VRA Weekly Update: Fears of A Tiny Taper. The Bears Are Growling…Music to a Contrarians Ears.

Good Thursday morning all. 1% losses across the board yesterday but we did see an improvement in the internals (most notably in Nasdaq where up/down volume was flat). The markets are in mini-correction mode based primarily on the 3 factors we’ve been covering here; seasonality, internals and anxiety over the Fed.

Yesterdays Fed minutes showed that the Fed is now talking up the possibility of reducing the $120 billion in monthly QE. But we’ll note that these comments are from the July Fed meeting and prior to our most recent economic reports that showed a significant reversal in consumer confidence and weak retail sales. We continue to view this as an overbought pause/correction and will be putting money back to work before long.

With midterms next year and Team Biden needing all the help they can get, there is a near zero percent chance that the Fed tapers aggressively, if at all next year. The Fed’s financial engineering cannot be put back into the bottle. We’ll have (much) more QE, not less. QE infinity. The 10 year yield sitting at 1.24% this AM, soon headed sub 1% again, should confirm our forecasts. Everything about Bidens presidency screams “Obamas 3rd Term”. Get ready for what will almost certainly be the biggest blowout in midterms, ever. Dems may lose 80 seats in the House.

And we love the fact that the bears are aggressively coming out of the woodwork. Seeing calls left and right now for a 10–20% correction into year end. Sentiment surveys are confirming it as well. Here we sit just 3 days from ATH’s yet the Fear & Greed Index has already fallen back to 25 (Extreme Fear). Music to a contrarians ears.

Futures are lower again this AM. Dow -320. We’re beginning to see our VRASystem screens hit heavily oversold (already) on some of our key indicators.

It’s too soon to act today but remember to look for VRA Alert in your subject line when we are taking action.

With thanks to our friends at The Earnings Scout, these Q2 earnings are just insane. We forecast 80% year over year beats on EPS but they’re coming in at 92.28%. Just…wow.

And folks, if you think Q3 is going to be a letdown, you’re going to be surprised once again. We’re looking for 25–30% growth in Q3 (the street is at 17%).

We had a slight adjustment lower on Monday in the VRA Investing System, as we move from 10/12 Screens bullish to 9/12 screens bullish. We remain highly bullish for the medium-long term but have concerns about the short term potential for a move lower in the broad markets. Short term concerns:

1) Seasonality: While this week is actually seasonally positive, the rest of August and then September make up the worst period for investors (back to 1950).

2) The internals have been poor for the better part of 12 weeks. At some point the fact that the majority of stocks are struggling will likely have an impact on our mega cap market leaders. We see it here in the nasdaq advance/decline ($NAAD), which peaked in mid-May. When the markets are hitting ATH after ATH, our market leader (tech/nasdaq) should be putting up better A/D readings.

3) The macro environment is looking more and more risk-off. The Biden administration is coming completely unglued (more on that next). Our enemies are obviously paying attention. In addition, Fridays consumer confidence readings and this mornings Empire Manufacturing survey were “not good”. Outside of last March and April’s collapse, aka the onset of CV insanity, this is the biggest drop in the Empire Manufacturing sentiment ever.

VRA Bottom Line: We’ve raised some cash of late, putting us in a solid position to put funds back to work should our markets correct. We are VERY interested in adding to our VRA miners and energy positions as we aggressively look for our next opportunity in tech.

Our game plan is unchanged; with the markets nervous about geopolitical instability and the Jackson Hole Fed party (8/26–28), plus ongoing horrid internals we are waiting to add to existing positions and establish new positions. We’ve raised cash of late and are looking to redeploy it when the VRA Investing System gives us the signal. It certainly doesn’t help the Fed’s cause when they’re attempting to announce a QE taper into a collapse in consumer confidence and weakening retail sales, just as foreign central banks are withdrawing their plans to taper QE. And here’s an important point; the Fed has never initiated a withdrawal of QE when the University of Michigan sentiment reading is below 70 (as was just announced).

We repeat; there will be no serious tapering to speak of whatsoever this year or next. Certainly not with midterms coming. Especially with the humiliation that is the Afghanistan defeat. Our coward-in-chief has no coat tails to ride.

Big Trouble in China

We’re also learning this morning that the SEC appears to be going full bore against China. It started yesterday when they warned investors about owning Chinese stocks and continues this morning as they announce theyare looking into Chinese use of offshore structures for their US listings. This is EXACTLY what Trump warned about. Japan had 2 lost decades. Here at the VRA we believe it’s Chinas turn (but we’re also watching closely for what could be exceptional short term trading opportunities in both VRA and Parabolic Options.

