In today's episode, Kip dives into the tumultuous market action from Monday, which saw the worst declines in the S&P 500 and Dow Jones in a couple of years. While it's been an ugly few sessions for our markets, Kip covers why he sees this volatility as a major opportunity, especially in our most oversold sectors. Tune into today's podcast to learn more!

Don’t look back because the market is closed. Good Monday afternoon, everyone. Kip Herriage here with the daily VRA investing podcast. Hope you had a good day today. If you are very long stocks, you most likely did not have a very good day today. Going to talk about what happened today. Worst day in a couple of years for the S&P 500 and Dow Jones, if we want to speak in relative terms, could have been a lot worse. It could have been in Japan and long, aggressively long.

The Nikkei index, which was down overnight, more than 13%. That’s the worst decline in Japan since the financial crisis, as a matter of fact. So today was ugly. Let’s talk about the markets first. We’ve got some interesting data to share with you. So this is understand this represents opportunity. What we’re seeing now represents opportunity is how we’re treating it specifically in some areas where we’re going to see the turn happen first. We almost saw the turn today, and then here came rumors that, you know, Iran is probably going to attack.

I don’t really understand who is it going to be, Israel? Is it going to be a proxy? But within 24 hours, Iran is going to take retaliatory action. That news dropped today about 01:00 central time. And the rally that had been taking place, which is really powerful, by the way, the semis were down at one point, more than 7% at the open. Okay. And then they came back and went positive. That’s the biggest intraday move in the semiconductors in years. And then, of course, that rally dissipated. But still, the semis still were the least bad index today.

[00:01:41]:
The semis closed down today just under 2%, and everything else was down much more than that. So I think the rumors of war really set the tone for the close today. I think today would have looked different. And I’ll talk about the carry trade in Japan as well. Let’s give you the markets first, and then we’ll take it one step at a time, because again, we are seeing signs that this is almost over. We’re hitting heavily oversold to extreme oversold levers on not all indexes, but on some specifically in the semis and tech, not really. Not the Mut is not the case at all, really, for the Dow Jones and SB 500. But first of all, the Dow Jones said he finished it down 1033 points.

That’s down two point, believe it or not, that was our, that was our winner on the day. That’s down 2.6%. Sv Hunter down 3% on the day. Nasdaq down 3.43% today down a big 576 points. That’s back to back days. Pretty ugly losses in Nasdaq. You can see how the hot money has left this market. That’s what this is.

When you see this kind of a reactionary move towards a pretty mundane jobs report on Friday. Pretty mundane jobs report wasn’t a massive shocker. We didn’t lose 200,000 jobs. None of that took place. But again, the move was stretched. And when the carry trade, Japan started falling apart and rumors of war with Iran started, you see how things start to snowball. Next thing you know, the easy money, the hot money is leaving these markets. And that’s what happened today.

[00:03:16]:
I’ve got more for that in just a second, but I think it’s all important to keep this in perspective. Russ. 2000, by the way, was also down more than 3% today, down 3.33%. So again, our winner today was the semiconductors closing down less than 2% on the day. As I said a minute ago, massive entry rally took place in the semiconductors, but again, they’ve been beaten up the most. So here’s, here’s the bottom line numbers, okay, from the all time highs, okay? Remember all time highs of just three weeks ago, the semiconductors, either the SMH, the semi ETF, or the Sox index, the semiconductor index, both down 24% from all time highs in three weeks to today’s close, 24% for the semis. In case you’re looking for a really good bargain, that’s where you’ll find it. The rest of the indexes, Dow Jones is only down 6.4% from its all time highs of three weeks ago.

Less than three weeks ago. S 500, down eight and a half percent. So we still haven’t even gotten into correction territory, which is -10% for our two most, what most people would say is our two probably largest indexes, Dow Jones and SPF 100. Nasdaq has reached correction territory now down 13.2%. And rust 2000 also reaching correction territory, down 11.3%. So again, in the vein of keeping things in perspective, because I think this is important, I lived through this, got a pretty, pretty vivid memory of this when we run these charts, just to remind ourselves of the accuracy of this data. This is accurate during the.com melt up, okay, we had five corrections of more than 10% and a 32% three month bear market in Nasdaq. So the point being, look, you’ve done this long enough.

