VRA Weekly Update: Wall Of Worry Move Higher. How Serious is the Coronavirus?

Good Thursday morning all. Bull markets love climbing a wall of worry. Bull markets actually perform better when the fear seems greatest, another testament to the power of (contrarian) sentiment as market mover. Our current bricks in the wall? Trumps impeachment trial in the senate started this week (I know…yawning snoozefest). We also have a new China virus that took the Hong Kong stock mkt down 1.8% (not a yawner).

The coronavirus appears to be our new, and quite possibly legitimate, brick in our wall of worry. Fears that this could have the same impact as the SARS virus from 17 years ago or the Asian flu virus from 14 years ago, are beginning to spread. Chinese markets were down another 1.5% to 3% and European markets off .50% across the board.

More than anything it’s the fear of the unknown. When you hear news that two Chinese cities the size of Houston (or larger) have been quarantined, we are forced to pay attention.

This morning Marketwatch is out with a good piece on the impact of viral outbreaks on the markets. After some initial shocks, you might be surprised to learn that the bull markets of ’03 and ’06 continued moving higher (with 10–20% gains).

https://www.marketwatch.com/story/heres-how-the-stock-market-has-performed-during-past-viral-outbreaks-as-chinas-coronavirus-spreads-2020-01-22?mod=markets

We’re paying close attention….but officially, we will continue to treat (overbought) pullbacks as buying opportunities. And here’s what we’re on the lookout for…

The S&P 500 is hitting extreme overbought levels. Below is a 3 year chart of SPX. The 2 blue vertical lines mark the highest degree of OB levels we’ve seen since Trump was elected. The first (3/17) resulted in only a short pause, then straight up again. The second (1/18) we remember well….the Dow fell 3000 points inside two weeks.

We have yet to reach those same OB levels, seeing Barrons and Forbes headlines like these from over the weekend…along with Davos billionaires on CNBC that have now turned aggressively bullish (after hating the Trump Economic Miracle for 3 years) does tend to trigger our contrarian alarm bells.

While yes, we remain at extreme OB levels, we continued to see the reasons to be bullish again yesterday, wherein a mostly flat market new 52 week highs to lows came in at 581–68. These readings are building…getting stronger across the board…almost certainly telling us that (as Tyler likes to say) “new 52 week highs tend to beget more new 52 week highs”.

We’ll start getting concerned about the market when the internals begins to fade and when leadership starts to falter. 

Yesterday, our two primary leaders, housing and semi’s finished higher on the day. TXN (Texas Instruments) reported earnings (mixed) and INTC (Intel) reports after the close today. If the semi’s can continue to move higher, nothing is stopping this bull market. That’s our continued view…the techs lead the market and semi’s lead tech.

Internals and leadership…nothing matters more. It’s not more complicated that this.

The Dow Jones has a 30,000 magnet. We’re seeing lots and lots of short term traders calling for a top here. When they’re forced to cover their shorts, that should be enough juice to get us to 30k, similar to the Tesla short squeeze we’re witnessing today. 

Quick Hitters:

1) Oil has fallen out of bed…yes, due in part to coronavirus fears…but we see this as a technical correction that should be bought. The global economy is in the early stages of “significant” economic recovery…oil (and commodity pricing) will benefit greatly.

2) We continue to like precious metals/miners here. GDX (miner ETF) put in back to back to back days this week of “outside days”…where the high/low of each day surpassed the previous days…all with a bullish bias. It’s time for this group to move.

VRA Bottom Line: we remain bullish in short, medium and long term. 10/12 VRA screens remain bullish. Once we reach this level of OB, risks begin to rise…simply not as great a time to buy the broad market as it was last year. Our VRA 10 baggers and VRA small-mid cap growth stocks each remain a strong buy.

Until next time, thanks for reading…

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/17 years.

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VRA Weekly Update: US-China Trade Deal is a Big Deal. Global Bull Market Ramping.

Good Thursday morning all. Impeachment headed to senate…no one seems to care…as it should be. US-China phase 1 trade deal…no one seems to care…that’s a major mistake in our view. To understand just how big of an accomplishment this is for the future of the US economy and US-China relations, listen to Tyler’s podcast from yesterday afternoon.

https://soundcloud.com/user-640389393/vra-podcast-tyler-herriage-daily-investing-podcast-jan-15-2020

For 2 years the MSM fear-mongered us to death over “US-China trade war”…it was never a trade war…it was always a buying opportunity. Now the benefits begin to kick on. AKA “melt-up” continues.

