The Importance of Relative Strength. EM, China, GDX. VRA Market, System Update.

Good Friday morning all. Parabolic Options #8 closes today. This will be our largest options program we've done to date. Cannot wait to crush Mr Market with you. We'll close signups today and send out our first test email and texts early Saturday morning. Any questions, we're always here.  To learn more about the program visit : Parabolic Options Program

Yesterdays trading brought our first back to back negative days for VRA Market Internals since the 12/24 Christmas Eve massacre. Still, even with a -220 Dow Jones, new 52 week highs outnumbered new 52 week lows by 187-132. Watching closely as always but this looks very much like an overbought pause, in an otherwise powerful, continuing uptrend. 

Hockey great Wayne Gretzky famously said "skate to where the puck is going, not where its been".

If you watch MSM financial news much, its impossible not to hear about the global slowdown occurring in Europe and China. Please, tell us something we don't already know. Could it be that this is why global markets fell 25-50% in 2018? Could it be that the slowdown is already priced into some of these badly beaten up markets?

This is why we place so much importance in tracking relative strength. Its a unique look at where the puck is going, yet few seem to use this most valuable investing tool today. Thanks again to my mentors from the 80's and 90's (RIP Ted Parsons and Michael Metz). 

Lets look at a few examples this morning (my relative strength charts are versus the S&P 500, the worlds largest and most important equity index):

1) EMERGING MARKETS (EEM).

Again, if you listen to the news you'd probably want to short EM/China. But look at this dramatic, 4 month outperformance of EM to the S&P 500. As much as the S&P 500 has soared from those 12/24 lows, EEM has outperformed by 12%. Thats some serious alpha. But the "gurus" want little to do with EM/China. Their loss....again.  

2) CHINA

 

Looking specifically at China (to S&P 500), we see an almost identical pattern. What would you say that the actual smart money is doing here? Shorting China or buying China? Note: Chinese markets are closed all week for New Year celebrations. My best advice is to ignore the Chinese perma bears. I've been among China's hardest critics...but I also believe they have read their history books about the Japan/US battles from the late 80's and 90's. Once Japan got our attention, as they made their own attempt to take over the world, the US reminded Japan of exactly who the boss was. The end result was a 19 year bear market in Japanese real estate and 75% collapse in the Nikkei Dow. Today, China has debt/GDP of 270%...they know they cannot afford to make the same mistakes that Japan did. I remain confident that China is in the process of caving to the willpower of one Donald J Trump. This chart tells us that the worst is likely over in China. Keep buying. 

 

 

3) MINERS (GDX)

Talk about stark relative strength and outperformance, check out GDX vs SPX over the last 5 months. What we see below is a massive 36% outperformance from GDX. The key to making money in gold/silver equities is exactly what we see below. The leverage is always in the miners (3-5 x). In addition, GDX has traded above its 200 dma for 10 days, with a golden cross buy signal generated earlier this week (50 dma crossing over 200 dma).

VRA Market and System Update

The January barometer is another piece of important analytics that long time market watchers have used for decades. Check it out; we know that we just had the best January since 1997, with S&P 500 gains of 5.62%. What does this mean for us?

As goes January, so goes the year....this is the heart of the January barometer. 

Between 1950 and 2017, the January barometer has been correct 58 of 67 times, or 87% of the time. Powerful statistical analysis. 

Lets also remember that in years following mid-term elections, since 1946, the markets have been higher 18 of 18 times, with an average gain of 15%.

Folks, and forgive my repetitiveness here, but we must continue to ignore the permabears and negative Nancy's. No, we are not headed into recession. No, the sky is not falling. And yes, we remain in a super bull market that will take the Dow Jones past 35,000 by the end of next year and past 50,000 by the end of Trumps second term. 

While we remain short term overbought, the time to aggressively buy was in mid-late December, but also know this; we continue to expect that any pullback will be merely an overbought pause. We see it in the data and we see it in VRA internal tracking metrics. US stocks are building momentum. Much higher prices await. 

If you've been able to listen to our end of market daily podcasts, each day you hear us get into the mechanics of the markets. The backbone of the VRA Investing System. We're big believers in the KISS principal. With all of the insane attempts by todays day trading technicians, who think they can time the markets from day to day, we take a bit longer term view. Watching the internals and the VRA System Screens have kept us on the right side of big moves. 

Please join us daily at vrainsider.com/podcast   

While we remain at 8/12 screens bullish, I look for this to jump to 9/12 in the near future. Remember, anything above 6/12 bullish screens and we're still buyers. The Dow Jones is back above its all important 200 dma, with the S&P 500 and Nasdaq hot on its tail.