Until next time, thanks again for reading…

Kip

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VRA Weekly Update: Goldman Sachs is Getting the Idea; This is a Melt-up Bull Market. Our Eyes Are On China.

Good Thursday morning all. Another poor jobs report (ADP) took the Dow down 323 points yesterday. Like the Obama economy, we should get used to reports like this. Soon, and take this to the bank, they’ll be manipulated to start looking better, with part time and low paying jobs making up the bulk of the jobs gains. But remember, little of this will matter to our melt-up markets, which will only continue to head higher. Unprecedented global liquidity and surging corporate earnings will remain the primary drivers, as financial engineering produces our most powerful bull market since the 1995–2000 melt-up (575% gains in Nasdaq). 

This morning Bloomberg reported that Goldman Sachs just became the most bullish firm on Wall Street, as they’ve raised their year end target on S&P 500 to 4700 (SPX Closed at 4402 yesterday). It’s good to see the vampire squid following the VRA’s research and overwhelming bullishness. But Bloomberg is wrong (again) as Evercore (our favorite economists and market watchers) have long had their year end target at 5000. 

You know our views on investor sentiment. If we had to pick a single reason to be hyper-bullish, bearish investor sentiment at all time highs would be that reason.This morning the Fear & Greed Index sits at 26 (Fear). 
Once these readings are hitting 80–90% (Extreme Greed), we’ll start getting concerned about an 8–10% correction.

We continue to have one primary short term concern about our markets; the internals continue to be weak, with NYSE volume negative by 3:1 and advance/decline by 2:1, although Nasdaq was much better and 52 week high/lows came in at a solid 298–157.

We’ve now had 6 months of positive market action in the S&P 500, following a down January, marking the first time in history the S&P 500 has been positive for the next 6 months after a down January. Well, this is that bull market. 

And check this out; it turns out that 6 month winning streaks are overwhelmingly bullish. Since 1946 it’s only happened 21 times and a full one year later the markets were higher 18 times (85% win streak) with an average gain of 11.9%. We’ll take all of that. In addition, the semis led the way higher, once again, with SMH (Semi ETF) hitting all time highs. 

As we see in the chart of SMH below, this breakout to fresh ATH looks ready to power sharply higher. Where are now near overbought on VRA Momentum Oscillators with a fresh MACD buy signal from last Thursday and obviously above every moving average that matters most.

Here’s why this matters to us. The semis lead Nasdaq and Nasdaq leads the broad markets. With Q2 earnings demolishing estimates, if the semis continue to lead higher, look out above. 

A couple of points on the “Delta variant”, which J Powell smartly reminded us all last week is having little impact on the economy, because that’s how mutating viruses work…each strain is weaker than the one before. 
Goldman Sachs reported over the weekend that the Delta wave has peaked in the UK, Spain and Netherlands and will peak elsewhere in the next 2 weeks (aka the US).

And at the end of the day, here’s the only graph that really matters; the mortality rate in the US has plummeted back to its lowest levels since March 2020.
As the markets have known from the CV insanity lows of 3/23/20, coronavirus is in our rear view mirror.

Final note. If you heard our podcasts this week you know that we’re closely watching the goings-on in China. Something interesting is up in the land of increasingly hard core communists. Pending military action re Taiwan or Hong Kong? Karma over CV insanity, which could/should include 10’s of trillions in global restitution? 

We smell a trading opportunity approaching…just not sure when, exactly. As much as we have little interest in taking a long term stake in China (we like to sleep at night), both KWEB (China Internet ETF) and FXI (China large Cap ETF) have our attention. KWEB really has our attention. Down 55% from the Feb highs, Chinese internet stocks (KWEB) are trading like they have the plague. For those wondering about a China leveraged ETF, yes, they have a 3 x ETF (YINN). Our analysis is that KWEB would be the (much) better play (liquidity, safety).

VRA Bottom Line: should we have a capitulation event, brought on by bad news that we can quantify, be ready to act. We would look to buy KWEB or and KWEB calls (ST trades only).

Until next time, thanks again for reading…

Kip

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VRA Weekly Update: VRA Stock Market Melt-Up Forecast; Joe Biden as Bill Clinton.