[00:05:08]:
You know the point I’m making? Corrections are normal. Corrections happen. You ring out the excesses, it sets the stage for the next rally higher, which, again, that’s exactly what we think this is. But I want to state one more time, because I think this significant, after our decline last week, which was good for the semis, it was pretty, pretty intense. For everything else, it was actually pretty mundane. But again, as we talk about so often, right, the semis leading both directions. Man, has that ever been true this time and again, I think this is so overdone. The semis are the most oversold sector there is.

You can’t find the sector more oversold. And by the way, the semis are at the 200 day moving average, rust 2000 at the 200 day moving average, Nasdaq at the 200 day moving average. So you got heavily to extreme oversold indexes that are also hitting the 200 day moving average. I’m going to, we’ll write this up for you in the morning. So it’s so, you know, it’s not so scattershot, and it’s really clear for our VRA members. But, you know, these are, these are when folks that are looking for extreme buys, you know, you get to an extreme sell signal and you get, okay, that’s it. I mean, we’re washed out of. I don’t know that we’re totally there yet, but I think we’re very close to it.

We’re certainly there in the semis. And again, these indexes hitting the 200 day moving average, also hitting heavily oversold. Again, that’s a classic buy signal as well. But again, rumors of war. We had an ugly Thursday and Friday, and then here came Japan’s open. And all of a sudden, what happened in Japan? The yen starts going parabolic. And then, because again, as you know, probably, you know, Japan is trying to exit the land of easy money and 0% interest rates. They are trying to hike rates, and the yen has not been having it.

[00:06:58]:
Yen has been a one way ticket lower. Well, that reversed at the open in Japan, and the yen went parabolic. So the carry trade. And this is something most people have very little knowledge about. Why would you? It’s not something you would do. This is very specialized. It’s done by institutions. Not that it’s small, but again, again, these are big boys.

These are not mom and pops that pull off a yen trade, a japanese carry trade, basically, with Japan’s rate that 0%, remember, they were negative for forever. They just now are zero to 0.10% investors. Again, these are big, big investors, big institutional investors, hedge funds, etcetera, are borrowing money at essentially 0% for simple math. Borrowing money at 0% in the world of Japan, and then they can take that borrowed money and invest it how they want it. They just want to put it, for example, in a US ten year debt, in a ten year note and get, as of last week, still get 4.24.3%. Now it’s 3.7%. But that’s a pretty attractive carry trade. That’s a net of about in the 4% range that you’re going to make for your essentially risk free.

[00:08:17]:
Well, that turned out to be not the case. As the yen went parabolic, these carry trades blew up. That’s what brought on the meltdown in Japan again. At the same time, they’re trying to raise rates. So it was a bad combination of events. And look, I’ll be very honest with you, I’ve written four books. In two of the books, I spent quite a bit of time talking about my biggest fear, which is Japan. They are the most heavily indebted country on the planet.

The government is the largest holder of both equities and debt in the country. They have been involved in quantitative easing essentially nonstop for decades. So if there’s a single. And it just so happens, you know, they’re the third largest economy on the planet, if there’s a single black swan event that concerns me, as I’ve, as I’ve stated any number of times over the years, it is Japan. It is Japan blowing up. So I’m not going to say it’s not a concern of mine. It is a concern. It’s the concern.

As far as I’m concerned, the only bigger concern than Japan for me is our central banking system and investors losing confidence in that. That’s our next topic. Because, and again, if you know me at all, you know, in the Fed is something that I’ve agreed with Ron or on Paul with for a very long time, Ron and Rand Paul. And I’ve always, also stated any number of occasions, including at least ten times on television, that Jay Powell is the worst Fed chair in us history. We’re now seeing evidence of that. We’re now seeing rock solid evidence of this. This is now Jay Powell’s fifth major policy error since getting the job in 2018. Who gave him the job? Trump gave him the job.

[00:10:02]:
I’m not blaming Trump for that, but I think we can all agree Trump was a political novice. He trusted other people on his appointments. And again, I guess I’m giving a bit of a pass here, but he appointed a lot of people that should never been in a position to be appointed hopefully, he’s learned that. I don’t know, that’s the case. Seeing some already seeing similar events take place from Trump, putting people in positions of power that are essentially never Trumpers. What is going on there? Anyway, another topic for another day. Of course, we have to be for Trump now, because the alternative is the cackle queen they’re calling, by the way, today’s crash, the Kamala crashed. I think that’s a great marketing sign.

