VRA Investment Update: Textbook Front-Running Liftoff into April. Semis Are Breaking Out (again). New Buy Signal for Precious Metals and Miners.
/Good Thursday morning all. A major investing theme, as taught to me in my 20’s by both of my mentors (Ted Parsons and Mike Metz, RIP gentlemen) goes like this;
1) bull markets follow bear markets
2) the markets go up (much) more than they go down
3) the only way to insure wealth creation, via the stock market, is to make the commitment of being a long term investor
You’ll notice that these investing tenets also line up with the greats like Peter Lynch and Warren Buffett. That’s because they work.
Over my career I’ve battled the permabears (list builders and fear mongers), whose message has essentially the same over my 37 year career; “the entire system is going to crash, because…”
Today, the fear porn message is about a banking crisis, but as we’ve covered often, this is not 2008. It could hardly be more different than 2008. The homeowner has rarely been in better financial shape (backbone of the system), millennials are flush with cash, and as the largest and soon to be wealthiest segment of the population, have fallen in love with housing, real estate, stocks, cryptos and entrepreneurialism. Corporations have more cash on hand and less debt (as a percentage of revenue) than at any point in history. The world is awash in liquidity, featuring more millionaires and billionaires than ever before along with global wealth creation occurring at breathtaking pace.
Again, this is not 2008.
As contrarians, with fear echoing through the investing markets, it’s times like these that we take aggressive positions in order to profit, as only contrarians can.
Bull markets love climbing a wall of worry…that’s the exact set-up of today.
Yesterday was textbook “lift-off” action, as front-running into the month of April looks to be underway. 85% up-volume in both NYSE and Nasdaq along with 4:1 advance/decline for NYSE, with the semis leading the way higher (+3%). Again, textbook.
Reminder that April is not only a new month but a new quarter as well, meaning that significant fund flows from pensions, retirement funds, etc….into equities….will begin to take place (starting Monday). Hence, the front-running that we saw yesterday and that we’ll likely see again today and tomorrow.
In addition, we are smack dab in the middle of the best month and quarter(s) to be an investor, as we also find ourselves in the best year to be an investor, period (pre-presidential-election year).
Add that cash levels are at all-time highs, for both retail and institutional accounts…a massive buy signal for contrarians…and you have a situation where the planets all look to be aligned. If you believe in multi-verses, all the universes look to be aligned.
Technically speaking, we’ve just had multiple tests of the 200 dma for our major indexes and like champs, they’ve ripped higher from these important support levels.
When we combine the buy signals above with the fact that we now have 9/12 VRA Investing System Screens flashing “bullish”, Tyler and I could hardly be more optimistic for what might just be a “melt-up April”.
This is what I wrote on Tuesday:
“The larger point, IMO, is that we have just 4 trading days left in the month of March and if my spidey senses are correct, April has the potential be a “short squeeze” month of size and scope. A melt-up month. The bears are once again positioned exactly wrong (heavy cash, short stocks), just as we enter the best month of the year (especially in pre-election years), while also in the best year to be an investor, period (pre-election year). I wouldn’t be surprised to see the markets begin to “front-run” higher, in anticipation of a surging April for stocks. We are positioned perfectly for this.
The Stars Are Aligned for a BIG April. Contrarians are Salivating.
How remarkable is this. Money market funds have just reached their highest levels in history, with $5.1 trillion parked in the safety of cash. Folks, this is more cash on the sidelines than we had during coronavirus-insanity.
Know this; this is not when big moves lower take place. This is when big moves higher take place.”
The Semis Are Breaking Out (again)
If you’ve been with us for a while you know that we focus on the action of the semiconductors a great deal. The semis lead in both directions…they are the ultimate tell for market direction.
This morning the semis are breaking out to fresh 10 month highs. SMH, (Semi ETF) is up a rather remarkable ~58% from the 10/13 bear market lows…a top-5 market capitulation of my career. Classic reversal signs, again, led by the semis (and housing and trannies).
We’re now looking for the broad market to follow the semis to fresh highs as well, which would result in an 8–10% move higher from here in the S&P 500. As to when the semis (and other ETF positions) might hit overbought levels on the VRA System that would result in us potentially taking profits? Depending on the speed of the move higher, we should have 2–3 weeks before we have to make that decision.
Buy Signal for Precious Metals; The Miners Are Leading Higher
Below, in this relative strength chart of miners (GDX) to gold, we see that the miners are leading the way higher and have been for the last 3 weeks. The last time the miners began to lead (last October) we saw a 51% move higher in GDX over a 4 month time frame. When the miners are leading higher there is no better buy signal for gold/silver. We highly recommend the ownership of gold miners, physical gold, and silver. New all-time highs in gold are less than $100 away…and the miners have never been cheaper (period). The leverage is in the miners, as they move 3–5 times faster in bull markets.
Until next time, thanks again for reading.
Kip
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