VRA Weekly Update: ATH Broken Record. Small Caps Are Leading…Next Up. VRA Rate Forecasts. MSM is Waking Up to CV Insanity.

Good Thursday morning all. Yesterday marked the 51st record close in S&P 500 this year and another ATH in Nasdaq, as it holds above the 15,000 plateau. And our internals put up another positive day…that’s 4 in a row, which hasn’t happened in several weeks. And this biggie; for the 4th day in a row small caps led the markets higher. How bout that sports fans….just 5 days after hitting the 200 dma and extreme oversold on our momentum oscillators, the Russell 2000 is now leading higher. 

Our friends at the Stock Traders Almanac have some interesting seasonal research this AM on the small caps (I first met STA founder Yale Hirsch in 1988 over dinner at Tavern on the Green. Yale is true Wall Street legend….one of the fathers of analytics). STA says small caps should outperform here, have a tough September and then really pick up speed in October, as they melt up into March.

“In the below chart, daily data since July 1, 1979 through August 20, 2021 for the Russell 2000 index of smaller companies are divided by the Russell 1000 index of largest companies, and then compressed into a single year to show an idealized yearly pattern. When the graph is descending, large-cap companies are outperforming small-cap companies; when the graph is rising, smaller companies are moving up faster than their larger brethren. The most prominent period of outperformance generally begins in mid-December and lasts until late-February or early March with a surge in January. This period of outperformance by small-caps is known as the “January Effect” in the annual Stock Trader’s Almanac.

In recent years, another sizable move is quite evident just before Labor Day. One possible explanation for this move is individual investors begin to return to work after summertime vacations and are searching for “bargain” stocks. In a typical year, small-caps would have been lagging and could represent an opportunity relative to other large-cap possibilities. As of today’s close, Russell 2000 is up 13.4% compared to the Russell 1000 being up 19.0% year-to-date. Lagging small-caps and resilient U.S. consumers could be the ideal setup for a repeat of this pattern this year. However, the small-cap advantage does historically wane around mid-September.” — — 

Here’s the relative strength chart of small caps (IWM) to S&P 500 (SPY) over the last year. Talk about a tale of two seasons. From last September to March, small caps trounced their large cap brethren. But since the March top, small caps have been battered hard. Here at the VRA, where we own multiple small caps, we are adding to positions aggressively for the next melt up move higher. A rising tide lifts all boats…we see little chance that this bull market continues without taking the small caps with it.

Amazing value in our small caps (to learn more join us free for 14 days at VRAinsider.com)

All eyes are on our money printing rock star J Powell tomorrow as he graces us with his presence at the annual Jackson Hole Wyoming celebration of our financial masters of the universe. Last year at this time the 10 year yield was 1.9% and as our PHD economists (most all employed by the Fed in one way or another) reminded us daily, “without question” the 10 yr was headed to 2.5%…then 3%. Then higher still. Oops!

The VRA forecast remains unchanged. 

- Rates will only go lower. This is Obama’s 3rd term (slower growth is “the way”).

-The Fed doesn’t raise rates when a Dem is prez. So it is written, so it must be. 

-We’re about to enter the flu season…get ready for mass hysteria fear mongering…which of course sets the table for mail in ballot and drop box vote rigging in next years mid-terms. Rates CANNOT rise during CV propaganda season. 

- And continued lower rates will only be a positive for US equities. And if we had to pick a single reason to be hyper-bullish, it would have to be investor sentiment. The AAII sentiment survey sits at just 39% bulls…the fact that it’s not 60% bulls with ATH after ATH is both stunning and fully understandable (the last 20 years have fried our minds…and the last 19 months have charred our souls). 

But seeing the Fear and Greed Index at just 37 (fear) just drives the point home even further. This bull market has FOREVER to go.

And even the infamous Martin Armstrong is actually getting positive. Martin agrees with us…R’s will steamroll next year and Bidens reign of cowardess will soon be neutered. 

“I know it can get depressing. I really hate this nonsense. But when I look at the charts, all the markets are indicating that this merry band of Climate Change fanatics who has organized the biggest scam in human history over COVID to change the economy suggests that they will FAIL. Yes, there are climate concerns, but those are natural. That is the imminent collapse in the Gulf Stream which will send Europe into a much colder period.

Our Yearly Political Models on the combined Left (House & Senate), have shown Panic Cycles in 2021 and 2023 with the biggest turning point being here in 2021. The numerous Directional Changes also show a conflicting pattern so I do not see that this Democratic Trend is some new direction that would even last into 2024.

When we focus just on the Senate, here we have Panic Cycle in 2022 and 2024 in both the Republican and Democrat databases. So, once more, this does NOT look like this is going to be clear-sailing for Biden. Given his unbelievable handling of Afghanistan, his approval rating fell below that of even Trump. He is now asking for contingency plansbecause like everyone I knew in Washington, on both sides, always had the same opinion. Biden was never a leader. Meanwhile, the Democrats have totally lost their mind proposing a $3.5 trillion bribe they think will secure their election in 2022.

So Cheer up! They will fight hard, but they will lose this battle. Their entire idea of crushing the economy to Build Back Batter is absurd. At some point, even the sheep wearing their masks in the car will wake up when it comes to the loss of their entire future. Resistance is NOT FUTILE! The police in New York City are refusing to comply with these mask mandates and we see similar rejections by the police in Switzerland and Italy.

