VRA Investment Letter: High Probability of Front-Running into the Bullish Month of July. Semis Surging; Gains of 1000% in SOXL from Bear Mkt Lows.
/Good Thursday morning. We start the week with 11/12 VRA Investing System Screens remaining bullish (record).
If you pay close attention you start to notice “personality traits” of each bull (or bear) market. I see several in this bull market…and yes, it absolutely resembles the dot-com melt-up, more and more. We talk about this often. We continue to believe that this bull market will prove to be more powerful, much broader and far longer lasting than that 1995–2000 epic run.
But in the very short term, markets tend to act with a rhythm, featuring repeating patterns. Examples;
- We know that this market is being led by semis/tech…and we know thats a very good thing. The most powerful markets are always led by semis/tech, certainly since the birth of QE.
- Of late (approx 3 weeks) we’ve seen a repeating pattern of weak opens and strong closes, particularly in the Dow Jones. Intraday losses of 200–300–400 points in the Dow have been frequent, but those losses aren’t sticking. Big rallies are occurring into the close. These strong “smart money hours” are also a highly bullish personality trait.
- And these market internals have been ugly of late. However, even as damage has been occurring beneath the surface, it’s not stopped the S&P 500 and Nasdaq from continuing to hit fresh ATH’s. This market has a “teflon” feel to it. Nothing bad sticks to it. It’s as if there’s a magnet, forcing it higher (rapidly rising corporate earnings).
It’s exactly these repeating patterns that have become a bears worst nightmare. If bears can’t make money with poor internals and steep opening losses, and with a Federal Reserve that keeps changing its mind on rate cuts, exactly when will they be able to make money?
This internal correction in the market (our rotational theme continuing to play out) is providing this bull market a chance to catch its breath, with broadening action into value stocks likely on the way next. I’ll repeat; there’s no way I would want to be short this market. It has all of the characteristics of market that wants to keep going higher. Certainly with what we expect is beginning of new month/quarter fund flows already exhibiting signs of smart money front-running.
Front-Running into the Bullish Month of July
As we began discussing with our VRA Community last week, front-running in the markets has always been a thing, but now it’s kicking off earlier than we’ve ever seen it. In 7 trading days we’ll enter the month of July; here’s what the smart money is (highly) likely front-running this week:
- July has been highly bullish over the last decade. From the always excellent Ryan Detrick we see that July has been up 9 years in a row (SPX) and higher 90% pf the time over the last decade, with an average gain of 3.1%. We also know that July is the best month of the year for the Qs (Nasdaq 100), with an average gain of 3.5%. The semis/tech lead…and the market follows.
- Beginning of new month/quarter fund flows. Investors are beginning to fall back in love with stocks, but it’s a process. With $6.2 trillion still sitting in money market funds, it’s a process that will take time. The smart money is beginning to front-run this avalanche of new retirement/401k/pension/buyback money that will be coming into the markets (on 7/1).
— Our go-to chart from the bear market lows has been the one below; the relative strength chart of the semis to S&P 500. Below we see that the semis have continued to lead the broad markets higher and that they’ve done it inside of this near-perfect bullish channel. While nearing the top trend line, it still has some room to run. This is the most important chart of this bull market (and it’s been handy for market timing).
Below we see that the semis (SMH) are going parabolic and nearing our most overbought designation, “extreme overbought on steroids” (EOBOS) with each of our momentum oscillators nearing extreme overbought levels. Only money flows have yet to hit this level of overbought. Remember, there’s no rule that says an investment must head lower once it reaches EOBOS, however it’s when we use discipline to halt our buying. In strong bull markets (this one), it’s common for investments to hit EOBOS and continue rising. In technical analysis, an overbought investment that continues to rise is actually the strongest buy signal of all.
Final notes on the semis; with SOXL (3 x Semi ETF) hitting $68 this morning, from the bear market lows we now have gains of more than 1000% (where we pounded the table to buy SOXL). We continue to believe that this is “that” bull market and that the semis will continue to lead higher. Once we get an overbought sell-off in SOXL, we will once again add another full position size. We intend to do this for “years”.
Heads up: in tomorrow’s Letter we’ll share proprietary research from our resident semiconductor expert. He’s been all over this move higher in the semis, particularly in Nvidia, where he’s absolutely nailed this trade. And yes, he’s still (wildly) bullish on NVDA and the semis.
To read this exclusive piece, join us at VRAletter.com
Until next time, thanks again for reading…
Kip
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