Major Buy Signals: Paul Krugman is Bearish, Paul Krugman is a Buffoon. McClellan Oscillator Buy Signal. Investor Sentiment Buy Signals. Crushing Mr. Market.

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Good Thursday morning all. What could be the most bullish signal for global stock markets and a resurgent worldwide economy?

Easy. NY Times economist Paul Krugman predicting a global recession, as he did over the weekend at an investment conference.

Krugman has long been a laughingstock of serious economists.

“Hey Kip, could you give us a couple of examples?” Hey, you bet…thanks for asking.

Here’s Krugmans quote about the internet proving to be less valuable than the fax machine. No shit…he actually said this.

Let’s travel back in time for a moment. Back in 1998, then an economic professor at MIT, Krugman predicted that the Internet wouldn’t be such a big deal by the mid-2000s and that its economic impact “would be no greater than the fax machine’s”:

The growth of the Internet will slow drastically, as the flaw in “Metcalfe’s law” — which states that the number of potential connections in a network is proportional to the square of the number of participants — becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.

In the same column, Krugman also wrote:

As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.

And hey, we could stop here with Krugman, but its just too much fun, especially in light of the fact that the Herriage family is still trying to recoup the $380 we were forced to spend on Krugmans college economics textbook for Tyler. Having read through Krugmans monstrosity of plagiarism and far left propaganda, is it any wonder our universities have so ill-prepared our children for the real world.

Here’s Krugmans infamous quote, the morning after Trump was elected.

“It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?” Krugman said in his post. “If the question is when markets will recover, a first-pass answer is never.”

“We are very probably looking at a global recession, with no end in sight,” he added. “I suppose we could get lucky somehow. But on economics, as on everything else, a terrible thing has just happened.”

Here’s Krugmans infamous quote, the morning after Trump was elected.So you see, when Krugman comes out with another prediction for a global recession, we have just one move to make. We must buy everything in site…aggressively. There is no clearer signal for a global stock market melt-up.Tune into our Daily VRA Podcast from earlier this week to learn more as to why this is a major buy signal

Major Buy Signals from the McClellan Oscillator and Investor Sentiment

This morning lets take a quick trip back to the Christmas Eve massacre 12/24 lows. We have a new piece of research to look at, but to make sense of it all, this is what I wrote on 12/26/18.

“This morning I’ll share the two most important market stats I see today. After the last 3–4 days of research, these two stand out more than anything else;

First, the S&P 1500 New Highs-lows index just hit -42% on Christmas eve. All time low (this stat dates back to 2010). Below we see what happened following the previous two lows (-37% in ’11 and -34% in ‘16). Each of these readings marked the lows for stocks, followed by moves in the S&P 500 to fresh all-time highs. Selling in the face of fear and panic is rarely a smart money move. This is a bear market in search of bad news. This is ridiculously overdone.

But this is likely the single biggest indicator that we’re either at or very near an important bottom…investor sentiment. The Fear & Greed Index hit 2 on Christmas Eve. TWO. A new all-time low (obviously).

VRA Bottom line; we’ve just had a 2 month version of the 1 day 1987 crash. At this point no one can say when it will end, except that we’re seeing the historical signs that the decline should stop here. This has been a structurally driven, algo based decline, fueled by an out of touch, tone deaf and hostile Federal Reserve. All this selling into a December air pocket. This market is at ridiculously oversold levels.”

— — 

What a 7 weeks its been. Of course, the lows of 12/24/18 marked THE lows. And just as we highlighted the S&P 1500 new highs/lows back then this morning we’re going to highlight the McClellan Oscillator, which is simply another way of looking at the VRA market breadth data we focus on regularly.

Below we see that the McClellan Oscillator (net breadth of NYSE advances/declines) has just flipped from -1000 to +1000 (which will occur officially today), for just the second time in the last 20 years. The previous occurrence was March of 2009, which marked THE bottom in the stock market from the great financial crisis.

In other words…this is a very big deal. it confirms what we’ve been discussing here daily, namely that the permabears continue to be on exactly the wrong side of this market. Readings like this have the power to propel markets higher by 20–30–40% inside of a single year. And with institutional cash readings also at their highest levels since March 2009, we have just one move to make here; we must continue to be long and strong.

And folks, should the Fear and Greed Index ever hit a reading of 2 again in our lifetimes, we must sell all of our worldly belongings and put every single penny into S&P 500 call options. Can we agree in advance to hold each other to this???? Just an fyi, its highly likely that no one reading this will even be alive the next time the Fear & Greed Index hits 2. Yes…it is that rare…as in, it had never happened in history (prior to 12/24/18).

And here’s last nights AAII Investor Sentiment Survey readings. Even with the massive move higher over the past 7 weeks, we’re at just 35% bulls with 39% of investors at neutral. Hard to put into words how remarkable I find these readings.

The VRA Investing System has been upgraded to 9/12 System Screens bullish.

  • Both the DJ and S&P 500 are now back above their all important 200 day moving averages (dma). Nasdaq and Russell 2000 are just points below their 200 day Moving Average

  • Our overbought status of last week has reversed.

  • The Federal Reserve is no longer an anchor.

  • Market leadership has returned to tech, growth and momentum stocks.

  • Insider buying and M&A activity will hit record levels again this year.

  • The forward P/E on the S&P 500 now sits below 15. Absurdly ridiculous coming off of 27% EPS growth in 2018.

And checkout this excellent analytics work from our friend Troy Bombardia.

After being more than 14% below its 200 dma, once the S&P 500 jumps back above the 200 day, the S&P 500 has been higher 100% of the time over the next 3–6–9–12 months. That’s 13/13 times with an average gain 1 year out of 17%.

If you’re not long, you’re wrong…very, very wrong.

Until next time, thanks again for reading…

Kip

Since 2014 the VRA Portfolio has net profits of more than 2400% and we have beaten the S&P 500 in 15/16 years.

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