VRA Investment Letter: Back Up the Truck. Set-Ups That Say "Buy Now". Fresh Bond Market Buy Signals
/Good Thursday morning. This morning's CPI report came in slightly above estimates with September prices paid for consumers rising .04% month/month vs estimates of .03%. Year over year, core CPI came in at 4.1% vs estimates of 4.1%. Equity futures have fallen slightly on the news while bond yields (10 yr) are essentially unchanged.
Here’s why this report doesn’t matter and why I expect the move higher in stocks to continue, unabated; we have a series of “tells” over the last 4 days that are speaking loudly.
Market Tells Are Pointing to a Sharp Move Higher in Stocks
1) On Friday we got a “hot” jobs report that initially hit the markets (hard), however, stocks then surged higher immediately following the open with a strong smart money hour close. Friday also brought us multiple and significant outside reversal days in our most most indexes and sectors, as rates plummeted lower. BIG tells here folks. Friday almost certainly marked the lows of the seasonally weak August-October time frame.
2) Over the weekend, war broke out between Israel and Hamas (shades of 9/11, but not in the way most would think). When the markets opened on Monday, stocks were hit hard but once again surged higher immediately following the open, with a strong smart money hour close.
3) Yesterday we got a hot PPI report (September) which immediately hit the futures markets, however stocks then surged higher immediately following the open with a strong smart money hour close.
VRA Bottom Line: We’re witnessing repeating patterns that matter. Weak opens on bad news, followed immediately by sharp moves higher, featuring strong smart money hours with bond yields that continue to fall. For me, the big tell was the immediate reversal higher in stocks following the attacks in Israel over the weekend. Frankly, I don’t think it would have mattered how the CPI report came in this morning. This market is going higher. I look for dips to continue to be bought.
Bond Market Buy Signals
The action in the bond market, featuring rates that screamed higher over the last year +, have acted to place a lid on stock prices.
The charts below tell us that the highs in bond yields are now in place. This will send semis and tech stocks sharply higher, which as always will lead the broad markets.
10 Year Yields
In addition to hitting “Extreme Overbought on Steroids” (EOBOS) last week on the VRA Investing System, below we see the buying climax that occurred on Friday, as 10 year yields have now collapsed from 4.88% to 4.57% this AM.
TLT (20 year T-Bond ETF)
Here we see last weeks selling climax in TLT, featuring massive, never before seen volumes of selling pressure.
Big oversold buy signals taking place in bonds.
HYG (High Yield Corp Bond ETF) to TLT (relative strength)
Below we see one of my favorite charts, period. High yield bonds (junk bonds) have “dramatically” outperformed government bonds this year.
This chart is screaming “no recession, the US economy remains in good shape”
USD: Sharp Reversal Lower From Extreme Overbought Levels. Bullish for stocks and precious metals/miners
The best buying opportunities of my career have come from the set-ups that are in place today:
1) We’re still in the first year of a new bull market. One of the best smart money plays over the past year has been “buy the dip”. We’re buying this one too.
2) Sentiment reached extreme fear levels last week. Our “wall of worry” that’s firmly in place now also includes Israel at war. When markets respond to bad news by moving higher these are often the smartest of smart-money buy signals, certainly in a bull market like this one, being driven by record levels of global liquidity and our 5 “Big Bribe” Megatrends.
3) Fridays trading produced a sharp reversal higher on the hot jobs data while also giving us multiple “outside reversal days” in key indexes and sectors. Shades of the 10/13/22 capitulation and bear market bottom.
4) Bonds just had their best day since March, following the regional banking crisis and Fed bailout. The last time bonds were this strong, the S&P 500 jumped 2.5% (in short order). It looks like the highs are in place for bond yields, one of our key “VRA Inflection Points” over the last month.
5) In particular, this bull market has been led by semis/tech, with an eerily similar theme to the 1995–2000 melt-up. Instead of a “dot-com” focused move higher we have a theme of “innovation/AI” (still in its infancy).
6) Seasonality is flipping to bullish. We’ve been forced to remain a bit cautious from the July peak, based on seasonality patterns. These patterns, which have held up better over the last year than at any point in my career, are now turning bullish. I believe front-running of seasonality began on Friday.
7) Stock Traders Almanac just issued a major MACD buy signal, based on seasonality and STA’s key technical signals. Note that their buy signals cover the Dow Jones, S&P 500 and Nasdaq. Each of the big 3.
STA, led by its founder Yale Hirsch, is the father of Wall Street analytics. STA is “widely” followed. This buy signal matters.
VRA Bottom Line: Every VRA ETF is now a full-on buy. This is our “back up the truck” moment.
Until next time, thanks again for reading…
Kip
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