VRA Weekly Update: We Must Be Long and Strong. Liquidity, Earnings and Momentum Demand It.

Good Thursday morning all. It seems the Dow and Nasdaq have decided to have massive moves higher, but on alternating days. On Tuesday, the Nasdaq soared 3.7%, while the Dow lagged. Then yesterday, the Dow ramped 464 points higher (+1.5%) while Nasdaq was (slightly) lower by 4 points.

So it makes sense that this morning it must Nasdaq’s turn to rock and roll…and so far we’re getting just that with nasdaq +1.8% in premarket. And let’s not forget the Russell 2000, which has been a house on fire this week, up a big 1.8% yesterday and now just a fraction of a point away from fresh all time highs. 

Know this; the lows are, in our view, most certainly in place. We must be long and strong here. And you know the drill…two things move the markets more than anything else; liquidity and corporate earnings. With our latest round of CV insanity stimulus, which Biden (or his stand-in or his Mission Impossible sci-fi masked version) will sign into law tomorrow, we now sit at approx $22 trillion in combined global fiscal/monetary stimulus. Next up, word of a $2.5 trillion infrastructure deal. And across the pond, the ECB’s Christine Lagarde is having her presser as I write, where she’s talking about ramping up ECB bond buying and more helicopter money throughout the EU. 

It is a stimulus driven global stock market melt-up folks. Period. When QE was first launched (08/09), I sat at this very desk in awe of the seeming ridiculousness of it all. Monetizing the worlds debt by printing more fake paper…what?? Over a 6 month or so period I was on the wrong side of the markets, thinking this could end only one way…in financial disaster. That was the most wrong I’ve ever been in my career. Had Tyler been with me then, instead of being a senior in High School, he would have slapped me out of my shock and awe and reminded me “stop fighting the tape and stop fighting the fed!”

I won’t make that mistake again…and neither should anyone reading this. We are in a liquidity/momentum fueled bull market that’s just in it’s infancy. It won’t be straight up…they never are…but we just had a 10% correction in nasdaq. Next up, nasdaq will be back to ATH, in short order.

This is a great time to put new money to work in the market. It’s boom time, economically. Our leading economic indicators could not speak to us on this more clearly.

Tyler got into this on his podcast yesterday, and as JC Paret’s writes below, the set-up in our internals and broad based market breadth looks very similar to 2016, just after the election. 

The markets soared in 2017, with very little volatility. Based on VRA System readings, we agree completely with JC.

All time highs in more US indices and sectors than we can count (along with global markets) yet the Fear & Greed Index sits at just 50? Another buy signal…neutral investor sentiment is “not” the sign of a market that wants to go lower.

New: VRA Forecast on Interest Rates

I see it as a near impossibility that with negative rates in Japan (-.10%) and Europe (Germany -.28%) that US rates will continue to spike higher from here. I first made this call some 3 years ago when we forecast that the 10 year yield was headed below 1%, for many of the same reasons that exist today; the combination of the safety of US debt plus MUCH higher US yields (10 yr of +1.6%) will continue to act as gravity for US yields. In addition, and this is a big wild card that no one is talking about, with Biden’s $1.9 trillion coronavirus insanity stimulus having been approved, along with the fact that there remains $1 trillion in unspent previous CV stimulus, much of these funds will need to find a home over the short to medium term. That home should be US government debt, where the increased demand will act as additional gravity for US yields.

In this updated chart on TLT (20 yr T-Bond ETF) we see that TLT is hitting almost identical oversold levels that have marked a significant low from 2013, 2015, 2017 and 2018.

While I am not top-calling interest rates here I am saying that this repeating pattern has a high probability of occurring again; namely that “gravity”, with a continued steady inflow of foreign money into US debt to capture higher yields and safety, will continue to keep US rates low-ish.

Importantly, as US rates plateau/decline, growth stocks will come back to life. Another reason we are buying and recommend adding to positions in VRA big tech buy recs.

We view this as a significant buying opportunity. Some of the many reasons;

1) Don’t fight the Fed…don’t fight an entire planet of Feds. As a reminder, the Fed has an ongoing QE program (QE4) of $120 billion in monthly asset purchases (not including their leveraged programs and not including the shadow banks that mimic the Fed)

2) We’ve just entered a new bull market, from the 3/23/20 lows. Like the birth of the last bull market (March 2009), this bull has years to run…and its being juiced by FAR more fiscal and monetary stimulus ($22 trillion in total and counting).

3) We’ve just had multiple Dow Theory buy signals. These act as leading indicators for both the market and the economy.

4) Every major stock market on the planet now has a rising 200 dma, indicative of new bull markets, rather than the end.

5) March/April are highly bullish, as is the November-May time frame, where more than 90% of gains take place.

Until next time, thanks again for reading…

Kip

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