Good Thursday morning all. Yesterday may have been a quiet day on the surface, but like ducks on the water it was a much different story below the water line. We’ve just had back to back days with fresh ATH’s in Nasdaq and Q’s (Nasdaq 100), the semis led the way higher (they’ll hit ATH’s soon), and we just had our best readings of VRA Investing System internals in 7 trading days. And this morning, S&P 500 futures have joined the party, hitting ATH’s in premarket trading. 

Can you hear that sound in the near distance? It’s the drumbeat of a coming melt-up move higher in US and global stock markets. 

After you’ve done something for 36 years, not much surprises you. Not really. But folks, what we’re seeing take place with equity inflows, share buybacks, corporate earnings and unprecedented global liquidity…not to mention the fact that we’re at ATH’s and investors are still skittish…shocks even me (Tyler too. And he’s been doing this with me from about 3 years old, studying charts nightly). 

First, check out this chart of equity inflows, from 2016 to present (the US is in baby blue). Parabolic move higher doesn’t come close to describing what's really taking place here. This is how a melt-up move higher starts.

And here’s the chart of share buybacks from corporations, going back to 2000. With 6 months to go in 2021, total YTD authorizations have already blown past the 2018 peak.
It’s increasingly likely that share buybacks could break $1 trillion this year, a record X two.

Yet, somehow…with all of this bullishness, ATH’s, buybacks, liquidity and equity inflows, the Fear & Greed Index sits at 35. Investor Sentiment is “fearful”. What??
As you’ve heard us say often, if we had to pick just one reason to be over-the-top, out of our minds bullish, seeing lots and lots of bearish investors at ATH’s is that reason. 
This is not how bull markets end…it’s how bull markets pick up speed.

This remains a textbook set-up for a major move higher in stocks.

The VRA has remained aggressively long…its actually time to become even more aggressive (if that’s possible for us).

When it comes to corporate earnings, analysts have been raising their estimates, but not by nearly enough. Companies start reporting Q2 earnings mid-July, and analysts are looking for S&P 500 EPS to increase by 64% vs a year earlier, according to Refinitiv, which compares with a forecast of 54% at the beginning of the quarter. The comparison is with the worst period of the crisis last year, of course, but earnings are also expected to be about 8% above their second-quarter 2019 level.

Analysts’ earnings estimates at the end of any given quarter are usually short of how earnings actually come in, but given how on-fire the economy has been, we fully expect these estimates to be “crazy low”.

What happened in Q1 might be instructive; analysts thought S&P 500 earnings would grow by 16%, but actual growth came in at 58%. I fully expect Q2 earnings results to blow Q1 out of the water.

Again, this is a melt-up environment…lets see how it actually plays out. We remain long and strong.

Adding to our VRA Melt-up Forecast; “Joe Biden as Bill Clinton” 

We know from tons of your feedback (and I really hear it on Twitter) that it’s really, really, really hard for many to be bullish with the “pretender” Joe Biden sitting in the White House. Trust me, it’s not been easy for us either. But our job is to look through the noise and find the next mega-trends. That’s what we’ve worked on of late with the melt-up effects from the millennial generation (the smartest, most intuitive and soon to be wealthiest generation ever), and as you’ve heard us get into of late we think we have another melt-up mega trend with Biden as president. Yes, we think Biden could eventually be known as the stock market melt-up president. I covered this over much of my 25 minute VRA Podcast yesterday…here it is in writing for the first time

The comparisons are “really” interesting. In 1992, Bill Clinton ran and won as a liberal, beating daddy Bush (thanks again H Ross Perot) and at the same time Dems picked up both the house & senate. This is the exact set-up for Biden. But Clinton never really governed as a liberal. He was a tough on crime moderate, he aggressively cut spending & he worked well with R’s. 

He had no choice but to work well with R’s. In the 1994 midterms, Dems lost both the house and senate. If you’ve been reading the tea leaves, it looks HIGHLY LIKELY that Biden will lose both the House and Senate next year. Again, a parallel to Clinton is building. 

For Clinton’s last 6 yrs he had no real power…or so people thought,..but he employed something he coded as “triangulation” to pit both sides against each other. 

Not that Biden has Clinton's brain power or instincts…he certainly does not…but folks, this show in DC is being run by our “planners”; call them the deep state or shadow government but whatever you call them, they put him in office and they’re running the show. Biden as puppet president…and it might just mean a booming stock market and economy. 

Clinton even ran a budget surplus (no ones done that since) he had a 5% GDP and his presidency still marks the best stock market returns of ALL presidents, with the S&P 500 averaging 26.2% per year over his 8 years. We also had the dot-com melt-up under slick Willy, as the nasdaq soared 575% from 1995–2000. Boom!

