In today's podcast, Kip Herriage breaks down the recent odd trading and anxiety in the markets. Today's focus is on the movement in the semiconductor industry, market sentiment, and the impact of economic indicators on investment decisions. Kip also covers the potential implications of Federal Reserve policies.

Don’t look back because the market is closed. Good Wednesday afternoon, everyone. Kip Herriage here with the daily viewing investing podcast. Hope you had a good day today. Odd Trading day yesterday continued today. Yesterday we saw the semis hit another all time high while the broad markets fell a bit S&P 500 hundred, down just under four tenths to 1%. But it featured an 85.7% down volume day in NYS. See, today we saw more of the same, an 84.6% down volume day.

NYC, these stand out, but they weren’t 90% down volume days, but back to back 85 percentish down volume days. Tell us this consolidation from the parabolic move we had higher, absolutely parabolic move higher at the end of the year, continues to work its way through the markets. This is good news because this is exactly what happens, really textbook bull market action. When you get to extreme robot levels, you have a pullback. You go from extreme greed, which we were for our investor sentiment surveys. Tyler just shared with me the fear and greed index now has pulled back to a 58. Reading. It was well over 70 as an extreme greed territory just a couple of days ago.

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So really, this is Mr. Market doing what Mr. Market does so well. When we get to extreme overbought levels, here come the sellers. They don’t have to be heavy, but the buyers are tapped out. Any selling pressure takes the market lower. And then we work off those extreme overbought readings. Investor sentiment becomes, instead of extreme greed, worked its way off.

And then we start the next big bull market move higher. But if you join us here at all, over the last, I don’t know how long we done this now, Tyler, four, five years. If you join us on our podcast here, you’ve learned one thing from us, or at least heard one thing from us time and again, is that the semiconductors lead in both directions higher and lower. And again, just yesterday, the semis hitting another all time high, just absolutely on fire from the bear market lows of October 13, 2022. The semis were down today, a half a percent. That still led the markets, by the way. Dow Jones today down 84 points. That’s a quarter of a percent.

SP 500 down six tenths to 1%. Rust 2000 down seven tenths, 1%. And NAF on the Nasdaq also down six tenths to 1% today. The ten year, really, this is what’s caused some anxiety in the markets. The ten year has, yield has moved a bit higher, but you really can’t call it much more than that. The ten year was 3.8% three weeks ago, it closed today at a four point yield. So it’s a minor move, technically speaking, but it has caused some anxiety. We’ve continued to see some economic strength.

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It’s been mixed, though, hasn’t it? We get the retail sales number this morning, which really brought more sellers in, caused more strength than a weakness in the bond market. Retail sales for the month of December increased by six tenths to 1%, versus estimates of four tenths, 1%. Again, this comes about speculation about how strong is the economy this year. Again, so many continue to predict we’re going to have at least a soft recession this year. In other words, even a soft landing won’t be effective enough and the Fed will have to aggressively cut rates. I think the futures have the Fed cutting six to seven times this year. We’re still at three to four times because of the strength of the economy. Of course, that could turn on a dime.

But remember the Fed’s primary mandate during this entire rate hiking cycle, where they jack rates from essentially 0% to five and a half percent in a very short period of time. Their entire premise has been, we have to make sure we kill inflation, or at least get inflation back down to 2%. Well, if you’re looking at what inflation is actually doing, when you remove seasonality and the revisions they make, we’re essentially there now. And right now, Fed funds rate is highly restrictive. Highly restrictive. The real Fed funds rate now is over 300 basis points, where the Fed says they really projected the real rate to be just 50 basis points. So again, the Fed is in a highly restrictive stance right now. This will put, continue to put downward pressure on the economy and of course, their primary target on inflation.

Just remember, though, deflationary forces continue to come to our shores from China, Europe, Canada as well. JPAL has to be watching this, because the one thing the Fed doesn’t want, certainly the one thing that our banking system not only doesn’t want, but can’t afford to see happen, is to see deflation become the new theme. How many mistakes, how many fed errors have we seen Jay Powell and his merry band of money printers make since Powell became Fed chair after Trump became president? Remember, Trump appointed him as Fed chair. We’ve seen no fewer than five major policy mistakes from Jay Powell. It’s highly likely he’s making another. Now, if that’s the case, you won’t see the Fed funds rate at five and a half percent, folks. You’ll see it back down to three and a half percent, and it’ll happen in short order. If the Fed’s making another big mistake, we’re going to get another CPI data.

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We think the next two months of CPI reports are going to show clear deflation. Again, this will get the market detention, and I can tell you what will happen on that. Take this to the bank. If we’re right on this, and we’ve been right to date, the same groups that have been leading the market higher, that semis, tech and housing, they’ll rock and roll. They will absolutely rock and roll higher again. This is why the semis are hitting all time highs. Housing stocks have already hit all time highs, as have the QQQ, the Nasdaq 100. We actually took profits into housing stocks here a short while back, short while ago after booking some very significant gains in this group.

Honestly, we’re antsy. I’m antsy to get back into housing. We saw more data this morning and it flies in the face of all the negativity we continue to see online about the housing market and about the millennial generation. Millennials. This is from Redfin Housing Report, which is really the interest standard. Redfin’s monthly report just shows that millennials increased their percentage of millennials on a home is up now from 52% to 55%. That’s a major jump in a short period of time. And millennials continue again.

