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VRA Investing Podcast: Monday Market Reversal Amidst Sentiment Extreme Fear Levels – Kip Herriage – January 13, 2025

In today's episode, Kip dives into recent market movements and why Mondays often present the best buying opportunities. While today's action may not have been positive across the board, we did manage to finish at the highs of the ...

Posted On January 13, 20251530
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About This Episode

In today's episode, Kip dives into recent market movements and why Mondays often present the best buying opportunities. While today's action may not have been positive across the board, we did manage to finish at the highs of the day. Kip also breaks down the significance of current sentiment indicators, the impact of the Federal Reserve's actions, and key developments in the housing sector. Tune into today's podcast to learn more.

Transcript

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, I have to say. And hope you had a great weekend as well. I have to say. Before I start this podcast. Tyler and I just were just having our pre podcast meeting and it really is extraordinary.

If you’re a regular listener to these podcasts, you have noticed I just, I don’t know the way this is staggering news. You couldn’t make this up. Almost it in the. From the world of podcast. Every day that. Almost every day that Tyler has a podcast, the markets get spanked. And then when I have them, the market rallies.

[00:00:36]:
It is extraordinary how often this happens. Anyway, if you’re a regular listener, you know exactly what I’m talking about. Happened again today. Big comeback Monday today over my career, you know, again, I’ve been in the business now 40. You live 40 years. I know I look way too young to have been in this business 40 years and I appreciate you saying that, but. But it’s just, it’s Mondays are the produced consistently have produced the best buying opportunities of my career. I think we got another one today, folks.

This market is deeply oversold. Sentiment has reached fear, extreme. Not fear, but extreme fear levels. I tweeted this this morning for the open because I again on my Twitter feed, I follow people that are. That I believe are important to me from the financial world. And I do it frankly not because I like their research, some of it’s pretty good. But frankly I do it for sentiment reasons because what started happening last week and really picked up over the weekend is so many bulls. Okay.

A lot of these by the way, just flipped to be bullish. Are now flipping back to bearish. That is a tell. That is it. That is a tell of extreme magnitude because this is how the turns happened. The wrong people typically always are on the wrong side of the market, right? Or the right people on the wrong side of the market. And that helps us that we’re seeing that in sentiment again. Fear greed index hitting extreme fear this morning as below 25.

[00:02:02]:
Rebuild 25. We were agreed a month ago and we’ve talked about this often with you, okay? The election happens. Everybody gets all pulled up. Markets skyrocketing, right? And all of a sudden, first week of December, what happens? Market starts selling off. Too many people got bullish. Everyone started saying what we’ve been saying for two and a half years, that you must be long this market because it’s a generational bull market and it’s going to melt up, etc. Right? And so we had a lot of people join us. Cinema got frothy a lot.

We have a lot of data to back that up, by the way. And that’s typically when you. I also believe, as I’ve said on this podcast, I thought the perfect setup was going to be as a buy the rumor, sell the news opportunity for Trump’s inauguration. You’ve heard me say this, I think Tyler’s referenced it a couple times as well, that I thought the melt up would just continue, you know, because again, because the, you know, December is very bullish. January is a very bullish month. I thought it was likely or at least possible the market melt up would continue into the inauguration and then that would be the perfect sell the rumor, buy the rumors of the news opportunity. Right. Of course, it didn’t work that way, did it? Too many people started front running Trump’s inauguration too soon.

And then the market began to sell off. Now, we haven’t had a huge sell off. Again, SPF 100 at the lows today was only down 5%. Okay? And yet again, sentiment surveys at extreme fear. The AAI investor sentiment survey this week, this past week had more bears than bulls. Again, this is a, we’ve had a massive bull market of more than two years, but all it takes is, you know, again, a couple, three weeks of fairly bad, not even, not even horribly bad, right? But fairly bad action and then there go the bulls. And I’m just telling you, as we said so many times, I think, I don’t know that we can overstate this, Todd, and I’ve said this a lot to you. When sentiment flips that quickly from bullish to bearish, that is light years away from a signal of a market top.

[00:04:11]:
It is the signal of a market that wants to go sharply higher. When we get to the point in this bull market, we’ll get there, you know, at this rate, it may be 2027 before we get there. But when we get to the point that the market can fall 5% again, as the SP 500 just did over about three, three weeks, when we get to four weeks, when we get to the point that the market can just fall 5%, not even a correction, right? Just a consolidation of 5% and sentiment doesn’t budge, that’s when you’re going to hear us saying on this podcast, wait, this is a character change to the market and it concerns us. Okay? But again, we’re just light years away from that. Tyler Also has pointed out after the close today, KB Home, major home builder. Right? And we are long this group again. We’ve turned to this group pretty well over the years, I got to say and we reinitiated a long position in a leveraged housing etf. It was like two weeks ago, but we’ve been out of it for a while because they just weren’t acting great.

