VRA Update: Beating Mr. Market. Liquidity Continues to Flood In.

As the markets continue to ride the wall of worry higher, hitting fresh all time high after fresh all time high, the VRA Portfolio is not only participating, but once again, beating Mr. Market at its own game. Here are the numbers for 2017:

S&P 500: +12%

Nasdaq: +20%

Russell 2000: +6%

VRA Portfolio: +41% 

The VRA Portfolio is aggressive...always has been and always will be...and it can be most closely compared to the Russell 2000 (small cap stock index). At 41% for the VRA (to 6% for the R2K), we are outperforming the small cap index by 6.8 times (or 680%).

About once a quarter I like to cover some VRA Core Principals and Portfolio Management concepts, especially important for our newer members but key reminders for us all. 

1) Again, the VRA is highly aggressive in our approach. I use the VRA System, a proprietary combination of fundamental and technical analysis, to help place us in the highest return investments possible. The VRA approach is not the right approach for everyone, but if you practice smart money management and portfolio diversification, the VRA can help you to crush Mr. Market (as we've done here for 13 of 14 years). 

2) Most use the VRA in addition to their conservative holdings (bank savings, bonds, retirement funds, insurance, etc). Only you know what the appropriate mix is, for your investment goals and your individual risk/reward personality. 

3) I never recommend more than 10 stocks. My goal is to crush Mr. Market and to do so with a diversified, but still concentrated approach. Over the years I've seen investors that hold 50-60 or more stocks in their personal portfolio. How they stay on top of all of them, I do not know. And, when they do have some big winners, the overall portfolio barely budges. If this is your approach, I would recommend instead the use of index funds, which give you both diversification and the ability to capture the returns of the major indexes. 

That's it really. Again, from my 32 years of doing this, day after day, the investment style that I recommend is the exact style that I use personally. I am a trend following investor that combines technical analysis (based primarily on price movement) with the fundamental analysis that was drilled into me on Wall Street, plus the wild card that only time can provide...a contrarian minded instinct, applying investor sentiment to keep us on the right side of market timing. 

Not all VRA recommendations will make us money. On those that go the wrong way (with a change in fundamentals or negative price action) we will take our losses and move on...removing emotion from the equation...while letting our winners run.

Important Point: Please remember to login to your VRA Members Site, at least once/week, to view the VRA Portfolio and make sure you are positioned properly. Also please remember that I am unable to provide individual investment advice....my Wall Street days are long behind me...but I will reply to your emails personally, and answer your questions the best way I am able to. 

VRA Market Update

Some big developments caught my eye over the weekend, as I ran my VRA scans and screens. Let's cover these...

1) EVERY major US equity index is now sitting at Extreme Overbought levels. While this does not mean that the markets are going to have a major correction, it does mean that we must tread a bit more carefully. Folks, it's from these types of extreme overbought readings that short term and painful sell-offs can occur. As you know, I watch the markets internals closely, and while I see no signs of an impending and sharp sell-off on the horizon, its the things that we cannot see that usually catch us by surprise.  

2) While I prefer the AAII Sentiment Survey, as you can see below, the USA Today Fear and Greed Index now sits at 77 (it was was 17 3 weeks ago). As a contrarian, we must be aware of these changes in investor sentiment.

3) Yes, P/E multiples are high...but they do not determine market direction. Instead, liquidity determines market direction. And man, do we have lots of liquidity in todays continued record low interest rate environment (which is fueling M&A activity and share buybacks). In addition, and for the first time in history, 3 central banks are adding to already massive debt holdings by also purchasing stocks. The PBOC, BOJ and SNB now own trillions in equities and buying more with each passing day. 

Its for all of these reasons...plus the fact that the world is returning to nationalism rather than globalism (a transformational event that few talk about) that I continue to be bullish on the markets. My 3-4 year DJ target remains 30,000+.

4) Inflation is returning...I write about it often...and this is another propellant for higher equity prices. The 1000+ PHD's at the FED seem to be missing the return of inflation, but we see it everywhere we look.

Check out the chart of gold below. Inverse head and shoulders patterns can be an indication that much higher prices are on the way. Once gold breaks $1400/oz, $1700 becomes my next target. Of course, the real leverage is in the miners...we'll make fortunes in this group over the next 1-3 years.

Until next time, thanks again for reading....

Kip 

VRA Update: Hurricane Harvey

Just a brief update and many, many thanks for your prayers and well wishes. We continue to be among the very, very fortunate...our home is dry and we are safe...but the number of our fellow Houstonians/Texans that cannot say the same is just staggering. Hurricane Harvey has left our area (as the waters continue to rise) and has now pummeled more of the Texas/Louisiana coast as it moved north. Absolute devastation for 100's of miles. You're never fully prepared for the horrific damage and destruction that water can inflict. We're looking at many months of recovery and rebuilding...but also know this; we will get the job done. 

