VRA Update: Tax Bill Volatility. FED Rate Hike. Fresh All Time Highs fro 2018. Gold v Bitcoin
/Good Friday morning all.
Busy week with Tax Reform and the FED Rate Hike, I will get right to it.
The FED acted just as we expected, hiking rates by .25%, the 5th rate hike since December 2015. Yellen had a number of interesting comments at her presser as well.
1) We remain perplexed about what's happening with inflation (not me...its everywhere we look).
2) Bitcoin/cryptos are not under our purview. We cannot regulate it. It's also not large enough to be a systemic risk (as I've predicted, I see no harmful regulation here until the combined market cap of all cryptos reaches $1 trillion...we're about 34% of the way there).
3) The economy is picking up steam (duh), but they only raise their growth forecasts modestly (they're wrong again...its now likely that we will have 3.5% GDP...or higher...in 2018).
Tax Reform
Mid-day yesterday the rumor began to float that Florida Senator Marco Rubio "may not" support the tax bill. The 125 point reversal in the DJ and the 1.1% decline in the Russell 2000 gives us an idea of what might happen should tax reform fail...we could easily see a drop of 1000 points in the DJ...maybe more. This morning, a reversal from Rubio...he says he's voting yes...but its a paper thin margin headed in to next week.
US futures are sharply higher this morning, pointing to a +100 point open on the DJ. I put the odds at 90% that tax reform passes. The markets have been telling us that it will. But in 2017 politics, we know that anything can happen. Hedging with some deep out of the money index puts or VIX calls might not be such a bad idea. You'll most likely lose your entire investment...but should the bill fail, you'd make 5-10 x your money (again, I see the bill passing).
Yesterdays internals were not good. Weakest in 3 weeks. Should we have 3 straight days of readings like this, the VRA System would flip to "short term neutral" from "ST bullish". Watching closely...but as we've seen throughout this entire move higher for 2017, these negative readings do not tend to last long.
Weekly AAII Investor Sentiment Survey
Here are the weekly AAII Investor Sentiment Survey readings from late yesterday. Bulls now sit at 45%, bears at 28.1% and neutral investors at 26.9%. This weeks bullish readings match the 2017 highs from last month. Yes, investors are beginning to get excitedly positive about the stock market...but still nowhere near the 60% levels that will force us to think like a contrarian (and become concerned about being part of the majority).
Going forward you'll hear me discuss this concept more, but I see the move in cryptos as LT bullish for growth stocks...just like the ones that we own.
Gold and Miners
With a couple of weeks left in the year, gold has gains of 9% and silver is down slightly. Not the worst year ever...but you wouldn't know it from the sentiment surrounding precious metals and miners. The crypto currency action has drained the excitement from PM's...theres little doubt about this...while price suppression from bankers has continued. Gold, silver and the miners continue to trade below their most important moving averages, but as we've covered here, based on the last 4 FED rate hikes we should have a powerful move higher directly in front of us.
Take a look at my Twitter Pole from earlier this week
Which asset will perform better in 2018....gold or Bitcoin?
You know I'm a contrarian. Hence, you know how I believe 2018 will turn out (Gold wins).
VRA Portfolio
Lastly, a quick recap of 2017, the VRA Portfolio has a net gain of 411% on all Buy Recommended stocks (including the '17 profits we've already locked in). This puts us at an average return per stock of right at 30%.
To our new Members, please make sure to log to your VRA Members Site at least 1-2 x each week. Make sure you are positioned correctly...we're going to have some fresh trades here by year end.
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Until next time, thanks again for reading..
Kip
