VRA Investment Update: The Resilient Bull Market. All-time Highs, as the Semis Continue to Lead. GDX Still Leading.
/Good Thursday morning.
On his podcast Tuesday, Tyler called this “the resilient bull market”. Coming out of Q1 earnings we’ve had some rather horrible internals…the trannies (our second most important economic indicator, behind housing) just got hit 9% in a month…and we’ve had these big intraday hits to the major averages, featuring some of the weakest economic data in some time.
Frankly, after hitting extreme overbought levels of 10 days ago, this market was set for a quick and hard shakeout.
What’s happened instead? Those big intraday losses keep going bye-bye. We’ve just had 4 straight days of strong smart money hours, market leader Nvidia/Semis just won’t stop and now, many of the largest mega cap tech stocks are on fire, again. These are tells of the highest order. If I was short this market I’d be nervous. They keep missing their shot to make money on the downside.
As caught up in the Fed, rates and economic data as we tend to get (guilty), staying grounded in our “base case” is important. You know our base case; we’re still in inning one of a generational bull market.
The Tide is Turning; Rates Are Headed Lower
As we’ve been covering (often), it’s becoming increasingly obvious that the Fed has kept rates too restrictive, for too long. No, the economy isn’t falling off of a cliff…it’s not going into a recession…but it is becoming clear that Fed rate cuts are nearing. In addition to weak manufacturing and construction data from this week, the Atlanta Fed just lowered their Q2 GDPNow estimate from 2.7% growth to 1.8%. As covered yesterday, we expect Fridays jobs data will likely be a downside miss. While the Fed “should” cut rates next week, that’s not going to happen. However, we do look for increased chatter about a rate cut in July. I’ll be surprised if they don’t.
In this chart of 10-year yields we see a well-defined trend line that’s held for the entirety of 2024. I expect this trend line will soon be broken.
All-time Highs, as the Semis Continue to Lead
And right on queue…yesterday we hit new ATH’ s in S&P 500, Semis, Nasdaq and Nasdaq 100, with Nvidia becoming the second company to hit a $3 trillion market cap (trailing only Microsoft, by a hair). More signs of a generational bull market and the Roaring 2020’s. As with the 1995–2000 melt-up, this run is just getting started (we’re likely still in 1995).
This is the relative strength chart that we’ve been hyper-focused on, from the birth of the bull market. While we were stopped out of our trading position in SOXL (with 46% gains), we maintain our original position in SOXL, which was up 13% yesterday, where we have gains of 390%. We will continue to use VRA System readings to initiate trading positions in SOXL.
If you understand this chart, you understand this bull market. The semis lead, as the ultimate market tell.
GDX to Gold
We think the recent shakeout in the miners is likely over, with GDX recovering half of the previous days losses.
The miners have led gold higher from the end of February and this relative strength chart supports that view. I think this period is most similar to the bull market run from 2003–2007, where both stocks and the miners soared together.
This group has been red-hot from the end of February, and Tuesday’s hit only took it back to the 50 dma, while GDX remains 12% above the 200 dma.
Importantly, GDX is now beginning to hit heavily oversold levels. We are BUYERS on this shakeout.
For our newer readers, this what we wrote on 10/14/22, where we went aggressively long stocks, while calling the market lows.
VRA Bottom Line From the bear market lows we began pounding the table on US markets, in particular semis/tech. Because we are in an “innovation revolution”, its disruptive qualities will continue to produce disinflation, along with solid economic growth. There’s simply not been a need for restrictive rates for some time, meaning that the Fed has gotten over their skis. Rate cuts are coming…and interest rate sensitive groups have been delivering that message. We look for this to continue.
Until next time, thanks again for reading…
Kip
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