VRA Investment Update: Textbook Early Bull Market Action. Looking for 25% Move Higher
/Good Thursday morning all. Not only was yesterday's huge move higher in stocks a textbook display of a new bull market (with semis up 5%, nasdaq +4%, leading the way higher), but we saw it in the internals as well with an 88% upside volume day for NYSE and near 7:1 advance/decline. No one was buying J Powells hawkish comments…the markets know what’s coming next (rate cuts).
And here’s want really matters…the massive pattern change in the US Dollar.
On September 30th we noted that the US dollar had put in a “bearish engulfing candle pattern”, a high probability technical reversal signal, and that if the highs for the dollar were in place it would be bullish for stocks and commodities (gold, silver, oil, copper, etc).
Here’s what we wrote on 9/30/22:
Here’s what’s happened to the US dollar since that day. It’s been a one way ticket lower:
The sharp move lower in the dollar resulted in a near parabolic move higher in stocks, as the Dow Jones has soared 21% higher and the market leading semis (SMH) are up 38%.
We see the dollars move lower resulting in a sharp move higher in gold and silver as well, with gold up from $1622/oz to this mornings $1803/oz (back to its 200 dma).
Silver is up from $17.40/oz to $22.42 this AM, an impressive ramp of 28%. Silver is also back above its 200 dma
This is why the use of technical analysis plays an important role in our investment decision process. The VRA Investing System is made up of 70% fundamental and 30% technical readings. The dollars bearish reversal at the of September stood out like a soar thumb to us and because soaring dollar strength had been such a huge negative for risk-on assets, our work told us that the inverse should be true as well.
It remains our view that the highs are in place for the dollar, rates and inflation and that the Fed is now in the process of pivoting away from tight monetary policy to the next cycle of interest rate cuts. For a complete run-through of what J Powell “really” said yesterday, and the Fed’s next moves, you’ll want to listen to Tyler’s podcast from yesterday. As Tyler explained, the Fed has never really been serious about fighting inflation. Instead, their long-running shell game is more accustomed to mental masterbation for the sheeple and financial talking heads.
Give it a listen: https://anchor.fm/podcast-c2cff90/episodes/VRA-Investing-Podcast---Tyler-Herriage---November-30--2022-e1rifr8
Again folks, this is textbook bull market behavior. Classic “early bull market behavior”, with stocks beginning to aggressively discount the next rate cutting cycle.
In the very strongest of bull markets, the semis lead nasdaq and then nasdaq leads the rest of the market higher, which is exactly what we have seen.
VRA Economic Update
We were reminded this week, by a long-time VRA Member, of an announcement from the Atlanta Fed last week that places their Q4 GDP growth estimate at 4.3%. Granted, the Atlanta Fed has a reputation for being all over the map, but their GDPNow estimates tend to give us our best snap shot of economic growth at any one point in time. We share this for those that wonder how we can be so bullish on the markets, and yes, positive on the US economy.
In addition, Ed Hyman (Evercore), our favorite economist and best on the street for almost 5 decades, still sees a solid but weakening economy into mid 2023 with a possible recession late ’23 or early ’24.
To be clear, US economic growth has remained solid because of Trumps “America First” policies, which Biden has left largely intact (low taxes, Anti China policies along with tariffs, and the vast majority of Trumps deregulation).
And there’s a biggie that few seem to recognize which is the $3.5 trillion in stimulus that will continue to filter into the economy for another 3–4 years (it was staggered).
Remember, as Trump reminded us often, he structured his economic polices to drive the US economy forward for a decade plus. We’re still seeing direct evidence of that today.
The strongest part of the consumer economy are homeowners, which have their highest credit scores & home equity in history. Housing stocks are an incredible buy here, with many down 40% from the highs.
As Tyler and I covered in our new book The Big Bribe, we think there’s a decent chance that Biden pulls a Bill Clinton and pivots to the middle. If we’re right, the stock market soars over the next 2 years.
VRA Bottom Line: Our thoughts on the markets remain unchanged from the 10/13 capitulation, one of the most textbook cases of capitulation in my career; It’s increasingly likely that the bear market is over, just as inflation, interest rates and the US dollar have all peaked. Highly bullish and highly risk on.
In addition, and as we’ve been focused on for the last 45 days, the most powerful piece of analytics of my 37 year career; since 1952, from the midterm lows to 12 months later, the S&P 500 has had an average return of 32% with gains in every single midterm year (18 for 18). Again, hugely bullish for 2023.
Santa Claus looks to be coming to town a bit early. After 3 (brutal) bear markets in 4 years, aren’t we due a Merry Christmas this year?
Until next time, thanks again for reading….
Kip
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