- Nationalism/populism beats globalism. Long term mega-important trend underway

- US leads, the world follows. Global bull market just kicking in

- Our 15 year nightmare is over. It’s time for 1–2 decades of prosperity, peace and optimism

- The Trump Economic Miracle = DJ 50,000+

Last nights AAII sentiment survey came in at 41.8% bulls, 27.5% bears and 30.7% neutral. My thoughts below. Wake us up when bulls hit 60–70%. At that point, fund flows will be overwhelmingly euphoric.

OIL & Energy Stocks

Below is a 1-year chart of oil. The bullish channel below has developed from last October with oil back to its lower channel line now. It’s also hit extreme oversold levels. We expect the move higher to continue from these prices. A move to $64 our bogey.

Commodities have a high correlation to the US dollar. As my friend Larry Tentarelli (excellent follow) points out below the dollar is reaching ST overbought levels and nearing its 200 dma, which should serve as resistance. A move lower would be positive for oil and metals.

Increasingly likely that the 5 year bear market in energy stocks is ending.

Yesterday, Ray Dalio’s hedge fund Bridgewater (largest on the planet at $160 billion) is recommending gold with a target of $2000/oz. Obviously, we agree with Ray.

VRA miners must be owned here. Copper is hitting 7 month highs as the global reflation trade builds.

Here’s the chart of GDX. In risk-on environments, like this one, its not uncommon for PM’s/miners to retreat. Below we see GDX approaching a supporting trend line back to last June, when the sharp move higher began. It’s important that this line holds. I expect it to. As of today we are exactly at supporting trend lines for RSI and MFI, with stochastics in oversold territory. Repeat; this group is in a major, multi year bull market move higher.

Until next time, thanks again for reading…

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/17 years.

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VRA Weekly Blog Update: The Next Leg Higher In Precious Metals and Miners

Good Thursday afternoon all. For today’s update, we want to get into PM’s and miners.

PRECIOUS METALS AND MINERS

For our newer VRA Readers, a quick trip down memory lane. In our second ever VRA Update (2003) we recommended gold and silver, which were coming out of a brutal 20 year bear market. Gold was below $400/oz and silver was below $5/oz.

Over the next decade we crushed this group, over “many” trades. Our best was 1300% 10 month profits in Ivanhoe Mines (now Turquoise, TRQ). It wasn’t all roses….we were also crushed in NUGT and JNUG, giving up big gains and riding it into big losses, after QE “mysteriously” bombed gold prices. But bottom line, we have done quite well in this group over the years. Know this group well. And yes, I am a gold bug.

The fundamental side of the story is well known. PM’s are the only true currency…for 6000 years. Cannot be printed and hold their value amazingly against inflation. Since the FED was created in 1913, the USD has lost 94% of its value, while you can buy exactly what you could have in 1913 today with the same amount of gold. Today, with more funny money floating around than ever and a world that is locked in to negative rates, owning gold and silver here makes more sense than ever.

Bank on this; not only is inflation returning…its already here. If you pay for housing, college, healthcare or any of the gazillion new and hidden taxes we’re increasingly forced to pay, you know that the cost of living has never been higher. Currency inflation will not decrease…likely not ever in our lifetimes. Gold is a must own asset for the smart money investor.

The pariah for PM’s has been “manipulation”. Spend a few minutes getting to know GATA.org, if you don’t already know this story. They’ve been fighting the good fight against the JPM’s of the world since just before I met them some 20 years back. It’s the one downside story for PM’s that remains our biggest risk. The banking cartel has had this game wired. But, that may be changing…another story for another time.

After a great start to the year (gold was +27% by September and GDX was +47%) the group has been trending lower the past 3 months. We believe the next move higher is nearing. This is a highly seasonal period (now til March). And we see two charts that are of interest. Many think that if rates are rising, that must be bearish for gold prices.

This is a fallacy.

As this 20 year chart of gold to 10 year treasuries shows, there is actually a small correlation between gold and rates. We’ve had bull markets and bear markets in both scenarios. There is just a 28% correlation between gold and rates, over the past 20 years.

