Good Thursday morning all. The streak of seven consecutive down days for the Dow Jones came to a close yesterday with an average gain of .27% in the Dow and S&P 500. Once again, in the investment theme that we have adopted here at the VRA, both the Nasdaq and Russell 2000 continue to outperform their large cap brethren, with more than double the percentage gains (.70%, avg. gain).
Oil (up 3.75%) bounced off of sub $40, just as we had targeted, and should a sustained move higher take place it will be in sync with the global reflation trade that the VRA spotted back in January. Every major metal (base and precious) is now trading right at fresh 1 year highs…with the exception of all-important copper (however, copper is still up 15% from its January lows).
Bank of England Takes Aggressive Action
As the VRA has been predicting, global central banks are in the process of taking (additional) aggressive actions…it’s all they know how to do, of course. This morning, the Bank of England (BOE) surprised the markets by not only cutting rates by .25% (from .50%), but also announced that they are expanding their QE program by $90 billion (in USD). The news that caught the markets by surprise…just not us here at the VRA…is that the BOE will also begin purchasing corporate bonds (joining the ECB, PBOC and BOJ).
Folks, back in 2009 (at the tail end of financial crisis) very few would have believed that central banks would launch global QE that would then total more than $10 trillion in size just 7 years later. Of course, we also know that the BOJ and PBOC are aggressively purchasing equities as well…something that is no longer just an open secret. And, if you somehow still believe that the ECB and our own FED aren’t active in the stock market, just give it a bit more time…that cat will be (officially) out of the bag soon as well.
Don’t Fight the Tape or the FED
You know one of our most major macro themes here; Don’t Fight the Tape…Don’t Fight the Fed. We may not agree with the actions of central banks globally, but that’s ok…because our job is to make money in the markets, regardless of central bank insanity.
And of course, if it weren’t for central bank fiat currency printing presses (running 24/7 no doubt), we would not be sitting on these massive gains in precious metals and the miners. Combined, across our holdings in gold, silver and the miners, we have gains of more than 1300%…since January.
Let me repeat; I continue to hear…from my best sources and trusted experts…that just as the BOE surprised today, we will see ramped up global QE from Japan (BOJ), China (PBOC) and Europe (ECB).
Yes, this means that ZIRP (and negative rates) will continue for much longer than most believe is possible. For our intents and purposes, it also means that PM’s and miners will continue to soar…we are still in just the first inning of what will be a record setting bull market in PM’s…but it also means that central banks look to be winning the battle for equities.
BTW, the breakout to fresh highs in both PM’s and the miners should now begin to pick up speed. The VRA System shows a move through $1400/oz in gold in the near term, and silver could continue in its outperformance.
VRA System Update
Here’s the most recent VRA Trading & Investing System analysis. All US indexes continue to be bullish, and the overbought status that the markets fought through in July is now very close to a thing of the past.
VRA Momentum Indicators
S&P 500: 60%…still slightly overbought (down from 99% on 7/24).
Dow Jones: 71% oversold (was 99% overbought on 7/24)
Nasdaq: 81% overbought (still outperforming)
Russell 2000: 59% overbought (has pulled back to solid buy levels)
Combined, the VRA Momentum Indicators have pulled back to just slightly overbought, and while near term downside risk remains, we are pulling right back to solid short term support levels.
What continues to impress me most are the daily market internals. While not as strong as they were from March to July, take a look at the internals from yesterday…on what was just a smallish up-day.
Advances led declines by more than 2-1 on each major index and up volume/down volume continues to surpass 2-1 as well. Again, not a hugely positive day, but when we take a look at fresh 52 week high/lows, the stats continue to blow me away, with 182 new highs and just 52 new lows.
2nd Quarter Earnings Update
Through yesterday, 80% of companies have reported earnings. Yes, the 71% that have beat on the bottom line is better than expected, but the real surprise has come from revenues, where co’s are beating by 73%. Importantly, this is the first quarter of revenue growth since the 4th quarter of 2014.
Still, we have now had 5 consecutive quarters of earnings decline, the longest streak since 2009. And yes, I do believe that this trend is about to reverse…it’s one of the major reasons that stock prices are rising now, as the markets continue to anticipate 6 months out.
Combined, this paints a picture for us of a market that continues to broaden….and yes, we see the same characteristics globally as well. As a reminder, the percentage of retail investors in the market remains at a 19 year low. Once investors become far more bullish, we will become much more concerned…but until then, we will continue to invest heavily in our favorite sectors and companies.
Until next time, thanks again for reading…