Check out this excellent work from our friend Troy Bombardia, master of market analytics. What we see below is what happens to the S&P 500 when it closes above its 200 dma after being more than 14% below its 200 dma for the previous 3 months. Stunning figures here, including an S&P 500 that is higher 100% of the time over the next 3-6-9-12 months, with an average gain of 17.36% a full one year later. 

Long and strong...don't let the bears convince you of anything else. 

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.

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.

What Recession? Our Minimum Move Higher Has Been Met. Dow Jones Technicals and Market Update.

Good Thursday morning all. Bit of a quiet morning so far. Morgan Stanley (MS) reported earnings and it was a big miss, with the shares down 5% as I write. But folks, have you seen what the financials have done this week? Big, 8–10% moves higher, post earnings reports from Citi and Goldman Sachs (the vampire squid) with regional banks seeming to beat estimates across the board.

Again, we simply are seeing no real signs of a recession. But out of respect to the bears, I’ll add this; no one on the planet knows exactly what will happen next. Stocks “are” a leading indicator of economic growth, so we must pay attention to what the markets are telling us. But the markets aren’t a perfect indicator of recessions either, which we’ve seen time and again as bear markets occur “without” a recession taking place.

This is why I created the VRA Investing System. It’s steered us right for many years. The VRA System told us that something very wrong was taking place in early 2007. I must have written 100 updates that went like this “with the FED hiking rates 17 straight times from 2004–2006, and with mortgage co’s closing their doors left and right, real estate is sending us warning signs”.

And then again, as the markets bottomed in March, 2009, the VRA System had us aggressively buying. Those March 2009 lows, which we called within 5 minutes (documented), proved to be THE lows.

Today, the VRA System sits at 8/12 screens bullish. Our biggest concerns are the FED (don’t fight the FED) and the fact that our indexes remain well below their 200 dma (day moving averages). Otherwise, the fundamentals in the US remain solid. Mixed bag, for sure…which is why we cannot allow ourselves to be lulled to sleep. But I’ll repeat…December was an aberration. A capitulation of importance. That remains our view.

Today, on the back of earnings misses and a short term, overbought market, we’ll get a good sense of what this market wants to do. If we can overcome this mornings DJ -100 futures, on the heels of some not so great news, and if the market can continue to climb a wall of worry and find a way to move higher still, there is no better market “tell”. As always, we’ll be watching the internals closely. Yesterday brought us another day of across the board positive readings. $3 trillion in money market funds on the sidelines, plus a return of share buybacks and M&A activity, tell us that a whole lot of bears are likely on the wrong side of this market.

Dow Jones Technicals

In late December we began pointing to our minimum move higher, which we placed at 24,200. We hit this level exactly yesterday. 24,200 was a 50% retrace from the early October highs to the 12/24 Christmas Eve massacre lows. Let's take a look at the chart of the DJ and see what might happen next.

Again, we have now reached extreme overbought on some momentum oscillators (stochastics and money flow) while relative strength still has a ways to go. But let’s also remember that markets/stocks that reach overbought and remain overbought (without falling) are the single biggest bullish sign that we’ll ever see. And check out that selling climax volume in December. That big red line of volume we see was the single biggest sell side volume in history. Forever is a long time. Selling climaxes also mark significant turning points in the market (which also matches the many reversal indicators we’ve talked about often…sentiment, internals, analytics).

If the markets can find a way to move higher, in the face of the items laid out above, then it's telling us much higher prices are on the way. That's just what I believe we’ll see.

EARNINGS

I’m reviewing Q4 earnings news, which are so far MUCH better than the perma bears led us to believe that they would be. As of Tuesday’s close, here are the readings from the 28 S&P 500 co’s that have reported to date:

- 86% are beating bottom line estimates, with EPS growth of 27.4%.

- 54% are beating top line estimates, with revenue growth of 8.1%

Folks, these are excellent numbers. If there’s a recession on the way, shouldn’t earnings start reflecting it by now?

And check out this graph of S&P 500 revenue growth, in particular, the surge following the election. Consistent growth of 10%+, with EPS growth consistently above 15–20%. Again, no signs of recession. And yes, who the president is matters a great deal.

Bears are insistent that Trump’s tax reform was a 1 year 1 off. That tax cuts were merely a sugar high.

My view? They are not just wrong…they are dead wrong. We expect EPS growth of 10–15%+ in 2019 with revenue growth of 8–10%+. Again, no recession.

Your Emails

I don’t include your emails as often as I’d like to, but here’s one that is timely:

Will from Tx:

“Kip, you talk about the upside potential in your top growth stocks but don’t talk about the downside risks. Two of your top picks are sub $1 penny stocks and I’ve been burned in low priced stocks before. Can we really have confidence that these will survive and make us money?”

