VRA Investment Update: Shock & Awe. 10/13 Was THE day. Time for a Proper Bear Mkt Rally. Banana Republic.
/Good Friday morning all. “Shock and awe” might be the best way to describe the short covering melt-up yesterday as stocks had their best day since the end of coronavirus insanity. The Dow Jones jumped 3.7% while the S&P 500 ramped 5.5% while the Nasdaq skyrocketed 7.4%. As impressive as those numbers are, the semis (SMH) soared 10.5% with VRA Buy Rec SOXL (we’ve been pounding the table on this one), the 3 x leveraged semi ETF, was up an almost unbelievable 31%.
Here’s what we wrote on October 14th, the day after the 10/13 CPI Capitulation:
(VRA Letter. 10/14/22)
“The ugly market action of the last 2 months has seen the Dow Jones and S&P 500 fall 16–18%, while the tech heavy Nasdaq has collapsed some 23%. As a discounting mechanism, the markets have built in an extraordinary amount of bad news. And, as we’ve covered here often, an overwhelming combination of analytics (going back 70–100 years plus) tell us that a powerful cycle move higher is dead ahead…into and post midterms…which historically has been the best 12 months (plus) on record to own stocks.
But this market needed one important event…it needed capitulation. Welcome to yesterday.
With a 1500 point reversal in the Dow Jones, following another disappointing CPI report, extreme fear just met capitulation. It’s highly likely that this classic looking capitulation will mark an important market low.
As we’ve covered here often, 10 days ago the US dollar put in a bearish engulfing candle (topping signal).
Yesterday, the S&P 500 put in a “monster” bullish engulfing candle (below). Combined, these are high probability technical signals that point to the highs being in place for the dollar and the lows being in place for stocks.
In another classic sign of extreme fear, global money market funds just saw $89 billion of inflows for the week, the largest weekly injection into cash since April 2020, the week that the stock mkt bottomed following the coronavirus insanity crash.
In addition, mutual fund managers are holding a record amount of cash, also breaking the previous record from April 2020 (also at crash lows).
VRA Bottom Line: With cash levels at all time highs for money markets & mutual funds and with portfolio managers equity holdings at record low levels and with yesterdays clear case of capitulation, it’s likely that a significant rally into midterms & year end is underway.”
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So yes, we got this call right. A blind squirrel can find a nut every now and then…
And yes, we’ve been pounding the table on the semis. We also wrote this on 10/14:
* Since then, SOXL is up 97% (through yesterday). Last trade this morning; $12.40
VRA Bottom Line: as far as the semis (and broad markets) have come…the Dow is up 18% from those 10/13 lows…this move higher should have legs. It’s time that we had a proper bear market rally. The kind that shakes the shorts to their DNA and forces even the biggest of permabears to question their sanity. I look for this move higher to last into year end.
At some point in the next week or so we will reach extreme overbought on the VRA System. We will advise when its time to halt your buying…maybe even take some profits. The move higher into year end won’t be straight up…but we’ll also be looking to buy dips, using the VRA Investing System as our guide.
Our views are unchanged; we remain buyers of VRA Portfolio positions.
CPI Fireworks
While its true that one months economic data doesn’t make a trend, wow…what a CPI report we got yesterday. We now have our fourth straight month of decelerating, year-over-year inflationary data as the CPI fell to 7.7% from last months 8.2%.
As we’ve been forecasting, the markets have built in the vast majority of the bad news (regarding inflation). In one years time…likely 6 months…the buzzword should be “disinflation” and likely “deflation”. It’s simple really, once the unnecessary trillions in money printing ended, inflation had to begin to reverse as well.
Inflation is always, and has always been, a money printing event.
If you’re listening to an economist that cannot state these words clearly and simply, you are listening to an economist that is obfuscating on behalf of their masters at the Fed.
Also of note yesterday, U.S. bond yields recorded their steepest one-day decline in more than a decade, with the yield on the 10 yr falling 32 bips to 3.82%. With both the dollar and yields peaking (they have), Precious metals and miners will continue their sharp recovery moves higher. The dollar has peaked, as have rates. This group is must own here.
How Broken is Our System of Elections?
Katie Hobbs is now favored (by betting sites) to become the next Governor of Arizona.
Wins from Mouse Hobbs in AZ and Stroke Fetterman in PA. America is closer to becoming ungovernable than most have any idea.
We are a banana republic.
We saved the very best for last this morning. Happy Veterans Day to all who served this great Country.
We have so many great veterans here at the VRA. We appreciate you and thank you all for your service!
Until next time, thanks again for reading….
Kip
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