They didn’t meet the parameters of our VRA investing system. And then here came the buy signals, right? It’s a 200 day moving average hit, extreme oversold levels. All the things we like to see happen in a group that we absolutely love. Housing, which is just in the early stages, a massive bull market. Know that when 40% of Americans own their home without a mortgage, as is the case now as a record, when consumer net worth is at all time high again, consumer net worth is mostly made up of housing. When net equity in homes is at an all time high again, I think that level now six at. I don’t want to guess on this. I think it’s 59% of the average net equity of homes.

When those things happen, the very last thing you’re going to see is a credit crisis. And everyone’s talking about, you know, credit card debt rising. Yeah, it is. But folks, we have two Americas. We talked about this with you often. Here we have the first America which is driving everything in the second America which is struggling. Imagine that after four years of being under Joe Biden, right, continuing a trend with a second America. He’s struggled for a long time.

[00:06:18]:
But. And again this. Roy’s very careful how we say this. At least I am. I’m not even sure Tyler mentions it, but the markets don’t care about Second America and they haven’t for a long time. That’s just the reality. The first America is driving everything. The first America has not been in this kind of financial shape in decades, if ever.

And that goes for corporate America as well. But when, when we have this kind of setup in housing, you know, the best basic of your financial foundation for the country could hardly be more positive. And that’s where we are now. It’s not a popular statement when I say these things. We get attacked all the time. What are you talking about? Don’t you watch the news? No, we really, we really don’t. We know, we’re aware of what they’re saying, but we use that really as a, as a sentiment tool because of course the news is just propaganda and we’ve had a cypher negativity. It’s been in place for a very long time, so.

So again, KB Homes announced earnings after the close. Stock is up after hours now 9.2%. All right, very good earnings from KB Homes. Very good to see that. Because again, housing drives everything. Most important, it’s our biggest asset. Most important asset that 99.9% of Americans will ever buy or own. And it’s the leading economic indicator.

[00:07:41]:
So, yeah, you know, if housing is in trouble. Excuse me, if the markets are in trouble, the economy’s in trouble, we’re going to see it first in housing. And that’s why holding that 200 day moving average is important. And that’s why we think it represents such a great buying opportunity. Millennials driving everything, folks. That’s just the reality of it. That may sound crazy to you, but we found all this out researching our book the Big Bribe. Millennials are the new baby boomers, right? 72 million strong.

They have this. They’re in the strongest financial shape at this point in their lives than any generation has ever been before them. And look, they’re loaded, okay? They’re loaded. They have very little debt. They’re loaded. They love housing, they love stocks, they love cryptocurrencies. They’re born entrepreneurs. And again, they’re driving everything.

They’re also inheriting more than $90 trillion, folks. Millennials inheriting $90 trillion over the next 20, 25 years. So they are the new baby boomers. Keep an eye on the millennials. Whatever they’re doing, it’s what the country will do. And so again, right now, they are. They love housing, right? By the way, I just found this out today. Millennials now are the largest home buyers for 2024 buying.

[00:08:57]:
35% of every home bought is bought by a millennial. And they own at least one. At least one home. All right, so again, this is very, very powerful macroeconomic information that we see driving literally everything going forward. Also today, the book haul ratio closed was traded above a one all day to day. Closed above a one. That’s a tell. That’s too bearish.

I believe that typically this put call ratio, I think the average is around 0.7. Okay. And many more people typically buy calls and puts. Of course they would. The market normally goes up. But when you have the put call ratio above a one, that’s typically a sign that this, this, this sell off has gone too far. Too far. At least a very short term indicator.

And so, you know, this, this rally we saw today in the markets didn’t surprise us at all. I want to talk a little bit about the Federal Reserve versus Trump because I think folks that you’re not going to, I don’t think you’re going to hear this anywhere else. I’m going to be on FOX Business here in the next few days. And this is one of the topics I’m going to talk to Charles Payne about because. Well, let me tell you about the markets first and then I’ll come back to this because I think what we’re seeing is the Federal Reserve once again tried to exert pressure on Trump with these higher rates because I see no evidence whatsoever that rate should be the 10 year yield should be at 4.8%. Remember, the Fed was going to keep cutting, cutting, cutting and then all of a sudden who won the election? Trump won. And then just a couple weeks later they changed their tune. Now why would they do that? There have been no other data come out about inflation or about a hot economy.

[00:10:33]:
No, we know what’s going on here. I’ll come back, I’ll try to come back in just a moment. First of all, big reversal higher today. Dow Jones today finishing up 358 points. That’s up almost 9, 10, 1%. Remember on Friday, ugly day, right? Dow Jones down 700 points. Let’s say we recoup about half of that today. But a big turn.