Thank you again for your many calls, emails, texts and tweets...they are greatly appreciated. For those that would like to help, my advice is a donation to the Houston Food Bank at houstonfoodbank.org. Food, supplies and shelter are stretched thin. They do great local work.

Final point on Harvey. Anyone that believes the US is a deeply divided country...that we are a racist country...that we are a country at war with one another, is either a fool or is purposely misleading. Ignore the MSM that wants only to divide us. Fools indeed. Houstonians/Texans and all that have helped our area in time of real need are making this point better than I ever could. I have never been so proud to be a Houstonian, a Texan, an American. 

Thank you again.

Kip

VRA Update: The Stars Are Lining up Perfectly for Precious Metals and Miners

VRA Update: The Stars Are Lining up Perfectly for Precious Metals and Miners.

Aug 10, 2017

Good Thursday morning all. First this morning, a couple of important VRA reminders...for both our LT Subscribers and especially our newbies. My investing style is hyper aggressive...if you're looking for safe, mutual fund type returns, I am probably not your guy. I have one primary goal...to make my members wealthy. In order to do this, we must crush Mr. Market. Because, he certainly enjoys doing the same to us. 

As a rule, I never recommend more than 10 stocks at a time. I believe in building a diversified portfolio, but not overly so. It's hard to make huge returns if you own a portfolio of 50 stocks. I am from the Peter Lynch school of investing. I buy a stock...or an asset...and I continue to dollar cost average into it as long as the story continues to hold up. I believe that without a good management team, the company...regardless of the quality of their product or potential...has very, very little chance of succeeding, long term. 

My VRA Trading & Investing System combines fundamental and technical analysis. Roughly 70% fundamental and 30% technical. I study global trends and macroeconomics and long term cycle analysis. Please make sure and login to your VRA Members Site to ensure that you are positioned properly. 

Today, something most significant looks to be occurring. As we've been covering, the global reflation trade is picking up serious steam. Many/most of the most important base metals...used in manufacturing and construction all over the world...are soaring in price. We're now seeing 2 year to all-time highs in the prices of copper, aluminum, lead and zinc, to name just a few. These highly inflationary advances come at a time when global stock markets are soaring as well. Make no mistake about it, global growth is back. It will be followed by global inflation. 

Now, as of this morning, gold, silver and GDX (mining ETF) look very much like they are ready to go on a serious tear. The stars looks to be perfectly aligned. As I write, gold is up another $10/oz to $1289, a more than two month high. Silver has been ramping even further higher, as its doing again this morning, with a last price here of $17.16, +1.8%. GDX is showing gains of 1.3% this am, approaching the all-important $23/share.

From a technical point of view, here's the most important event occurring this am. For the first time in months, gold, silver and GDX are each trading above their highly important 200 day moving averages (dma). Combined with the fundamental reasons that I love precious metals and the miners, should these technical breakouts hold up, a flood of buying will begin to pour into this asset class. 

In yesterdays update I shared the cup and handle formation for gold. Here it is again. I repeat, this is a highly bullish technical formation. Here's what we want to see next; a move through $1300/oz...on heavy volume...followed by a move through the 52 week high of $1360/oz. Then the floodgates open. 

This morning, lets also take a look at the cup and handle formation in GDX (below). Frankly, this chart looks even better than the chart of gold. And remember, the miners move 3-5 x faster than the underlying commodity. 

Now, here's what we want to see happen next...and folks, what I'm about to say here is super important. GDX must break through the $23 level and it must hold over its 200 dma, currently sitting at $22.57. I also want to see the breakout occur on heavy volume, preferably back to back days of 100 million shares traded. These are our bogeys...they are most important. Should these events "not" take place, it will constitute a technical breakdown. Or should I say, another technical breakdown. Precious metals and miners went through a BRUTAL bear market of 3.5 years, from 2012 to late 2015. Following the lows of 2015, the move higher has been semi-consistent, but spotty and frankly, boring. 

This has resulted in the cup and handle formation we see today...a coiled spring of significant proportion. Just one event is left...the breakouts I've detailed in this update. Gold through $1300/oz and GDX through $23...on heavy volumes. All of the corroborating evidence that I see...both fundamental and technical...says that this breakout should occur now.

Until next time, thanks again for reading...

Kip

VRA Update: Something Big is Brewing in Precious Metals and Miners

My love affair with gold and silver...precious metals...goes back to when I was about 16. I listened in on a meeting with my father and a financial advisor as the advisor convinced my father to buy gold at $800/ounce. As you can see in the chart below, gold then proceeded to drop to $290/ounce over just the next couple of years.  

