VRA Alert: Market Reversal Likely - Ugly Technicals, Pullback Coming

Good Friday morning all. The FED's news came in with a bang and went out with a whimper...now it's time for a correction from the near 1300 point move higher in the Dow since 8/24.

Important Point: I am not looking for a retest move to those 8/24 lows. However, I would not be surprised to see the market give up half of that amount.

In addition to continuing uncertainty about the FED, and their moves going forward, the market looks to be facing several new risks, directly ahead.

1) we are STILL in the risk-filled September/October time frame...fireworks are common, each year.

2) With Congress about to come back into session, the likelihood of something stupid coming out of DC is high, with talk of a government shutdown very real...again.

3) If you've been following the news out of Syria and the Middle East, then you know that the US has boots on the ground in Syria. And, Russia has taken over a Syrian airport and sources indicate that they have moved attack helicopters and forces, essentially staging a forward base. Should Russia attempt any move similar to their actions in Ukraine, this could very quickly devolve into military escalation.

Finally, consider the S&P 500 chart below. In addition to the one that I sent yesterday, this one breaks down an ascending wedge that has formed...these are bearish technical formations, and when combined with the 4 technical points from yesterdays chart, not to mention the fact that we remain well under the 200 day moving average, downside risk is upon us...

Here's the chart...

Until next time, make it a great Friday...

Kip

VRA Update: Should We Stay or Should We Go?

As I wrote last week, with less than 3/4 of traders expecting the FED to raise rates on Thursday, the risk in the markets is clearly to the downside. 

It's exactly this kind of scenario that beckons all card carrying contrarians to ask the obvious question; should we act with the majority... those expecting the FED to stand pat...or should we take the flip-side of the majority view, sell everything and then go 100% short stocks? Should we stay or should we go?

As uncomfortable as this makes me, everything that I see tells me that there is little chance that the FED acts to increase rates. Instead, this is the most likely scenario that I see playing out. I'll go out on a limb and assign an 80% probability to the following, when the FED announces that they are NOT raising rates:

1) The FED will announce that they will break protocol and will meet again in October (their next scheduled meeting is in November, as they meet every other month). The "hint" being that they may raise rates in 30 days. The drama continues...just as these self-appointed, financial masters of the universe, prefer it. 

2) In their official statement, the FED will announce their reasons for waiting to move; which will highlight a) recent domestic and international (China) volatility/weakness, and the forward affect on US GDP b) continuing slack with inflation expectations, c) US dollar strength d) ongoing destruction in oil (commodity) prices and resulting job losses, and finally e) US wage growth, which continues to lag.

3) The FED will be lambasted widely for the spectacle of it all...just as they should be. Central banks have taken complete control of every sector of the global economy. They can pretend all they want that their desire is to return to a "normalized" interest rate environment, but it's exactly their previous actions of the past 7 years that make this desire impossible to achieve. 

4) Finally, regardless of what the FED does, we will see a massive "relief rally" following the news. Importantly, should the FED raise rates, this rally will only kick in once the initial fall-out is over. At most, I see a decline back to the 8/24 lows, but quiet likely, not to that extent. 

Should the FED keep rates unchanged, as I expect, the relief rally will begin immediately, with gains of 500 points + in minutes...followed by add-on gains in the next 1-2 days. 

This is as "on the record" as I can be. And no, you will almost certainly not find these kinds of exact and specific predictions elsewhere. If I am wrong, our portfolios will take an immediate hit...there's little doubt about that. Either way, I encourage everyone to keep some powder dry...because the trading opportunities following the FED news should be "special". 

To add credence to my precious FED predictions, there’s a very interesting article in the WSJ this morning about central banks that have increased rates since 2008. More than a dozen central banks have raised rates, only to have to reverse course and then cut them again aggressively…with each now being far below the initial interest rate level where they first raised rates.

But this is the most important point that I could make, regarding the FEDs decision on rates; the Bernake and Yellen FED is the most market & politically driven FED that we have seen...certainly in our lifetimes, if not all time. It's for this reason, above all, that I expect the FED to keep rates unchanged. 

Let's keep some powder dry…gonna be an interesting week. 