The Dow had been down more than 200 points. That’s a 560 point rally in the Dow Jones today. So that’s very Good to see. Russ. 2000 by the way, I saw down this morning 2% finished higher by a quarter of a percent. SB 500 also down sharply this morning. It also all marked, it also finished higher up $0.02 1%. The loser today was the Nasdaq.

Now hate to see that. But remember, massive reversal higher here as well. NASDAQ today was down well over 200 points today. I think I saw it down 300 points frankly. And but finishing down just 73 points. And the semiconductors of course, which typically lead well, guess what, they did the same thing. They led to the downside but big comeback there as well. The semis have been down as much as 3%.

[00:11:39]:
Finished down just 7/10 of 1%. We really like this group here. This is, this, this group’s been coiling, this is a technical term especially in a bullish trend, which is the semi still remain in a bullish trend above the 200 day. This coiling action we think is going to act like a springboard to higher prices. We’re not going to have remember this is this is such powerful information and again we’re not hearing this anywhere else really. There’s a couple other people that we like that are saying it. Dan Ives is one that’s saying it with Wedbush Security. Of course he’s a big bull.

He’s been exactly right on tech. He’s been slandered for it left and right and he hasn’t been as bullish as we have to be candid. But Dan Ives has been very and very good and very bullish on technology stocks. He also loves Tesla by the way. Big move higher to Tesla today up 14 at the close today hit a low of 380. Trading the after hours now at $409 a share and that’s one of Dan I’s top picks as well. Of course it’s our one of our VRA10 baggers here but, but most of these folks have been bearish on the market, bearish tech and so we get the move higher we’re going to see because of this piece of data I’m about to tell you and we think we’re going to get this big move higher in tech from here on out. Over the next two, three years there will be more than $2 trillion spent on capex capital expenditures by big tech companies.

Only this doesn’t even include this first, second, third level derivatives from this spending. This is just big tech, the semis, you know again the Teslas of the world etc. The Facebooks of the world met if you will that are spending all this money that investing in their own company getting ready for the AI boom. But there’s 2 trillion going to be spent on on their own companies inside of three years. It is, I’m going to tell you straight up it’s an impossibility that you can have a serious market decline when that’s the case it’s also an impossibility you can have anything other than a very strong economy. When that’s the case everything follows tech and with tech has put in this kind of money on their own internal operations. Just look out above, that’s a buy signal. So again we really, I really believe that we’d have a buy the rumor, sell the news event into inauguration that was a month ago obviously didn’t happen.

[00:14:07]:
So what are we seeing now? How about this? Guess what, guess what’s happening today. Front running of Trump. Front running of Trump and we think it started today a classic buy the dip opportunity on a Monday which again over my career had by far produced the best buying opportunities of my Career. All right, let’s take a look under the hood today. Again, pretty good reports today, by the way. Much the internals have not been great but, but they’ve been better than they’ve typically been when the market’s been in a sell off, if that makes sense. Today, much better as well. NYC today was positive.

Advanced decline, but only about 300 issues. But it was positive. NASDAQ was negative by about 600 issues. Volume today positive for NYSE, slightly positive, slightly negative for Nasdaq. We did have about 500 more. Stocks hit 52 week low and 52 week high. That tends to be a lagging indicator and it’s cumulative. So if you open sharply lower and those read you hit a new 50 globe, that’s still going to be the case.

Right? That, that’s, that, that’s a reading from throughout the day, cumulative reading. So we don’t read a whole lot into that. But of course when this bull market gets rocking and rolling again, which is exactly what our call is, then that’s going to be the case. All right, let me spend just a couple minutes on this and I’ll come. You know, let me do this. I’m all over the map today and I, and I realized that it’s been a busy day, that I’ve got a meeting coming up here in a couple minutes. But I want to get this out to you. First sector watch today we had seven sectors finish higher, four finished lower.

[00:15:44]:
Good report here today. Energy leading the way again. Energy stocks which you also added to our positions here about three weeks ago. Energy stocks up 2.2% on the day. Materials up 2.2%. Healthcare up 1.7%. Utilities really the only sector down to speak of, down 1.1%. But again, utilities are pretty much their own beast.

I don’t think you can read anything into this. Okay, now back to the Federal Reserve versus Trump. You know, it’s no secret, it’s no secret that Jay Powell has a complete disdain for Trump. We know this because insiders have reported this, multiple reports of this. One guy on camera did this and you can tell by their interactions they don’t like each other. This takes us back to 2018. If you remember, the Fed hiked rate seven straight times that year between the end of 2017 and the end of 2018. And Trump and Powell was kind of a one sided argument.

