VRA Update: Dow Theory BIG Buy Signal. Investor Sentiment Buy Signals Continue.
/VRA Update: Dow Theory BIG Buy Signal. Investor Sentiment Buy Signals Continue.
The markets continue to flash buy signal after buy signal as FED Chair Yellen hints loudly that we may see only modest rate hikes going forward...looks like someone is trying to keep their job (her term ends early 2018 and the inside word is that Trump is looking to replace her). There can be zero question that the president...regardless of who that person may be...wants interest rates to stay low for as long as possible. Near zero percent interest rates over the last decade have propelled stock markets higher around the world and have made the acronym TINA (There is No Alternative) the go-to investment theme of our time.
As tens of millions of retirees have learned the hard way, the days of putting your lifelong savings into CD's and bank savings accounts and expecting a decent retirement income are GONE. Of course, this was the FED's intention all along; force rates down to nothingness...which then forces investors into the stock market. Stocks of course are a far riskier proposition for investors but it's also forced trillions into the stock market (which then trickles into the economy), helping to propel price to earnings multiples into the stratosphere.
Yes, QE (quantitative easing)...which totals $4.5 trillion in the US alone...is the ultimate in trickle-down economics, an economic concept first made popular by Ronald Reagan. Regan believed that by lowering tax rates (on both individuals and corporations) that the resulting prosperity would then "trickle down" throughout the system. The end result was the greatest bull market is US history.
Today, the FED's QE represents a new breed of trickle down economics...but you'll hear NO ONE talk about it on TV or in MSM. Negative conversations about the FED are simply not allowed. If you think I'm kidding...I am not. Ask yourself this question; when is the last time you've heard...anywhere in the MSM...about the risks that out of control, money printing central banks are creating?
I rest my case...
But folks, fighting the FED makes little investment sense...central banks are the investment "gods" (little g) of our time.
This is when I am forced to return to the wisdom of my early mentors...Michael Metz of Oppenheimer and Ted Parsons of Underwood Neuhaus (my first investment firm). Both of these investment giants have since passed away, but not a day goes by that I don't recall their wisdom. Both men taught me that "fighting the tape and fighting the FED" is the quickest way to the poor house. Today, with markets at all-time highs, it mights ZERO sense to "fight the tape". Secondly, and equally as important, with central banks determined to keep rates low while themselves buying stocks hand over fist, it's clear that "fighting the FED" is even more dangerous.
Bottom line; regardless of the nosebleed territory we find the markets in, as smart money investors, we must continue to look for opportunities to make money on the upside. Perma-bears will ultimately turn bullish as well...and then...this is when the VRA will recommend getting out of the markets and going short.
We have a big week in front of us with second quarter earnings fast approaching. Beginning tomorrow, the big banks start reporting...then next week, its really on. Here are the most important earnings reports of the coming week:
Friday:
JPM
Citi
PNC
Wells
Next Week:
Netflix
BofA
Goldman
J&J
UNH
Harley
IBM
CSX
MStanley
Amex
Qualcomm
eBay
Microsoft
Visa
GE
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Next up, the weekly AAII Investor Sentiment readings were released and it's almost hard to believe what we see here. Bulls are at just 28.2% (down 1.3%), bears are at 29.6% and a BIG 42.1% of investors are neutral.
Sure, lots of complacency...which is always a concern...but I'll repeat, until the bullish percentage breaks 50%, and then stays over 50% for multiple weeks, any kind of serious market top is HIGHLY unlikely. Incredibly, bears still outnumber the bulls. And, because we know that investor sentiment is one of the best gauges of where stocks are headed, we must continue to bet on higher prices...as in MUCH higher prices. BTW, this is the 19th consecutive week that optimism is below its long term average of 38.5%. Wow....
AAII Investor Sentiment Survey
Since 1987, AAII members have been answering the same simple question each week:
[Do you feel the direction of the market over the next six months will be up (bullish), no change (neutral) or down (bearish)?]
The results are compiled into the AAII Investor Sentiment Survey,
which offers insight into the mood of individual investors.
Survey Results for Week Ending 7/12/2017
Data represents what direction members feel the
stock market will be in next 6 months.
The AAII Investor Sentiment Survey has become a widely followed measure of the mood of individual investors. The weekly survey results are published in financial publications including Barron's and Bloomberg and are widely followed by market strategists, investment newsletter writers and other financial professionals.
Next up, and I remain amazed that so few are talking about this, both the Dow Jones and the transports hit an all-time high on the same day. Again, my mentors were BIG on something called the "Dow Theory Buy Signal" (with thanks to Richard Russell, a major adapter of this concept, who has also since passed away). Russell and I used to speak 1-2 times a year, having first met him when I was in my late 20's, and his research when like this; when both the Dow and Transports are in confirmed bull markets, we MUST be bullish. Not many refer to the Dow Theory today, but again, with combined fresh all time highs on the same day, this confirms for us exactly how positive the markets remain.
Here's the 1 year chart of the trannies. Big, beautiful breakout higher....it tells us that LOTS of economic growth is taking place because LOTS of stuff is getting transported.
The VRA will continue to look for opportunities on the long side of the equation. Companies that will be major beneficiaries of the continuation of the global reflation trade.
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Until next time, thanks again for reading....
Kip