 

Kip

vraletter.com

VRA Must Read: If the Market Crashes, The FED Will Have Blood on Their Hands

Sep 09, 2015

VRA Must Read: If the Market Crashes, The FED Will Have Blood on Their Hands

Must Read for All Active Investors...For These Two Reasons:

1) If the Market Crashes, the FED Will Have Blood on Their Hands

2) Regardless of What Happens, THIS is the Exact Environment the VRA Was Made For...We'll Continue to Beat the Markets Handily Either Way

I'll Explain Both (briefly) Below:

First, make NO mistake about this; there's only ONE reason that the stock market...both in the US and globally...is dropping 3% one day, rising 3% the next day, and then dropping 2% the next day. That reason is THE FEDERAL RESERVE, led by her highness, Janet Yellen.

As I wrote this morning, I see NO WAY that the FED can raise rates in this environment....NO ONE IN THEIR RIGHT MIND SEES ANY WAY THE FED CAN RAISE RATES IN THIS ENVIRONMENT!

Consider:

Following stability in global markets on Monday and Tuesday, US markets had a very strong and stable Tuesday here, ending with nearly 400 points in Dow Jones gains.

That was followed by massive gains in Asia overnight, then in Europe this morning, and finally with a strong US opening in stocks here of close to 200 points.

Finally...stability and resolution seemed on its way...normality was returning. But that all changed with an obscure economic report at mid-day today...the JOLT report showed that job openings had reached a multi-year high here in the states, and once again, the FED's lack of clarity seemed to open the door to an actual rate rise at the end of next week. US markets reversed course promptly, from gains of 1% to Dow losses of 240 points by the close. Does anyone actually want to risk their hard earned money in this kind of risk filled environment?? Not no, but HELL NO. And they wonder why the individual investor is leaving the market in droves...

I'm willing to give this FED a "bit" of room to run...but only because they have not actually acted to increase interest rates. However, should they act next week, and raise rates for the first time in more than 9 years, no one should be surprised if the markets crash...because that could very quickly become our global reality. 

Having said this, I still see NO WAY that the FED will raise rates. But here's what I have no clue of; why haven't they already announced that a rate increase is off the table?? It's exactly what they "should" do...not only would the markets have instant stability, but if they took the further step to then say that no rate increase would take place until 2016, both stock markets globally...but more importantly, economic situations globally....would be able to find their footing and put to rest this central bank fed insanity.

Will the FED take these actions? Of course not. Why not? Incredibly, because these high profile, pseudo masters of the financial universe, have fallen in love with the celebrity of it all. 

Second, Regardless of What Happens, THIS is the Exact Environment the VRA Was Made For

Going forward, we may have to be more nimble than most would prefer to be, but know this; it's this exact environment where the VRA shines. Whether the market is rising or falling, we can and will make money in either direction...I can say this with confidence because its exactly what I've done for more than 12 years...and there are thousands of VRA Subscribers that can attest to exactly this. Sure, I would rather make money in a normal, rising environment, but we don't always get what we want...I learned this long ago, along with the perfect strategies to make money in a falling market.

Until next time, stay frosty...we'll be ready regardless

Kip

vraletter.com

VRA Profits Continue to Roll In. + 510% Net Gains in Last Two Months & 1900% Total in Last Two Years

Aug 27, 2015

Without question, these last couple of weeks have been incredibly difficult for the average investor, both here and globally. Most emerging markets have losses of 30% to 50% off of their annual highs, and in the US, we've just experienced our first "true correction" in 4 1/2 years, with the major indices falling more than 10% from their peaks (anything over 10% is considered a correction, with anything over 20% considered a bear market).

BTW, market corrections are not only healthy, but they are actually REQUIRED, in order for a bull market to continue it's advance (a point that few "TV guru's" is making). The fact that we went 4 1/2 years without one is off the charts amazing...in fact, it's an all time record.

We've been much more fortunate here at the VRA, as we've been able to navigate the highs/lows well, which has allowed us to continue putting up market smashing returns. Over the last two months, as most stocks were beginning to fade quickly, we have recorded net profits of 510%.