But Trump was hitting him pretty much daily through Twitter and through interviews saying what is this Fed doing? Let the economy roar. We don’t need to be raising rates here. Making it more difficult for the economy to succeed. We don’t have inflation, we don’t have a runaway economy that would threaten to get too hot. So it became a big tip for tat between these two. And the Fed reacted by continuing to hike rates, okay? Because the Basin cabal is not a fan of being told what to do. So that’s how they showed Trump. We had the end result.

[00:17:19]:
We had the Christmas from hell. We had the worst fourth quarter since the Great Depression and then we had the worst Christmas ever. So again, thanks again, Fed. And they did it again this past December. Again, there should be no Fed meetings. The Fed should not speak. Jay Powell should not open his mouth during the month of December. Worst liquidity that exists, period, is just.

The Fed should never be taking negative action on the markets in December. The end result, of course, it has created some very good buying opportunities. But you know, that’s great for people with new money or people that are just coming into the markets. But for those of us that are aggressively long going into that, you know, it stings. You don’t, you know, it’s not the kind of thing, especially during Christmas, you didn’t have to go through that. So back to 2018, the Fed did their damage and then that just kind of went away. Then we had the pandemic happen, but the economy recovered until the pandemic and then it was of course a one month meltdown. But we’re seeing signs that that’s what’s happening now.

A battle between the Fed and Trump. I don’t believe it’s going to be a severe, a significant battle, but I do think it’s one of the biggest risk, if not the biggest risk that we face, certainly in the relationship between Trump and Jay Powell. That’s why 10 year yields are, are rising. I believe that the, the Pat, this is, this is my belief. I, I get to, I get to have conjecture after doing this four decades, right? And my instincts, my spidey senses are telling me that the Federal Reserve, once Trump won, sent the word out to their bond market vigilantes, okay? Meaning other central banks, big investors, et cetera, all over the world, that they wanted to see rates rise. This is how they’re going to control Trump, folks, through the interest rate mechanism. And that’s why then the 10 year started rising. We have not seen a ramped up level of inflation that has not happened.

[00:19:12]:
And folks, we’re not going to, right? I’m not talking about the CPU, CPI on Wednesday. I’m not saying the CPI won’t Rise a little bit though we might have a little more inflation. But what I’m telling you is we’re not going to have an inflation problem. The markets aren’t concerned about that. I think the markets have been told, I think again the bond market vigilantes or sent a message short, short, short U.S. debt. And I believe that’s what’s happened. We’ve covered that here awful with you and I think we’ve got this story nailed.

Right. So we’ll have to see how that plays out. But remember as we started covering this last Wednesday, I’ll tell you again this morning or I told you again this morning in our very letter that to the 10 year treasury note on a yield basis has hit extreme overbought on steroids, our most overbought designation. Right. So that’s typically when bad things happen. In this case that means rates are going to fall. I think that’s what we saw in this reality. I think the markets know this.

Again, I think front running of the of Trump 2.0 is likely underway and I think with the sentiment as bearish as it’s gotten, as negative as it’s gotten, I think this market truly set up to rally into the inauguration because I think that we’re going to have a lot of fun when, when, when 45 becomes 47 and this market is going to rip and roar higher. We are buyers of this dip and that is an unequivocal statement to all those that are flipping have just recently flipped from bullish to bearish. There you go again doing your thing. All right. Well we’ll just keep using it to our advantage. The sector. I dig sector Watch. What else today? Take a look at commodity Watch.

[00:20:52]:
Oh, gold today down not a good day for gold again. Had a pretty good week last week. Today giving back $33 an ounce at 26.71. Silver down a dollar an ounce today that’s down three and a quarter percent at 30.29. Copper today up on the day 432 a pound up half percent. Crude oil again this rally has been pretty substantial, hasn’t it? Crude oil today trading up $1.46 a barrel. That’s almost 2% higher folks at 7721 to get energy stocks led the way. And then finally the day bitcoin again.

We saw another big buy. The dip opportunity on Monday. Bitcoin this morning hit a low. I saw it below 90,000 at one point. I believe that was the low of the day. It was. And now we’re up at 94,571 again. Buy the dip in bitcoin has proved to be a smart money strategy for a very, very long time.

All right, folks. Hey, that’s it for the day. Hope you had a great day and even better night. We look forward to seeing you back here again tomorrow after the close.

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Time Stamps

00:00 Market strategy failed due to premature anticipation.
04:11 Market's bullish, but correction concerns distant.
06:37 Housing setup strengthens financial foundation positively now.
09:45 Federal Reserve vs. Trump: Markets rally discussion.
13:09 Tech spending suggests strong market and economy.
18:18 Trump-Fed tension influencing interest rates, yields rising.
20:06 Trump 2.0 optimism: Market rally expected soon.

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