She’s, of course, silent on the action today in the markets because she wouldn’t know what to say. She’s only repeating what other people tell her to say. My goodness, my goodness. Hopefully, this is going to turn out a little bit different than what it looks like right now. The betting market. So she’s now taking a slight lead over Trump. Of course, that turns on a dime. But again, the japanese carry trade was unwound.

That took the japanese market down, as I said a minute ago, over 13%. Our futures markets were lower, anywhere from three to 6%, using the SB 500 and the Nasdaq. And so we had, again, a really strong internally rally until rumors of this attack from Iran began to hit from the State Department. That’s the reason, in my opinion, we did not have a stronger close. We were set to have a very good, not a very good, but what I meant to say is, from our leadership groups, we’re set to have a very strong intraday rally after the opening. And the semiconductors, and intact, specifically semiconductors, that’s the group that leads in both directions. And that did not happen because of, in my opinion, these rumors of war. But again, again, the semis still finished down less than 2%, even though they have been the hardest hit.

[00:11:59]:
And again, that’s where the opportunity is. But other than that, you know, again, the Federal Reserve, they started this. They should have. They should have been cutting rates in the first quarter of this year. That’s been our position for some time. Tyler and I have been on record for the entirety of the year that they will cut by two to three times this year. However, now that they’ve made a major mistake here by not cutting, they’re likely going to have to cut by more than 75 basis points. I would expect well over a percent in rate cuts by the end of the year.

I think, frankly, they should cut. They should cut today by 1%. And I know the markets would view it as panic, as a panic reaction. I just don’t care at this point, because they, the cats out of the bag. The feds made another mistake and now, if they’re worried about bruised egos or about market reception, are you kidding me? No, listen, the ten year has collapsed. Ten year yields have collapsed down to 3.78%, yet the Fed funds rate is 5.33%. That’s an effective funds rate. Fed funds rate.

That’s five and a quarter by five and a half again. We’ll split the, we’ll split the baby and call it 5.33% effective Fed funds rate. So you’re looking at a ten year at 3.78%. Look at the disparity between those two. That’s how offside the Fed is. The Fed doesn’t lead, they follow. And they should be cutting rates. I believe they should have an emergency rate cut.

[00:13:30]:
Again, I don’t care what the market, how the market perceives it, because the Fed’s wrong, and they’ve been wrong for a long time, because Jay Powell is just that bad at his job. But that’s the end result. Liquidity event, panic selling. And this does create opportunities. Because here’s the point, really, I want to get across today. If you’ve been with us a long time, you know, this is going to be a point that we’ve made for some time. For two years now, since we wrote and published the big bribe, Todd and I have said that this is a structural bull market, a structural bull market based on a very strong and a very, it is a very strong structural us economy. We’ve talked about this ad nauseam, frankly, when nobody else was.

And I remember going on tv with both Charles Paine and Wayne Root and repeating these facts, and they’re looking at me like I have three heads. Like, wait, what do you mean? The consumer is in his strongest financial position in decades. What do you mean american companies are, and this is just the absolute fact, and I covered some of that this morning. I won’t go through the whole list, but it is true. Consumer net worth is all time high. Home prices all time high. Credit scores all time high. One third of Americans own their home outright without a mortgage.

Again, these are all all time highs. And we’ve had both. The consumer, american companies have pretty dramatically cut their debt in the last 15 years. You may not be just because you’re not hearing this in media, please understand what I’m telling you is true. Both the consumer and american companies have cut their debt to income by 25% in the last 15 years. This is not a minor cut. These are big cuts. And so what that tells us is you’ve got the ability to lever up both for companies and for consumers, the ability to lever up is significant.

[00:15:27]:
And that matters in times like this because there’s so much money on the sidelines. Remember, it’s close to $6 trillion still in money markets, we have so much money that’s not tapped in. Home equity credit card use is picking up, but it’s still, if you look at a long term chart, just zoom out a little bit and you’ll see, yeah, delinquencies have picked up, but zoom out over at least a 15 year period. Go back to 2008, you’ll see how small that increase actually is and how much consumers have cut debt since the financial crisis. Again, we learned from the financial crisis, we never want to be put in that situation again. So that’s what’s giving us the confidence here, that this is going to be a very tradable bottom. And it’s likely right now, if you’re trying to bottom fish, you know, if you’re, if you want to get the absolute low, I would think maybe, maybe if you got a chance to buy after an iranian attack, I’ve got to assume they don’t want to go to all out war because they would lose miserably. So if this is a safe face attack, then I think on that news you’ve got a buying opportunity.