The largest segment of the population are millennials, right? 72 million strong. They’re in the process of inheriting more than $70 trillion. They’re aggressive, they’re smart entrepreneurs. They love housing, real estate stocks and cryptocurrencies, and they are flush with cash. Get a great financial set up here and they continue to power housing. That’s going to continue to be the case. Housing drives everything. So again, if a right on inflation, if a right on the Fed, then you’re going to see the next major bull market move higher will be led by the same groups that led from the October 13, 2022 bear market lows.

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Leaders continue to lead. That’s what we think is going to happen here. Continue to buy these groups. Again, semis, tech and housing will continue to power this young bull market higher. We’ve been a broken record on this from the bear market lows. I’ll repeat it here again today. This is a buy the dip market. It’s been the smartest of smart money strategies from the bear market lows.

We’re already starting to see the perma bears come out of the woodworks. All it takes is just a few days of downdraft. All it takes is a few days of an extreme overbought market. Working off some of that. Again, the rubber band stretched too far in one direction. All it takes is just a few days. It’s really simply a pause to take place before the perma bears come out and start screaming bloody murder. Here comes the next crash.

We’re going to have a recession, depression, and this is, again, this is textbook bull market action. It’s exactly what you want to see. We need more fear. We need more bears. We should thank them for coming out and helping us put a floor underneath this market, because that’s what they’re doing. Also a reminder, we are in just the second year of this powerful new bull market, one that we see moving into at least 2030, maybe even beyond that 2030 ish. This is a generational bull market of size and strength, a structural bull market, meaning that there are outside forces that are moving markets higher based on supply and demand. Price action will continue to reflect this, and that’s why these dips will continue to be short lived.

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The first half of January typically is not, especially after you have a weak first five days of the year is not typically all that strong. We’re seeing that now. That’s about to change. Also, the second year of a bull market going back to 1952 has been higher, and we’re in the second year now. It’s been higher 100% of the time with average gains SPF 100 of about 14%. We think this year it’s going to be even stronger. And remember, we’ve now started Q four earnings period. It’s been primarily bank stocks that have reported so far.

As you know, we’re not fans of bank stocks, haven’t been for at least a decade. They are value traps and big rallies in bank stocks should be sold. In our opinion, that’s really been a smart money play as well. But next week tech earnings kick off. Tyler covered this yesterday. Tech earnings begin in earnest next week. We look for renewed bullish action in the markets when these big mega cap tech stocks start reporting. Because we’re probably in the first inning of the innovation revolution.

You can call it artificial intelligence boom, whatever you want to call it. This has all the earmarks to me of the beginning of what happened to 1995, beginning of the.com melt up. We’re seeing the second era, the second opportunity to have another.com similar melt up bull market before eyes right now. And that’s why we’ll continue to follow what works. Semis, tech and housing. They lead both the economy and the markets as the best discounting mechanisms that exist in bar none. Let’s take a look under the hood today. Again, not a great day today.

[00:10:33]:
A little better than yesterday. The internals were. Here we go. NYSE advanced decline three to one negative. Nasdaq. Two to one negative. Again. Volume, 84.6%.

Downside volume. Day on NYSE. We want to see that reverse. Nasdaq was much better at 72%. And we had 96 stocks hitting a new 52 week high to 325 stocks hitting a new 52 week low. I checked to watch today. Now, this was not pretty. All eleven sectors finished lower on the day, but really, it was only about four sectors, five sectors, I guess, that were down close to 1%.

Real estate was down 1.8%. Utilities down one and a half percent. Consumer discretionary and energy and materials all down eight tenths, 1%. Elsewhere, fairly quiet on the day in our commodity watch today. Not pretty here. I’m running the charts after the market closed today, and again, the precious metals and miners are still in an uptrend. But again, they don’t like a strong dollar. They don’t like rising rates.

[00:11:36]:
We’ve had these counter trend moves higher over the last two, three weeks, and it’s starting to inflict a little bit of harm on these. But still, gold has held above $2,000 an ounce. That’s a technically important level. A closing today at $2,008. Now down just over 1%. Silver down 1.6% at 22. 71. Copper today essentially unchanged, down two pennies a pound at 374 a pound.

Crude oil up barrel at 72, 72 a barrel. And finally, on the day, bitcoin down 715 at 42,007. 112 again, all the build up for the SEC approval, a spot. Bitcoin etFs, of course, took place. Now buy the rumor, sell. The news has kicked in. I’m kind of surprised, frankly, the sellout hasn’t been greater after this. Looking on the charts, bitcoin has now pulled back to an area of fairly strong support between 40 and 42,000.

Again, we’re at 42,000 and 712. Now. In another day or two, we’ll start hitting heavily to extreme oversold levels already on bitcoin. And again, we are long term believers. We’re now long again bitcoin from 28,800. Also here, the smart money play is to buy the dip. There is, in my opinion, no better supply demand story that exists in the markets today than bitcoin. All right, folks, always appreciate you listening.

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Hope you had a great day. Even better night. We’ll see you back here. Again tomorrow after the close. Bye.