Great question Will. My view of penny stocks has been that most are like roach motels. It’s easy to get in…not so easy to get out. So yes, the risks are real. And yes, the VRA is very aggressive in recommending these. However, if you read yesterdays update you may have noticed that my top picks of all time….Ultra Petroleum, JB Oxford, Dynegy and Ivanhoe Mines…were all sub $1 penny stocks when I recommended them. Evaluating risk is what we do.

Factually, the price of a stock rarely matters to me. As long as the company has great potential, with solid management and little to no debt, then it does not matter to me what the current price is.

This describes each of our growth stocks/story stocks, today. None have any debt to speak of, with each having heavily invested management teams with a track record of success. We want a CEO that is a proven winner. A proven founder/builder of co’s. And, one that is invested heavily in the success of his own company (not just there for his 7 figure salary, like so many CEOs today).

And, as we’ve seen from “blue chips” like Enron, Worldcom, PG&E and GE, the risks in $50–100/share blue chip stocks are every bit as real. I’ll repeat, I would rather own VRA growth stocks…across the board….than most blue chips today.

I have a hard time getting the CEO of most blue chips on the phone, but I can pick up the phone and call the CEO’s of small cap co’s with relative ease. I like this fact.

And the obvious…we’re here to crush Mr Market. We’re here to make 50–100% + gains, as regularly as possible. It’s simply not possible to do this in the vast majority of blue chips.

This market wants to go higher. The VRA Portfolio now has an average gain of 30% per position from those 12/24 lows. And we’re just getting started.

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.

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.

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

Happy New Year, Buy The Dip. Apple, Another Important Tell. VRA System Internals Improving. Is China Going the Way of Japa

Good Thursday morning all. Hitting as many quick hitters as possible this morning.

1) One of my investing icons has always been Peter Lynch, of Fidelity Magellan fame and author of one of the best investment books you’ll ever read (One Up on Wall Street). Lynch averaged 28% returns for his Fidelity fund. We’re talking about 2 decades of outperformance. Best fund manager we’ve ever seen.

Lynch believed in building positions in companies that he understood, with great products and visionary management, and then holding those positions until and unless things changed. His quote goes like this “in most cases, we made little to no real money in my positions for the first 1–2–3 years…but then we got the payoff in years 4–5–6, often seeing gains of several hundred percent in a single year. By this time we had built large position sizes so the gains actually mattered to our total performance.”

This was the approach that made sense for Lynch. Its also how I’ve been able to book gains of 500–1000% + over the years in our favorite growth stocks/story stocks. 2019 will be the year that small caps reverse their losses from 2018.

2) Yesterday we wrote the following:

“Important VRA Market Note: today may be an important trading day. Many of the biggest market rallies are initially signified by lower opens (like todays -400 DJ) that then get reversed completely, with the market moving higher for the rest of the day. We have panic-like levels of fear in this market. A wall of worry that should give us short covering fuel for the fire. Combined with large levels of bullish fund flow as we start the new year (pensions, retirement funds, share buybacks and insider buying), its important that we see a solid recovery, marked by improving VRA System Market Internals.

Also, this Friday Fed Chair J Powell will give his first speech since setting off a firestorm of stock selling via his post rate-hike speech of mid-December. Look for big, policy making statements from Powell on Friday. Equity markets “should” rally higher into this.”

— -

The markets responded just as we had hoped, with a nice rally off of -400 in the Dow Jones and an across the board move higher in each broad market index. More importantly, here are the internals. Better than 2–1 positives in advance/decline and up/down volume. Talk about a pattern change from the last 2.5 months. MOST important for the VRA Investing System (which sits at 8/12 Bullish Screens today).

This is exactly what we want to see going forward.

This morning, with Apple (-9% this AM) slashing earnings guidance for the first time in 15 years, we see DJ futures -300 as I write. Today, we’ll get another opportunity to judge this markets “tell”. Once again, I expect our markets to move higher throughout the day. When “bad news” stops knocking the markets lower, there is no more bullish market tell…period.

3) Heres the latest AAII Survey. Sentiment remains at “extreme fear” levels, with just 33% bulls and 42.8% bears.

And the CNN Fear and Greed Index sits at 12. Again, extreme fear.

We are contrarians, most certainly when it comes to extreme sentiment readings on either side.

Buy the dips.

4) CHINA — Another Japan??

I’ve written often about the parallels of China today versus Japan of the 80’s and 90’s. At the time, the world believed that Japan was in the process of overtaking the US (economically and even culturally) with parents teaching their children Japanese and Wharton Business School (among many others) teaching Japanese management practices to a young US audience.

