VRA Weekly Update: Bullish Consolidation Into Q1 Earnings. Jamie Dimon Joins the VRA as Hard Core Bulls.

Good Thursday morning all. Yesterday marked the 3rd straight day of less than great internals with negative across the board in A/D and volume, while the bright spot continued to be new 52 week high/lows at 341 new highs to just 39 new lows.

These readings need to improve. Thats what we believe will happen into weeks end and into next week, in advance of Q1 earnings reports kicking off in style. Q1 estimates indicate 30% + year over year beats.

It’s important that our internals begin to improve…we look for that to occur beginning today…along with continued solid action in semis and nasdaq. Nasdaq futures are +110 this AM and FANG stocks are once again resuming their leadership role, with ATH’s yesterday in Facebook and Google, with Apple and Amazon heating up right behind them. S&P 500 closed at an ATH, but Nasdaq remains 2% below ATH and Russell 2000 remains 6% below ATH. We expect Nasdaq and small caps to lead the way higher into next week.

Note: A large percentage of the charts we’re following look almost identical. Constructively bullish. This looks to be the lull before the next breakout higher.

And 90% of all SPX stocks are above their 50 dma. A very big 95% are above their 200 dma. This is both bullish and extended. Some consolidation this week will help to work off this overbought short term status.

It’s not uncommon after several days of above average market strength to see a short term pause. We expect that’s the case here.

And while we may rarely quote JP Morgan head Jamie Dimon (likely the leading Wall Street firm, along with the vampire squid Goldman Sachs, for financial/market manipulation), Dimon’s annual letter to shareholders is out and we find ourselves in “lockstep” with his views on the economy and the equity markets.

From CNBC this AM;

“Jamie Dimon is bullish on the U.S. economy — at least for the next few years.

In his annual shareholder letter, the long-time JPMorgan Chase chairman and CEO said he sees strong growth for the world’s biggest economy, thanks to the U.S. government’s response to the coronavirus pandemic that has left many consumers flush with savings.

“I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom,” Dimon said. “This boom could easily run into 2023 because all the spending could extend well into 2023.”

Dimon, who managed JPMorgan through the 2008 financial crisis, helping to create the biggest U.S. bank by assets, pointed out that the magnitude of government spending during the pandemic far exceeds the response to that previous crisis. He said the longer-term impact of the reopening boom won’t be known for years because it will take time to ascertain the quality of government spending, including President Joe Biden’s proposed $2 trillion infrastructure bill.

“Spent wisely, it will create more economic opportunity for everyone,” he said.”

Here at the VRA we are optimists at heart (what we think about we bring about) but we’re also realists when it comes to the economy and the markets. In this case we are in near complete agreement with Dimon. The combination of liquidity (Don’t Fight the Fed/free money), excess savings (15% savings rate), momentum (Don’t fight the tape) should continue to result in surging US and global stock markets. We’ve just kicked off a new month (best month of the year) and a new quarter (equity inflows are flying in), with what should be stellar Q1 earnings reports kicking off in style next week, as banks begin to report.

Any short term pause should be just that. Dips are to be bought.

Our friends over at Macro Charts are out with some interesting and unique work that we’re seeing nowhere else.

In what is clearly a contrarian view, but they back it up with hard data, options activity remains extremely pessimistic.

According to their options flow oscillator, net options volume is among the most negative of the last 30 years but has begun to turn up, indicating an uptrend continuation.

As they cleverly state, not only are we not seeing complacency, but instead this is a “wall of worry” in full force. As a side note, Macro Charts has tended to be on the bearish side of the markets for some time.

Seeing them flip to straight up, hard core bullish, is interesting. Of course, we see them as being exactly right. Never in my career have we had a runaway bull market like the current one, while at the same time the VIX was at 18 and the Fear & Greed Index sitting at just 62.

We fully understand the reasons for investor anxiety…the last year (plus) has been both gut wrenching and flat out depressing. That’s the “wall of worry” that Macro Charts is referring to…the markets almost always tend to do the exact opposite of what the investing public believes “should” occur.

Know this; “several” big name market timers are on the wrong end of this move higher, having recently been stopped out of their tech/small cap positions, as each had a 10% intra-quarter correction.

As they are forced to repurchase their positions, and as shorts are forced to cover their positions, this added buying pressure will serve as additional fuel for this move higher.

At some point in the next week or two we’ll likely reach the kind of overbought levels that will see us take some profits, but again, this market has plenty of room to run…especially in tech and small caps.

Until next time, thanks again for reading…

Kip

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