While serving as bad financial news for the Herriage family, the life experience was important for me. One, my love affair with gold was born and two, I was introduced to the importance of being an investment contrarian. When everyone is head over hills in love with an investment, as they loved gold back in 1980, that's almost always the time to consider selling that investment. 

Today, gold is rarely talked about, certainly not on Wall Street. The manipulators have suppressed the price of gold, while at the same time, global governments have printed money and issued debt like they were Weimer, Germany. From 1921 - 1924 (following the devastation of WWI), the German economy experienced a level of hyperinflation that the modern world had never seen. Before it was over, one gold mark would buy you 1 billion paper marks. By the end of 1923, $1 USD would buy you 4,210,500,000,000 German marks.  

 

And here's what it meant for gold investors in Germany. By November 1923, it took $87 trillion German marks to buy a single ounce of gold. #hyperinflation 

No...we're nowhere near this level of financial inanity/insolvency today. But then again, in 1919, how many Germans thought this could possibly be their future? Much less, within just 4 short years...?

The fear of the financial unknown...this is why we must own gold and silver today. Gold has served as the ultimate store of value for the last 5000 years. Gold remains as the only true currency on the planet. A planet that, historically speaking, has never seen a single fiat currency that has remained standing. Today, 1 ounce of gold will buy you the same high quality, tailored mens suit/womens dress that it would have purchased you 100 years ago. Since the creation of the Federal Reserve in 1913, the US dollar has lost 97% of its purchasing power, while gold has soared in value (most certainly after it was removed from the dollar peg in 1971. Thanks again Nixon).

But precious metals are more than just gold & silver. I believe that we must own the shares of the companies that produce them as well...the gold/silver miners. Remember, during the Great Depression, the single best stock to own was Homestake Mines. During the 1930's, $1000 invested into Homestake would have turned into $6,760 (by 1938), a return of roughly 600% (close to 800% with dividends)...as the rest of the stock market plunged in value. 

It's with this historical backdrop that I make the case again for mining stocks, particularly after the events and results we've just witnessed. I believe they are forecasting a most significant breakout that's just around the corner. This week, two global mining stock leaders, Freeport McMoran and Newmont Mines, reported earnings. Yes, their earnings reports were solid...but as always, it's the markets "reaction to the news" that I believe we should be paying the most serious attention to.   

First up, Freeport-McMoran (FCX). FCX was up a huge 15% on their earnings beat. Again, their earnings might have surprised Wall Street, but anytime a stock surges 15% it tells us that something else is likely going on. As the chart below makes clear, this ramp took FCX convincingly back above both its 50 & 200 dma and a clear break of the bearish downtrend line. This kind of one day move is rarely a one-off, particularly when it comes on the heaviest volume in more than 6 months. In gamblers parlance, this kind of move is a "big tell". I believe its telling us that the bull market for the miners is back.    

 

But FCX was not alone....Newmont Mines (NEM) ramped a big 7% as well. NEM is the worlds largest miner and as a market leader, their earnings and stock action are followed very closely. We see very similar chart action to the move in FCX, with a clear break of a bearish trend line and a breakout of both its 50/200 dma. Again, I see this as highly bullish for the entire sector. 

 

Finally for now, lets take a fresh look at GDX (miner ETF). This is where the move MUST play out for us to officially become wildly bullish again. GDX may have been up less than 1% (.91%), but gold was down .41%, making GDX's gain more impressive. 

What must we see? I want to see GDX close convincingly above both its 50/200 dma. But again, I said "convincingly", meaning that I want to see GDX close above $23/share...and yes, I prefer that it happens on strong volume (as we saw in both NEM and FCX). 

I believe that it's very possible that we get a big move higher for GDX. I can tell you that LOTS of traders are watching for exactly this. 

I first recommended gold and silver in my second-ever VRA Update (in 2003). Gold was trading at less than $400/ounce and silver was just under $5. Combined, VRA PM & mining stock related profits have topped 3000%, since inception. 

It's my belief that the coming bull market in PM's and miners will be nothing short of extraordinary. We'll soon know if the rest of the investing world feels the same way... 

Until then, thanks again for reading...

Kip

VRA Update: Dow Theory BIG Buy Signal. Investor Sentiment Buy Signals Continue.

VRA Update: Dow Theory BIG Buy Signal. Investor Sentiment Buy Signals Continue. 

The markets continue to flash buy signal after buy signal as FED Chair Yellen hints loudly that we may see only modest rate hikes going forward...looks like someone is trying to keep their job (her term ends early 2018 and the inside word is that Trump is looking to replace her). There can be zero question that the president...regardless of who that person may be...wants interest rates to stay low for as long as possible. Near zero percent interest rates over the last decade have propelled stock markets higher around the world and have made the acronym TINA (There is No Alternative) the go-to investment theme of our time.