I would expect that Japan’s overnight markets do far better. I would expect a big rally back again. As always, we’re kicking off the semis here. But again, this is a structural bull market that’s only in its infancy. We’re only in year two of a bull market. These shakeouts are common. And again, remember, in the.com melt up, we had five of these. One that was a Nasdaq bear market of, again, 32% in less than three months.

[00:17:04]:
All right, let’s look at some of the action in the markets here that really matter as far as finding a tradable bottom, and let’s look at the internals and that kind of thing. But first, there were ugly today. No bones about it. In our, in our marketing tunnels, we had an NYSE had a 93% down volume day. Yeah, that stands out. You don’t get a lot of those. It’s either capitulation or it means there’s more of it to come. I believe capitulation is the answer there.

Nasdaq was better, but still had 78% down volume on the day. Advanced decline was. Just get a quick refresh here. Yeah, that’s right. So we had twelve to one negative, advanced decline for NYSE, six to one negative for Nasdaq. And as far as new 50, Kaiser Lowe’s, we had 133 stocks in 52. Kai to 818 get a new 52 week low. Kind of amazing.

That number was numbered 1000, frankly, in our sector watch today. By the way, while I’m on this page, the fear and greed index, which of course is a pretty, pretty effective sentiment survey to use, is now down to a 19. Yes, 19. That is extreme fear. So that is, you don’t, you don’t see a lot of readings? Less than that. I would think if we were to get below a ten, it’s back up the truck territory, but we’re pretty close to it now. As far as sectors go, all eleven s we have hundred sectors finished lower. The day led to by technology, of course, down 3.7% and then a whole slew of sectors down in the two to 3% range.

[00:18:55]:
Again, no sector finished high on the day. Everyone finished lower. You would think, you know, this is the kind of environment, right, with japanese carry, trade has collapsed, the markets are in freefall. Wouldn’t you think that this would be a time where gold would shine and, and really take off? Didn’t happen today, did it? Gold today finishing down on the day, 1.1%, had been down over 2% at the open, so was a little bit of a place for some, some safety there, but not much. Last trade now 24, 52 an ounce. Love gold, especially gold. Like silver here as well. Silver today, last trade, 27.35 an ounce.

And that is on the day. Down 4.3% on the day. Again, as an industrial metal, silver always tends to trade much more in line with the stock market than does golden copper today for $4. Right, that $4 an ounce, that’s down 6% on the day. Crude oil last trade, $74.06 announced, down right at 2.2%. And following the day, bitcoin. Oh, one more thing. The put call ratio today, the book all ratio today was above a 1.19 all day, essentially 1.2 or higher.

[00:20:22]:
Its high print was 1.3, closed at a 1.29. That’s an extremely, extremely bullish. Again, these are, these working for contrarians. As an inverse call, anything above a 1.2 is extreme fear. So again, that is the kind of thing you want to see at a market bottom. You want to see elevated put call ratios. I would think tomorrow if we got a lower open and this thing topped at 1.4, we would put out an aggressive buy signal. We’re looking at adding a couple of positions and that’s one of the things.

We’d love to see the put call ratio really skyrocket with even more fear that we’ve already seen in this market. I am struggling to get the last price on bitcoin. How about this? Those say we’re round down just over 54,000. 54,100. But remember, it did fall as much as 20% today. Falling below 49. Below 50,000. Low 49,500.

And again, last trade now 54,000. Bitcoin against liquidity sell off. In that environment, everything must go. But again, that’s what creates our buying opportunities. That’s what we’re witnessing, folks. These are buying opportunities. Stay with us here. We’ll tell you exactly how we’re acting, what we’re acting on.

And again, we’re tracking the semis very carefully, as you know, and looking for a big rally off these oversold levels at the two to day moving average. All right, folks, that’s it for the day. Hope you had a good day and even better night. We’ll see you back here again tomorrow after the close.