VRA Weekly Update Best Month Since Jan 1987. Best April Since the Great Depression. Next, a Retest of the Lows. HELOCs, No More. Sentiment Update
/Good Friday morning. Because this matches my views…pretty much exactly…let’s kick off this morning's update with a piece featuring Jeff Hirsch of the Stock Traders Almanac. I know Jeff’s father (Yale) from my early days on Wall Street. As a 27-year-old newbie, we met over dinner at Tavern on the Green in Central Park. Yale was already a legend…one of the very first to use analytics to beat the markets. While Yale is still alive and working, in his 90’s, Jeff now runs the Almanac.
‘What a month. In the midst of a pandemic lockdown that has seen some 30 million Americans file for unemployment benefits, and millions more around the globe, the S&P 500 surged 12.7% in April. That is the best monthly performance since Jan. 1987, and the best April since the Great Depression.
Jeff Hirsch, editor of the Stock Trader’s Almanac and chief market strategist at Probabilities Fund Management, says the lows from late March are likely to hold. He presents this chart on weekly jobless claims and bear markets, and finds the big bear market lows of 1970, 1974, 1982, 1990, 2001 and 2009 were marked by the peak in jobless claims.
The most recent claims figure of 3.8 million for the week ending April 25 is well off the peak of 6.9 million (http://www.marketwatch.com/story/us-jobless-claims-climb-38-million-in-late-april-to-push-coronavirus-total-to-30-million-2020-04-30). But that doesn’t mean he’s optimistic about the market.
“Even if March 23 turns out to be the ultimate low (and it does look like it) that does not mean the next six months or more are going to be pure rally to new highs. In fact new highs are not likely for quite some time and we will likely retest the lows,” he says. “There are some promising vaccines and treatments in the works and states are beginning to reopen, but there is no way of knowing when our lives and economy will return to some semblance of normal.”
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Our views at the VRA line-up with the Almanac. The amount of Fed QE and govt stimulus already surpasses $11 trillion, with almost certainly more to come. The very definition of Don’t Fight the Fed. And yes, it does look like the 3/23 lows may hold…but a retest of those lows is also likely. As Fundstrats Tom Lee has also consistently pointed out, past bear market lows have been marked by the peak in jobless claims. With a bit of luck, we may have seen this peak…but real damage has been done…a retest of the 3/23 lows could help mark true capitulation.
We know what group must continue to be bought. Gold is headed past $2000…likely past $3000…and the miners will outperform by 3:1.
The Dow gave up 300 points yesterday and has further futures losses of 450 points this morning, oil was back to $20, +6% this am before falling into the open, and as covered yesterday these are signs of a reversal that we are looking for before taking aggressive action on the downside (VRA and Parabolic). The bear market rally may be ending…today's action is important.
Here’s our bear market rally playbook…sneak peak at what we’re looking for to begin taking aggressive action on the short side (VRA and Parabolic). The following kicked off our 35–40% move lower…these are the repeating patterns we’ll be watching for:
1) Oil prices resume their move lower.
2) Market internals start breaking down (on big sell-side volume)
3) Tech/semis/biotech/healthcare start leading the way lower
4) Sentiment reaches neutral/bullish
5) Volatility spikes (even on up days)
These are the same 5 early warning indicators from the 3rd week of February breakdowns. This is the repeating pattern we’ll be watching for. We do not believe we are out of the woods. Far from it. 30 million aren’t just going to get their jobs back. The world's economic engine isn’t just going to fire back up. The worst time frame to be an investor (May-September) is directly ahead. And elections are just 6 months away.
Check out the latest video on our website where I’ll walk you through this in detail.
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Wells Fargo and JP Morgan Putting a Freeze on HELOC’s
Just as US banks did in mid-late 2008, home equity lines of credit are being halted. Not a positive…also not a huge surprise. But in no way is this a positive. Another source of liquidity for Americans is being removed. Lockdowns are destroying the housing market, the single most important asset for Americans and the VRA’s top leading economic indicator. Banks indicating they won’t stand by and be blindsided like 08/09. Good for them…bad for homeowners. After banks halted HELOC’s in 2008 it took them 9 years for leading banks to make them available again. The banks know what’s coming. This will almost certainly put pressure on the Trump administration to do provide additional stimulus. As in, much more.
AAII
AAII Sentiment Survey is out. 30% bulls, 44% bears, 25% neutral. For the first time in 11 years, yours truly voted “bearish”.
Fear and Greed Index @ 47. In bear markets, like this one, investor sentiment is not a great gauge of future moves. The public is too shell shocked to become neutral/bullish again, but after this 35% move higher I would have expected both of these surveys to have ticked up more than they have. I do not consider this to be bullish or bearish…just realistic. Lockdowns will prove to be the most destructive force to ever be used against humanity. Intentional economic destruction. Megalomaniacs and fascists…our planners all.
Until next time, thanks again for reading…have a good weekend
Kip
Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/17 years.
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