At the time, Japan was buying up US properties left and right, including dramatic overpayments on many (including buying the Pebble Beach Golf Course at 5x its present value).

But then the US got serious about Japan…as did the rest of the world. Japan quickly found themselves overextended and the tide began to turn. What followed was a 75% drop in the Nikkei Dow and a 19 year bear market in Japanese real estate. A brutal lost two decades for Japan.

Trump’s actions with respect to China were never designed to be a “trade war”, but unless China wakes up to the worlds demands that they learn to complete honestly on the worlds economic stage, this mornings news that China’s economy is contracting could soon become an ongoing albatross for China’s economic future. With debt/GDP of 270% today, can China afford to make this kind of colossal mistake?

I look for China to have a good 2018. I believe they know their history and do not want a repeat of Japan’s two lost decades. China’s markets were the worst performing of all major markets in 2018. This will reverse in 2019.

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

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

VRA Update: Q3 Earnings, Best in 8 Years. Bull Market Lives On. Oil and Nat Gas. Death Cross in R2K. Investor Sentiment Readings — Extreme Fear.

Good Thursday morning all.

Some quick hitters to start the day.

Third quarter earnings have absolutely killed it….regardless of how the markets have responded to the results. Yes, we want to watch the “reaction” to the news rather than the news itself, but until we see a semblance of proof that the US economy is decelerating, we must continue to be bullish on both the US economy and equities. Here are the bottom line numbers for Q3 S&P 500 earnings to date:

- S&P 500 EPS +27.9% (vs Q3 ‘17). This is the single best quarter since 2010.

-S&P 500 Q3 earnings are beating expectations by a huge 6.2%

-S&P 500 Q3 revenues are up 8.5%, handily beating estimates (6.5%)

VRA Bottom line: We see NO signs of a slowing economy. Instead, the FED’s 8 straight rate hikes have resulted in a sharp move higher in the US dollar, which in turn has caused headwinds for global equity/currency markets and a slow down in US housing, along with a correction in equity markets, but we continue to view this as a “reset”. A reset that will be followed by the next move to all time highs in US stock markets and a major recovery move higher in global stock markets.

OIL/Nat Gas

Oil has been hit hard…its the most oversold since the late 2015, early 2016 lows. By some metrics, oil is now MORE oversold than when it bottomed below $30/barrel.

What happens when oil reaches this level of oversold, historically? High odds of a sharp move higher, with median 1 year gains of 15.51% over the next year (with 77% probability). HT to Bullmarkets.co

However, know that nat gas has been on fire. The chart below is the very definition of a parabolic move higher. From its Feb lows, nat gas is up a big 64%, a move that has caught traders short gas, while long oil. The move lower in oil is purely technical in nature, produced by traders unwinding their record long positions and then shifting those funds into nat gas.

Death Cross, Russell 2000

As we’ve discussed this week (and on our daily podcasts, which can be accessed at vrainsider.com), the R2K has now experienced a “death cross”, where the 50 dma crosses over the 200 dma. The inverse is called a “golden cross”. Death crosses have a very real place in technical analysis, but its also helpful to study the analytics of past death crosses. Take a look at the breakdown of all death crosses in the R2K, going back to 1980.

Here’s what we see. Yes, in the very short term (1–2 weeks), a death cross is (slightly) negative. But take a look at what followed 1 full year later. Average gains of 14%. Not exactly befitting of the name.

Sentiment

Fear is (once again) running rampant in US equity markets. Take a look at the most recent investor sentiment readings (both updated last night):

CNN/Money Fear and Greed Index @ 7 (extreme fear). Any time this reading gets below 10, we are “very” close to an important market low and reversal higher. VRA Market System readings tell us that weakness may persist this week (momentum oscillators are currently in no mans land), but as we head into next week (Thanksgiving) the year end Christmas rally will begin to kick in.

Here’s the weekly AAII Investor Sentiment Survey: 35% Bulls, 36% Bears, 29% Neutral. While the AAII readings have yet to reach extreme fear, here too we see excessive bearishness.

Trade War

Earlier this week the WSJ reported that US/China trade talks have resumed, at the highest levels. Treasury Secretary Mnuchin is now directly involved. While this has never come close to an actual trade war, the global reset from Trumps trade policy has made its impact felt. We continue to expect a deal prior to year end…very hopefully at the G20 summit at the end of this month.

Bottom line: our views really have not changed. While we cannot rule out a retest of the 10/29 lows, we remain positive on US and global markets.

Until next time, thanks again for reading…

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