As tens of millions of retirees have learned the hard way, the days of putting your lifelong savings into CD's and bank savings accounts and expecting a decent retirement income are GONE. Of course, this was the FED's intention all along; force rates down to nothingness...which then forces investors into the stock market. Stocks of course are a far riskier proposition for investors but it's also forced trillions into the stock market (which then trickles into the economy), helping to propel price to earnings multiples into the stratosphere. 

Yes, QE (quantitative easing)...which totals $4.5 trillion in the US alone...is the ultimate in trickle-down economics, an economic concept first made popular by Ronald Reagan. Regan believed that by lowering tax rates (on both individuals and corporations) that the resulting prosperity would then "trickle down" throughout the system. The end result was the greatest bull market is US history. 

Today, the FED's QE represents a new breed of trickle down economics...but you'll hear NO ONE talk about it on TV or in MSM. Negative conversations about the FED are simply not allowed. If you think I'm kidding...I am not. Ask yourself this question; when is the last time you've heard...anywhere in the MSM...about the risks that out of control, money printing central banks are creating? 

I rest my case...

But folks, fighting the FED makes little investment sense...central banks are the investment "gods" (little g) of our time.

This is when I am forced to return to the wisdom of my early mentors...Michael Metz of Oppenheimer and Ted Parsons of Underwood Neuhaus (my first investment firm). Both of these investment giants have since passed away, but not a day goes by that I don't recall their wisdom. Both men taught me that "fighting the tape and fighting the FED" is the quickest way to the poor house. Today, with markets at all-time highs, it mights ZERO sense to "fight the tape". Secondly, and equally as important, with central banks determined to keep rates low while themselves buying stocks hand over fist, it's clear that "fighting the FED" is even more dangerous. 

Bottom line; regardless of the nosebleed territory we find the markets in, as smart money investors, we must continue to look for opportunities to make money on the upside. Perma-bears will ultimately turn bullish as well...and then...this is when the VRA will recommend getting out of the markets and going short. 

We have a big week in front of us with second quarter earnings fast approaching. Beginning tomorrow, the big banks start reporting...then next week, its really on. Here are the most important earnings reports of the coming week:

Friday:

 

JPM

Citi

PNC

Wells

Next Week:

Netflix

BofA

Goldman

J&J

UNH

Harley

IBM

CSX

MStanley

Amex

Qualcomm

eBay

Microsoft

Visa

GE

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Next up, the weekly AAII Investor Sentiment readings were released and it's almost hard to believe what we see here. Bulls are at just 28.2% (down 1.3%), bears are at 29.6% and a BIG 42.1% of investors are neutral. 

Sure, lots of complacency...which is always a concern...but I'll repeat, until the bullish percentage breaks 50%, and then stays over 50% for multiple weeks, any kind of serious market top is HIGHLY unlikely. Incredibly, bears still outnumber the bulls. And, because we know that investor sentiment is one of the best gauges of where stocks are headed, we must continue to bet on higher prices...as in MUCH higher prices. BTW, this is the 19th consecutive week that optimism is below its long term average of 38.5%. Wow.... 

AAII Investor Sentiment Survey

Since 1987, AAII members have been answering the same simple question each week:

[Do you feel the direction of the market over the next six months will be up (bullish), no change (neutral) or down (bearish)?]

The results are compiled into the AAII Investor Sentiment Survey,

which offers insight into the mood of individual investors.

Survey Results for Week Ending 7/12/2017

Data represents what direction members feel the

stock market will be in next 6 months.

The AAII Investor Sentiment Survey has become a widely followed measure of the mood of individual investors. The weekly survey results are published in financial publications including Barron's and Bloomberg and are widely followed by market strategists, investment newsletter writers and other financial professionals.

Next up, and I remain amazed that so few are talking about this, both the Dow Jones and the transports hit an all-time high on the same day. Again, my mentors were BIG on something called the "Dow Theory Buy Signal" (with thanks to Richard Russell, a major adapter of this concept, who has also since passed away). Russell and I used to speak 1-2 times a year, having first met him when I was in my late 20's, and his research when like this; when both the Dow and Transports are in confirmed bull markets, we MUST be bullish. Not many refer to the Dow Theory today, but again, with combined fresh all time highs on the same day, this confirms for us exactly how positive the markets remain. 

Here's the 1 year chart of the trannies. Big, beautiful breakout higher....it tells us that LOTS of economic growth is taking place because LOTS of stuff is getting transported.  

The VRA will continue to look for opportunities on the long side of the equation. Companies that will be major beneficiaries of the continuation of the global reflation trade.

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Until next time, thanks again for reading....

Kip