might crash the US economy. But I was wrong…the markets kept rising…ultimately forcing me to become bullish as well.

Importantly, this is exactly where the Trump bears reside today. They believe that Trump will send us back into the stone ages. That Trump is the worst thing since the Bubonic plague. They cannot imagine being bullish on either the US economy or on stock prices.

Trump bears are heavily short. They own a sh*tload of puts. That’s what makes a market, of course, but thats also what will be a major driver for higher stock prices going forward, as they are ultimately forced to cover their shorts and then go long as well. Just as I was forced to do back in 2010/2011.

Now, its time for share buybacks (in massive quantities), plus record setting levels of M&A…all driven by Trumps historic tax reform…to push US markets to new all time highs, yet again.

Since the election, the S&P 500 is up 25%…the DJ is up 33%…and Nasdaq is up 37%. We’ve now had our 10% correction…that is behind us…the train is now leaving the station. FOMO is about to return, in a big, big way.

Now, are you prepared to be stunned? Check out the latest sentiment readings from AAII. 26% bulls and a BIG 42% bears! As contrarians, we know what this means….BUY BUY BUY.

Combined, based on everything that I see and readings from the VRA System, my year end target for the DJ remains 30,000 (23% higher from here).

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

Kip

To receive access to our full VRA Membership and daily updates(including our VRA Portfolio with buy and sell recommendations, featuring 2400% net gains since 2014), sign up to receive two free weeks from the VRA at www.vrainsider.com/14day