During this time, we've had a total of 10 trades (buys/sells..closed out positions), and our record is 9-1. This puts our industry leading total at more than 1900% in net gains over the last two years.

As I tweeted on Thursday, "anyone that was able to come out of this market insanity with their portfolio intact should feel great about themselves...as this makes you the truly smart money." Now, the key is keeping our heads screwed on straight with our eye on the prize. It's quite likely that the worst may be over, but folks, trust me when I tell you that this recovery will almost certainly NOT be straight up. Take a look at the following 1 year chart for the S&P 500. Talk about ugly...this is what a chart looks like when you drop 1100 points within an hour of the open on the Dow and 225 points on the S&P 500.

So, what are we to make of this chart? Well, I can tell you right away that I HIGHLY doubt we are headed back to fresh highs anytime soon. Keep these levels in mind; Dow Jones: 17,790 & S&P 500: 2075

These levels are where the 200 day moving average of both indices reside, and there's one thing I can pretty much guarantee you; once we start to approach these levels again, you can bet your bottom dollar that the shorts are going to come out in full force (not to mention the 50 dma as well...something I will alert you on in future updates). 

Bottom line: in order to get back over the 200 dma, we need additional gains of more than 7%...and it won't be easy. Only then, will technical analysts like myself be willing to flash the "all clear" sign for a healthy bull market. So yes...it's pins and needles time until then for Mr. Market.

Kip

vraletter.com

VRA Update: Yellen's Test - Frankenstein is Hungry

Yellen's Test

It's hard for me to be more clear about this then I've been. We will have much MORE QE in our future. Why there's this talk about raising rates is little more than a farce. 

If Yellen and her team of "can't shoot straight monetary gangsta's" moves forward and increases rates by even just .25%...in THIS environment...then all bets will be off for global equities/global economies. And yes, that means that the likelihood of a crash would then become very, very real. 

Bottom line: the world looks to the US for "real" leadership. I was never a fan of QE in the first place...having only written 1000 articles against it over the years...but the FED made their decision to go for it, and in doing so, created a global economic Frankenstein. And, just as in the old horror tale, this Frankenstein will seek to kill its master as well, should the beast fail to be fed.

The FED's the one that decided "this is WAR"...and that "all was fair"...now, they must see their original battle plan through, come hell or high water. Then, they have to hope like crazy that their long term plan to reinflate the economy will actually work. I'm in the camp that says "no way it works"...but I'm also in the camp that says "the worst case scenario is still 1-2 years away".

PREDICTION: we will avoid both an economic and stock market crash...for now...and Yellen will not raise rates until next year at the soonest. 

CHINA, THE MARKETS AND US FUTURES

Like Japan of the 80's, today's China has been shown to be much less of a global economic threat to US dominance than previously thought. As I've said, the US will lead the way out of this mess...and we should expect US stock prices to bottom first...followed by a major recovery move higher in China.

I DO NOT expect China to go through a near 30 year recession...which is what Japan experienced once their 80's "power move" failed. The demographics and economic futures of Japan 1980's v China today are just completely different...as in, VERY few parallels.

Overnight, China failed to move higher for the 6th straight day (losses of roughly 1.5%), but here in the states, US Dow futures show us opening 200 points higher. We saw 450 points disappear quickly yesterday, so anything is possible...but I remain optimistic.

If the world's about to crash, why is gold down another $3/oz this am...and why is oil a bit higher? If the shorts aren't asking themselves these questions...well, maybe they should.

You saw the sentiment indicators yesterday...as negative as ever (which is a reverse indicator of course, and a positive for markets). Assuming that the markets can stabilize, the short covering move higher could be pretty stunning.

Then, with an overnight ramp higher in China (which I fully expect!), we could see US markets rally big time once again...and guess what that might do? All of a sudden, the "TV guru's" will be saying that this looks like yet ANOTHER V BOTTOM in US stocks...and man, would the shorts ever be in trouble then (just as we're taking profits "again" and looking to reverse course).

Finally, the VRA now has net gains on closed out positions for the past 2 years of more than 1900%...and yes, this makes us #1...by far....again.

Kip

VRAletter.com