So Cheer UP! — We are going to win this immediate battle.”

CV Insanity. The MSM is waking up to actual science.

Until next time, thanks again for reading…

Kip

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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: Q3 is Here. Welcome to Best Day and Best Two Weeks of the Year.

Good Thursday morning all. Excellent day in the Dow Jones yesterday (+210…we love both the Dow and R2K charts here) but slow summer-like day elsewhere. ATH’s once again in S&P 500 and we’ve now had back-to-back-to-back days with ATH’s in the semis as SMH put up a bit of a furious rally into the final 15 minutes to close just slightly green (we own SOXL, the 3 x Semi ETF), as semis and tech have continued to lead the way higher. Little is more bullish….semis lead nasdaq/tech, nasdaq leads everything else.

Dow futures +50, nasdaq -10 this AM.

Reminder that we’ve now entered the best 2 weeks of the year for US stocks, as Q2 has come to a close. Significantly, this is the beginning of both a new month and a new quarter. Historically “highly bullish” time frame.

Here come “serious” equity inflows from pensions, 401k’s, retirement funds (again, fresh month and a fresh quarter) along with record levels of share buybacks and the anticipation of Q2 earnings reports (which kick off mid-month).

The path of least resistance for stocks remains higher.

And a reminder that today (the first trading day of July) is THE most bullish day of the year over the last 32 years. From Stock Traders Almanac;

“On the first trading day of July the S&P 500 has advanced 87.5% of the time (up 28 times in 32 years) with an average gain of 0.49%. DJIA has advanced 26 times in the same 32 years (81.3%) and NASDAQ has risen in 24 of those years (75.0%) with an average advance of 0.33% in all years.

No other day of the year exhibits this amount of across-the-board strength which makes a solid case for declaring the first trading day of July the most bullish day of the year over the past 32 years.

VRA Macro Mega Themes: Many continue to miss the most important mega themes of our new bull market. We’ve targeted these key points for most of the last year. They include:

-This IS a new bull market. It will last for years. Dips are to be bought.

-It’s driven by massive liquidity and a surging US and global economy. The Fed continues with $120 billion/month in QE. Even when the Fed begins to taper…whenever that may be…it will only “taper” their purchases. And even when the Fed starts hiking rates (circa mid 2023, if ever), history tells us that the markets continue to rise through “at least” the first 3 rate hikes. And globally we now have $30.5 trillion in fiscal and monetary stimulus. Holy liquidity batman. Don’t fight the tape…Don’t fight the Fed…and never ever, ever, ever fight an unprecedented mountain of global liquidity. 

-Millennials (and the investing public) have fallen back in love with investing/stocks/real estate. We have cryptos to thank for this. Millennials are in the process of inheriting $70 trillion and they are plowing it into stocks/real estate/cryptos…and they have diamond hands. Massively underreported and hyper-important short-medium and long term investment theme. 

-The Fear and Greed Index still sits in FEAR territory, even as we’re at ATH’s. It’s hard to express our amazement at this action in investor sentiment except to say “this is not how sentiment reacts when we’re anywhere near any kind of market top”. 

-This remains a PSYOP. The Big Bribe, meant to make us forget about CV insanity, a rigged and stolen election and the ongoing theft of our constitutional rights. And if Dems want any shot at retaining their across the board power in DC…unless they find a way to rig congressional races all across the country…they require a strong economy and market. And of course, their besties….the Federal Reserve…will do everything in their power to make that happen. AKA “lower rates for longer”. 

Fastest Earnings Recovery Ever. 

As the graph below makes clear, S&P 500 earnings have demolished both the recent past and most all analyst estimates. Even today, analysts have S&P 500 earnings at just $191.29 by year end.
Like our friends at Evercore (right as rain), we’re looking for “at least” $205/share by years end. And no, Q2 earnings will not mark peak earnings.

And every sell side (retail) analyst on Wall Street has missed the size of the move higher this year. They’ve all been on the low side. 
(just not your two guys from Texas…)

Finally for today, The June jobs report is tomorrow. If you’ve been with us long you know that we couldn’t care less about monthly economic data of any sort. We pay attention to trends…that’s what the VRA Investing System keys off of. 

But, if I had to make a forecast…it’s just so hard to trust this data month to month, whether in an R or D administration…I’d guesstimate that tomorrows jobs report will be another disappointment (which would make 3 straight reports with a miss to estimates). Here’s why; with so many fresh trillions in stimulus (fiscal and monetary) working its way into the US economy, this fiat money actually serves as competition to a free market economy. That competition serves to rob the normal functioning power of an economy and jobs growth with it. We saw exactly this during Obama’s 8 years (minimum wage job growth was solid, high paying jobs growth not so much) and I expect more of the same during Biden’s time.

What does this mean? I expect slower growth going forward. Not a recession…nothing like that…just an economy that acts like its been manipulated and manufactured…because that’s just what is taking place. 

It also means lower rates (for longer, possibly even negative rates in the US by end of 2024) and much more stimulus and QE. #QEInfinity. And yes, all of this fits well with our melt-up theme for US and global stock markets.

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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