VRA Investment Update: Q2 Earnings; What Recession? Record Liquidity Will Keep Driving Stocks Higher.
/Good Thursday morning. A bit of air is coming out of the tech melt-up move higher this AM, post earnings reports, as Netflix (-6%), VRA 10-bagger Tesla (-4%) and IBM (-2%) are each selling off this AM. The moves higher in each has been parabolic this year and with our markets trading at extreme overbought levels on the VRA System, a shake-out does not surprise. Nasdaq is -120 in premarket.
Tesla beat on revenue, with a record $24.9 billion in the quarter, but margins came in light (price cuts, meant to hamper competition, may continue into Q3). The bigger picture is just, wow. It wasn’t all that long ago (2020) that the self-appointed smartest people in the business were telling investors to put a “Q” on the end of the symbol, meant to symbolize the pending bankruptcy that Tesla would soon file. Oops. TSLA shares are only up 800% in the last 3 years.
We continue to recommend monthly dollar-cost averaging in Tesla. We frankly couldn’t care less about a slight miss to margins or price cuts or much of anything else.
Here’s what matters most; as Musk announced on the earnings call he thinks the stock is a 5–10 bagger from here (we agree) and you could hear the inflection in his voice when he talked about “DOJO”, Tesla’s built from the ground floor up supercomputer, which is powering their AI and soon to hit the market autonomous vehicles. 5 year lead time here folks…this stock is going much higher. Buy the dip.
Housing is on Fire
The investing public is beginning to discover why housing stocks have been red hot from even before the 10/13 bear market lows. These earnings reports are something else.
DR Horton announced Q2 earnings this morning and destroyed analyst estimates. We own NAIL, with gains of 141%. Note: while housing is in a long term megatrend, and the most important leading indicator in the VRA System and the US economy, we would not be buying housing stocks here as they are hitting our most overbought designation. Absolutely buy NAIL on the next shake-out.
Q2 Earnings — Solid Beats
Wall Street told us that Q2 earnings would come in -7%. Not so far. With 49 S&P 500 co’s reporting, 84% are beating on EPS and 69% are beating on revenues.
The economy is “much” stronger than we’ve been led to believe from Wall Streets permabears.
Record Liquidity is Driving The Bull Market
These are insane figures. Today, $22.8 trillion sits in commercial bank deposits plus mutual fund money markets. And this total doesn’t include the $5.8 trillion sitting in bank money market funds (near record). Gobs of liquidity, something you don’t see at market tops. It’s what you see near market bottoms.
Know this; while each US broad market index (SPX, DJ, Nasdaq, R2K) is (once again) beginning to hit ‘extreme overbought’ on the VRA Investing System, our view remains that we have entered a powerful new bull market…one that remains in its infancy…and that Q2 earnings estimates are on the low side. Dips should continue to be bought (and they’re not lasting long).
It’s hard to find a more bullish market tell than when the markets hit extreme overbought technically but continue to power higher, certainly when they’re breaking out on the charts with little overhead resistance.
We see the extreme overbought conditions in this chart of the S&P 500, the largest and most important equity index on the planet. Relative strength and Stochastics have both hit extreme overbought (EOB) readings while Money Flows are nearing EOB, even as MACD (moving average convergence divergence) is overbought but still flashing buy signals. Each major US equity index chart looks very similar to the chart of SPX. Again, these are not sell signals but instead mark a time frame where we want to be patient with new purchases. We have been aggressively long from the 10/13/22 bear market lows and will continue to use discipline to deploy new funds into our buy-recommended VRA ETF’s while continuing to use monthly dollar cost averaging to buy/add to our VRA 10-Baggers.
VRA Bottom Line; the ultimate capitulation signal will come when money managers become overwhelmingly bullish on stocks, which based on the latest Bank of America Global Fund Managers Survey, has a long runway in front of it.
Here’s where the “capitulation” news gets much better for us. Despite a massive rally on Wall Street this year, professional investors still remain skeptical of the future for stocks and other risk assets.
- The July version of this closely watched sentiment gauge shows that even with the S&P 500 up 18% in 2023, managers actually raised their cash allocation to 5.3% of portfolios, an increase of 0.2 percentage points from a month ago.
- In all, sentiment across cash positions, stock allocations and the outlook for the economy is still “stubbornly low” among portfolio managers, said BofA chief investment strategist Michael Hartnett, who compiled the report.
- The 36.1% rally in the Nasdaq had 59% of respondents saying big tech is the most crowded trade, followed by Japanese equities.
- That fear has led a net 39% of survey respondents to say they are taking less risk than normal, a 2 percentage point increase from June.
- Hartnett also noted a “capitulation” move out of commodities, as managers have taken their most underweight position in the sector since May 2020.
- On the economy, some 48% of respondents see a global recession starting in the first half of 2024.
When might we turn slightly bearish, in the short term? Starting in September, student loan payments are set to resume, which will take a big bite out of disposable income for millions. Of course, the October time frame is considered to be “crash month” as well, so if we’re looking for a good time to take some profits, that September/October time frame may be that window.
Having said that, we must also remember that this bull market…like bull markets do…will take us to all-time highs. While the Dow and S&P 500 are just 6% away from ATH’s, Nasdaq remains 14% from ATH and small caps remain 22% from ATH. And the bull market won’t stop there…once we’re at all-time highs, the next major move higher will kick in. Our view is unchanged from the 10/13 lows and the publishing of our new book “The Big Bribe”; we have years to run on this new bull market. Overbought or not, stocks will remain “cheap” for a long while to come. “Buy the dip” remains the smart money play here.
Lastly, I was on Making Money with Charles Payne earlier this week and made the case (again) that this is a new bull market that’s only in its infancy. You can watch the interview at the link below
Link: https://rumble.com/v30s8f6-kip-herriage-live-on-making-money-with-charles-payne-7.17.23.html
Until next time, thanks again for reading…
Kip
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