VRA Investment Update: Sentiment Hitting 90th Percentile Bearish Readings. Analytics Say “Buy".
/Good Thursday morning all. Another volatile day of trading yesterday influenced by fears of global bank runs. Of note, in the last two trading sessions the smart money hour was met with strong buying pressure (with tech leading the way).
Fear is, once again, rampant. We see it this morning in both the Fear & Greed Index and the AAII Investor Sentiment Survey. Contrarians are taking notice.
The Fear & Greed Index just hit 18, or a reading of Extreme Fear.
* This places the reading in the 90th percentile of bearish readings.
AAII Sentiment Survey
AAII bulls sunk 5.5% to 19.2%, the lowest reading since it hit a yearly low of 17.7% bulls on 9/21.
Bears jumped 6.5% to 48.4%, the most bears since 12/21 when they were 52%.
*This reading, like the Fear & Greed Index, is in the 90th percentile of bearish readings.
VRA Trading Notes: Sentiment is hitting “extreme fear” just as our major indexes break slightly below their 200 dma & also as they are hitting extreme oversold on our VRA Momentum Oscillators. The Fed is done (although they’ll likely follow through with .25% hike next week to save face)…with a rate cutting cycle to follow….as the economy is in ok shape today (but likely recessionary later this year).
And, we’re in the most bullish year/months of the presidential cycle. With 8/12 VRA investing System screens bullish, we like this setup. It’s just important that we regain the 200 dma for our major indexes.
From last Fridays VRA Letter: “No bank runs…no stock market crash”
“Getting lots of questions about bank runs and crashes, especially after yesterdays 8% destruction in the bank index (BKX). While in todays Fed engineered craziness these risks are omnipresent, I put the odds of either bank runs or a stock market crash in the “very low” category. If you’ve followed our work for long you know how much I dislike bank stocks. Banks are dead money, period, and I don’t expect that to change. When’s the last time you went into a bank? I doubt its very often. Banks are sitting on commercial real estate that is losing value, a trend that will likely get even worse. And banks have far too many employees. I see large numbers of layoffs coming in this group.
But, this is not 2008. Banks have an earnings problem but they do not have a solvency problem.”
How remarkable is this; futures markets are now projecting a Fed Funds rate of 4.10% by the July meeting, meaning 50 basis points of rate cuts in the next 4 months. That’s 150 basis points of looser Fed policy in less than one week.
From JP Morgan yesterday: “The bond mkt has moved from pricing in 3 rate hikes & zero cuts this year to pricing in zero rate hikes and 3 rate cuts this year.” Stunning…
Earlier this week I wrote; “this was J Powell’s 5th major policy mistake in 6 years (475 basis points of rate hikes in a year)”. I retract that statement. The Federal Reserve is a key member of the most powerful cartel on the planet (banking/fiat currency). They don’t make “big” mistakes…
The Fed’s winners? JP Morgan, Goldman Sachs, Bank of America, etc…major money center banks. The assets and deposits they’re picking up from this regional bank debacle should ultimately total in the “trillions”. Rinse and repeat, post 2008.
Tyler and I wrote extensively about our ongoing era of “financial engineering” in our new book “The Big Bribe”; what we’ve just witnessed is almost certainly part and parcel of the ongoing melt-up of financial assets that we expect to continue in the years to come. We highly recommend the continued ownership and purchase of assets that will separate (financial) winners from losers: real estate, housing, stocks, precious metals and miners, and yes, Bitcoin.
S&L Crisis (1988–1995): Some Perspective
A reminder that 747 financial institutions failed during the S&L crisis…32% of all Savings & Loans…totaling more than $400 billion in bank losses. All of this happened during a bull market, as the Dow Jones more than doubled, without a financial crisis. A bit of perspective always helps.
Know this: post 2008, global central banks have gone all in on backstopping the banking and financial system. Now they’ve done it once again with SVB and Credit Suisse. Until and unless that changes, we stay the course.
It’s a good time to revisit the analytics for 2023…
Powerful Analytics Point to 2023 as a Boom Year
As a reminder; you have to look hard to find analytics more bullish than we’ve seen to start 2023. This is, in fact, the most bullish piece of analytics of my career.
Since 1950: when you have a down prior year plus a positive Santa rally plus a positive first five trading days of the new year plus a positive market in January (all of these happened), the market has been up on average 29.1% with gains 100% of the time.
In addition, the 3rd year of the presidential cycle is the most bullish year (period). Since 1950 the markets have been higher 18/18 times in the year following midterm elections with average gains of close to 19%. Add that second half of March and April are two of the most bullish months of the year.
VRA Bottom Line: beginning on 2/2 we began warning that the markets had reached “extreme overbought levels” on the VRA Investing System. This is when we use patience before adding to positions in our our ETF’s while we continue to use monthly dollar cost averaging on our VRA 10-Baggers. We expected any market weakness to be short-lived and we are once again buyers on dips, like this one. This has the markings of a big year for the US and global stock markets. 30% + in US.
Until next time, thanks again for reading.
Kip
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