Who wouldn’t take that with Biden??

** And here come the additional parallels to Clinton that we’re finding VERY interesting. It’s remarkable what’s just happened under Biden** 

Both the voting rights act & the removal of the filibuster have just failed in the Senate. If you’ve been paying attention you noticed that Biden didn’t go to bat for either (that’s because he’s never really been a far left liberal…he’s an old white guy that loves real estate, low taxes and capitalism…and yes, lots and lots of police). 

These latest events mean that elections will not be federalized (aka rigged) and that nothing will pass in the senate without at least 60 votes (aka no far left laws will get passed)

We find these comps to Clinton striking…this may become one of our new base cases supporting a melt-up move higher. 

It also has the potential to be great for the economy and maybe even for America as a whole. We’re certainly seeing an entire country getting red-pilled. 

Another VRA contrarian call that we’re developing…and BTW, if Biden and Dems want to have any hopes of winning the midterms or again in 2024, they had better melt-up the markets and the economy…because their popularity is essentially nonexistent. Fake news polls not withstanding….

Until next time, thanks again for reading…

Kip

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VRA Weekly Update: J Powell with the Rare Win. Fed Meeting Bluster & Takeaway; $2.2 Trillion in Additional QE. Buy Buy Buy.

Good Thursday morning all. As we have covered in previous updates, as bad as J Powells track record is (once his pressers begin the markets immediately start to tank), JP actually scored a win yesterday. When he began speaking the Dow was -309 and Nasdaq -104, but by the close the Dow was -265 and Nasdaq down just -33. Not much of a W, granted, but a W nonetheless.

Markets are mixed this AM but off the lows. Gold got smoked below $1800/oz (last $1780), now trading below its 200 dma of $1843/oz. 
GDX (miner ETF) just broke its 200 dma at $36.54 (last $35.40). The golden cross in GDX has yet to produce the sharp move higher that I expected. I continue to look for that to take place.

Post Fed-meeting shake-outs are infamous, in both equities and metals, but they have a high probability of being just that…a shake-out only…with the primary trend quickly reasserting itself. 

We are buyers of every VRA Portfolio Buy Rec (Check it out with our 14 day free trial at VRAinsider.com). 

There’s been quite a bit of bluster from this Fed meeting but only 2 things really caught my eye; 

1) the Fed raised their inflation estimates this year to 3.4% from 2.4% (even as actual human beings know that inflation is running “at least” 10%)

2) there may be 2 rate hikes in 2023 instead of only 1

Did you catch that sports fans? We’re still talking about NO RATE HIKES for 2.5 years, and more importantly, there won’t be any tapering of the $120 billion of QE a month until “substantial further progress” has been made toward the Fed’s maximum employment and price stability goals. What does “substantial further progress” mean? Well, we don’t really know. 

But what does $120 billion x 18 months mean? We absolutely know that answer. It means $2.2 trillion in additional QE.

And where will it go? It will go into equities, housing, cryptos and commodities.

A couple of final points on the Fed and the eventuality of higher rates (sometime in 2023); history tells us that when the Fed starts raising rates, the stock market actually continues to move (sharply) higher through at least the 3rd rate hike. My mentor Ted Parsons (RIP Ted) called it “3 steps and a stumble”. Were Ted with us today, I think I know what he’d be doing; Ted would be backing up the truck to buy his favorite growth stocks.

And this is important…as we’ve been covering here, this melt-up bull market will continue to be led by tech, growth and momentum stocks. It’s not that we don’t love value stocks too (we’re 60% growth, 40% value in VRA Portfolio), it’s just that we know the personality of a melt-up bull market (like the 1995–2000 melt-up that took the Nasdaq 575% higher over just 5 years), and major moves higher like the one we’ve had and will continue to have will be led by tech/growth/momentum.

The Truth About Inflation and “The Actual Big Lie”

The entire debate about inflation being “transitory” is such incredible bullshit. A heaping pile of gas-lighting and lies. This debate is nothing more than a massive red herring, as the CPI has NEVER reported inflation accurately. As actual human beings, we of course know this, as we’ve been forced to pay rapidly rising costs for healthcare, housing/rent, education/college, elder care, rising and hidden taxes….ETC ETC ETC ETC…for year after year after year after year. 