What this chart also makes clear is that we’ve had an explosion in volume over the last decade.

In fact, its picked up speed over the last 3 years. Volume begets price movement…a timeless truth as taught to me by my mentors.

We want to see a move back through $1500/oz. The rounded bottom you see in this chart…its been developing for 8 years now…it should send gold to new ATH. $2000/oz + is coming.

Below is a 4-year chart of GDX to gold….our top timing signal. The miners lead gold…in both directions. This is where the leverage is (similar to oil to energy stocks). We went aggressively long PM and miners at that circle you see below in 2016. That marked the first rate hike since the ’08 crisis. (as we just covered, gold in fact does rise when rates rise). The miners led the way straight up for 9 months…massive gains in the miners. The repeating pattern is marked below as well. The miners tend to make explosive moves higher coming out of mini-rounded bottoms, just like we’re seeing right now. Over the past 2 months, the miners have been leading gold. We want to see GDX break $28.50 with velocity…last trade here $27…then new highs of $31, then much higher, look likely.

The next leg of the Precious metals and miners bull market looks to be kicking in.

Following the Fed meeting yesterday that contained no real surprises (no rate increases on the horizon), the group is taking off. Gold and silver both spiking 1–1.5% yesterday, but as always the action is in the miners.

One step at a time, we want to see gold break $1500/oz (1482 today) and GDX break $28.50 ($27.75 today), which should then lead to new 52 week highs, and we are watching volume in both continue to ramp higher. We believe this is the beginning of the move that takes gold to $2000/oz. We’ll make fortunes in this group.

Until next time, thanks for reading…

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

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VRA Weekly Update: Wall of Worry. The Markets May Soon Start to Care About These Bricks.

Good Friday morning all. The wall of worry is building. Cracks in the market are appearing. While our VRA Investing System remains at 10/12 screens bullish (Don’t fight the tape, Don’t fight the Fed), with a global economy that is in solid shape, we’re about to head into December. Anyone remember what happened in December of last year? So do a lot of investors.

We’re not bearish…but we’re also not going to add new positions. Importantly, our small-mid caps should be in good shape. Lower beta’s, based on their relationship to events, news and upside potential. And we like PMs’/miners here very much. GDX to gold ratio looks to be giving us a new buy signal, as covered on Wednesdays Members podcast. The previous 3 buy signals have produced GDX gains of 28%, 35% and 45%…all inside of 3–7 months.

Here’s what we see that’s building our wall of worry. And know this; as the wall first starts to build, it’s common that the markets first pay attention to it, with downside action. Then, once the wall has gone up, and as investor sentiment becomes increasingly bearish, the wall then serves as important support for the markets. This is the next great buying opportunity that we are waiting for. And this ST sell-off could last all of a few days to a couple weeks. Again, we’re not looking for a dramatic downside move…but its almost always “escalator up, elevator down”.

Here’s the wall that looks to be going up:

-After yesterdays mixed/negative internals, we’ve now had 12/13 days with mixed/negative readings. No Bueno. In addition, we’re seeing some leakage in our market leaders. Tech/Semi’s/Growth/Momentum beginning to reverse a bit.

-Bitcoin is getting hit ($7000). If you’ve been here a bit you’ll remember what we’ve been reporting for a couple years. Not that we can fully explain it but $BTC has been the single best “risk-off risk-on” signal indicator for equites for more than 3 years now. BTC has led the next major market move by a few days to a couple weeks.

-Trump impeachment in the House. The markets haven’t cared to date…but in our view it’s likely that at some point they may. This morning Trump said that he “wants a trial in the Senate”…which sounds very much like he expects to be impeached in the House. High drama…just remember why Trump wants this to go the Senate; R’s have complete control. Trump friendly senators will be able to force appearance/testimony from people like Hunter/Joe Biden….all tied to Fusion GPS and phony Russian dossier…Comey, Brennan, Clapper…and who knows, maybe even HRC herself. High drama indeed.

-China trade deal. Looking increasingly unlikely that a phase 1 deal will get done. If not, look for Trump to bump tariffs even further. The markets haven’t come close to factoring this in.

-Pelosi announced yesterday that there will be no USMCA trade deal this year. Again, another big plus for the markets that won’t take place. D’s aren’t giving anything to Trump. This is a death match.