So, give us a break when you wanna talk about inflation being “transitory”. This is the “Big Lie”. And why does everything cost more? Why do they lie to us about the truths of inflation? Because they’ll never admit the truth. Inflation has been destroying our way of life since the Fed was created in 1913. Since then, the US dollar has lost 97% of its value. It’s properly called “currency inflation”. THIS is why both couples in a marriage have to work, to bring home the same take-home money that just one salary would provide just 2–3 decades ago. Lets hear JP get into this subject matter in his next press conference!

If you’re looking for a great summer read, pick up a copy of THE book on the Fed and our fiat money; The Creature From Jekkyl Island, written by my friend of 20+ years, G Edward Griffin. Statues should exist for Ed.

Until next time, thanks again for reading…

Kip

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VRA Weekly Update: ATH's Beget New ATH's. Semis Are KEY. VRA Investing System Flashing BUY

Good Friday morning all. 

Yesterday's trading brought fresh ATH in the S&P 500 with the Dow and Russell 2000 less than 1% from ATH and Nasdaq starting this AM at 1.3% from ATH. And while yesterday's internals were nothing to write home about (meme wars), we continue to like what we see as the semis and Nasdaq/tech/growth/momentum stocks are leading the way higher. SMH (Semi ETF) +1.31%, Nasdaq +.78%. Textbook, really. 

As Tyler’s been known to say on our podcasts, “new ATH’s beget new ATH’s”…and he’s exactly right, as analytics prove that there is rarely a better time to invest than when markets are hitting ATH (no resistance!)> 

As we’ve covered in these pages, rather religiously, the 5/12 capitulation lows in semis/tech/growth have served as the springboard for this short covering move to new ATH’s. Since 5/12 (twenty trading days), SMH is up 13.4%. Semis lead Nasdaq, Nasdaq leads the broad market. 

What Happens Next in Semis is KEY

In the chart of SMH below we see a trend line that has served as hard resistance from those mid-Feb highs. Since then, on each rally attempt, SMH has lost the battle to the line, resulting in a series of lower highs.
This pattern must change, IMO, for Nasdaq/growth to continue moving higher and to hit new ATH’s as well. Here at the VRA we’re roughly 70% fundamental and 30% technical but this is one of those times that I’d say “price action truly matters most”. A move through $252 (preferably on strong volume) should help get the breakout in SMH cooking with gas. This morning SMH is trading at $251.30 (+.30%).

A breakout in semis would be a key technical event for bearish investors. A “throw in the towel” kind of moment. A melt-up like event in tech/growth/momentum could then kick in (I continue to expect that will be the case).

On the heels of ATH’s in SPX, our markets are looking higher this AM. Dow futures + 80, higher but quiet elsewhere. 

And here’s an interesting market tidbit. The last 5 Fridays have been green for the Dow and 10 of the last 11 have been green as well. 
Impressive! Investors bidding up markets headed into 2 days where they cannot unload their positions is among the most bullish of votes with their money an investor can make.

Our VRA Investing System remains at 10/12 screens bullish. Anything above 6/12 bullish screens means that we remain buyers on pullbacks. But 10/12 bullish screens means that we want to be “aggressive buyers on pullbacks” as we expect the markets to push sharply higher.

The VRA System has 12 Propriety Screens. Today, 10 screens remain in bullish mode. 1 Screen is in bearish mode (valuations) and 1 screen is neutral (market internals).

70% of the screens are fundamental and 30% of the screens are technical. Here’s the breakdown of our 12 screens:

VRA Quick Hitters:

1) GDX (Miner ETF): immediately following its golden cross (50/200 dma), GDX had a solid day yesterday with gains of 2.5%. We expect a sharp move higher in miners.

2) AMC (AMC). Combined (VRA and Parabolic) we’ve booked better than 300% profits in AMC in ’21 (+148%profits in VRA). But we’re not ready to buy AMC again. We’re looking for the “ideal” buy here…no need to rush. A shake-out in AMC (if we get one) should take AMC back to the mid $30’s (last $44.50) to give us a double bottom. 

Heres’ what happened yesterday in meme war stocks. Steep losses across the board. Of this group, at this point, I only have an interest in one stock; AMC. But also know this; gamma squeeze as an investment strategy is very real and its here to stay. It worked with Tesla, it worked with Gamestop and its working with AMC. Here at the VRA we intend to use this strategy to print profits in the months and years to come. Remember, this is “that” bull market.

3) Finally for this morning, its no secret that we remain hyper-bullish. Here’s some color on that via my Twitter account.

Until next time, thanks again for reading…

Kip

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