And there’s this; the NYSE advance/decline line has fallen to 3 month lows. This looks to be an important divergence, telling us that market breadth is failing.

VRA Bottom Line: we don’t like being caught flat footed. We don’t like buying high. The next 1–2 weeks look to be a risk-off environment. And we would love to be wrong. Our year end target has been DJ 30,000 for more than 2 years. We’re biased. We want a melt-up into year end. To those asking “should we short something?”. We prefer not to short much of anything in bull markets. Our discipline. We would rather wait for a pullback to add a new position on the long side. As always, we’ll alert you each step of the way.

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

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RECESSION FEARS? Uh….NO. Housing About to Get Hot. Miners, Major Buy Signal.

Over the last few days Tyler and I have fielded a ton of questions, from VRA Members, friends and family, about the 24/7 news coverage about “the coming recession” in the US. How could anyone miss it…the media would love nothing better than to topple Trump, even if it means enduring a painful recession that could cost millions of Americans their jobs. Personally, I find the medias behavior disgusting. It’s exactly this type of fake news reporting that keeps investors bearish and out of stocks. It explains why the latest AAII Sentiment Survey (updated last night) shows just 26% of investors bullish with a huge 39% of investors bearish. As contrarians, we know exactly what this means; back up the truck and buy, buy, buy.

The VRA Investing System was built to spot economic booms and busts, and spot them early. Just yesterday, both ITB (Housing Construction ETF) and HGX (Housing Index) hit new 52 week highs. The media seems clueless to this fact, so we’ll report it for them; there has never been a recession in the US when the housing market is solid. Housing is THE leading economic indicator. Today, with two leading housing indicators flashing “strong buy”, the market is doing its job as a discounting mechanism….it’s telegraphing what’s about to take place; the US housing market is about to get hot.

Because housing leads (everything) economically, we see the possibility of a recession as “very slim”. The VRA Investing System remains at 10/12 screens bullish. We continue to see a major move higher into year end. Our DJ 30,000 target is unchanged.

And more evidence that the US economy is rocking and rolling. Trucking tonnage is +7%, year over year, in July. Folks, that’s another new all time high. #NotRecessionary

Now, we look for the transportation index and small caps to regain their 200 dma.

NEXT UP: Mega Global Stock Market Rally

Again, the all clear was given on US-China trade war last week. Recession, in the near term, is a laughable prospect. As the single best discounting mechanism on the planet, markets are about to roar higher. It started this weekend with China announcing a massive easing program and continues this week with Fed Chair J Powell speaking at the annual Jackson Hole meetings this week. Rate cuts are coming…we’re talking coordinated cuts on a scale the world has rarely seen.

The ECB meets on 9/12. Late last week they tipped their hand (aggressively), with the statement that they’re about to launch the “Big Bazooka”, meaning significant rate cuts and the re-launch of QE. Germany, the largest country in Europe, has historically stuck by their commitment to keeping debt/GDP at no more than 35%. Beginning next month, fiscal conservatism begins to go out the window.

Following the ECB, our Fed meets on 9/17 with a rate cut of .25-.50 a certainty. More importantly, we look for the Fed to change their language from the last Fed meeting when they state that we are now in a cycle of rate cuts (not merely just a mid-cycle adjustment).

Don’t fight the tape. Don’t fight the Fed.

Know this; all of the fears out there serve as a BIG “wall of worry”. Markets love to climb them. There will come a time…likely with the DJ at 40,000 to 50,000…that the public starts to forget some of these indelible marks. The fact that we have a fake news media that only stokes fear and divisiveness elongates our mental recovery process.

PRECIOUS METALS/MINERS STILL ON MAJOR BUY SIGNAL

Our most important technical buy signal in PM’s/miners continues to flash “strong buy”. The 13 year downtrend line has been broken (miners to gold)..this is when this group gets red hot. While not a ST timing signal, a better than 2:1 ratio tells us that smart money is aggressively buying the miners. This only happens when gold/silver are in full-on buy signals.

In my career, this level of outperformance by the miners is the biggest buy signal of all. Keep buying PM’s and VRA Buy Rec miners. Multi year massive move higher is in process.

Until next time, thanks again for reading….

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

Join us for two free weeks at VRAInsider.com

Sign up to join us for our daily VRA Investing System podcast

Also, Find us on Twitter and Facebook