Transcription
Hi fellow Traders, this is Larry Williams, and I think it is rally time. Quite a few reasons why I think it's rally time in the stock market. Let me share those with you.
First of all, I think the market is now undervalued. I don't mean uh oversold or or overbought. I think it's undervalued, and I'm gonna explain that. My valuation measures are in stockjar.com, probably the most fascinating tech tool I've ever come up with. I think you'll enjoy that. Also, smart money has begun buying stocks. I'll show you where that's been taking place. And you know, you can have a good stock, but if you don't buy it at the right time, you can still have problems. So I like cycles and seasonals, and a few other things to say right here, right now is probably the right time.
So here's my longer-term cycle in the stock market. I thought you'd appreciate this. You can see we've had pretty good buying points at these lows in this cycle, and since we're in a bull market, we'd get pullbacks at the peaks. So where are we now? Is what's more important, right? You can see the lows have been, and here we are. We're right into a low about every five, six months. We've seen a low in the or buying point in the stock market, and that's where we are now. So I think that's one reason. Timing says it's just about now. But again, timing might be off if you don't have a fundamental condition, a real reason to be a buyer at this point. So let's look at those real reasons.
Um, it really starts with my 2025 forecast report. Now I know a lot of you have this; some of you didn't. But this was our forecast that starts at the first of the year, and we forecast we'd come down until about the middle of March, and then we start to see this turn up. So this was our forecast made last December. Uh, the forecast report isn't available any longer; I'm just showing you. See, uh, we had a pretty good idea the decline that we've seen was going to happen, and now this has turned up. And there's a little more to it than that. Like I said, my valuation model is really interesting to me because we can find when a market is undervalued. This is in stockjar.com, called Will Value. You can see we're undervalued here; we're undervalued in this area; we're undervalued over here at a great point uh to be a buyer in the Covid crash. So we can find other periods, and what's interesting to me, you might even see price at relatively high levels, but we're undervalued in the market. We're undervalued over here; we're undervalued here. That's significant to me. Uh, these are times when I want to be a buyer in the market because prices have become undervalued, and they will rally at some point in the future. We can see the last time we were undervalued was last September. Prices were only down for a week, but we definitely hit the undervalued zone. So it's not an overbought, oversold indicator. And look where we are now. We've entered the undervalued zone, as we did here, as we did here. Now this is not a timing tool; don't be misled by that. It's just a suggestion that we're in the value area of stock prices. And given being in a valuing area, then we can look for a trend change or an entry technique. But we have one condition that sets this market up as a potential area to rally.
But I also like to see smart money has come in. I have my money flow index that's also in stockjar.com. We'll go back in time. You can see when they've started to buy. You see the professionals start to buy in here; the market rallies. They start to buy heavily in here; we rally. And again, it's so interesting to watch these professionals. We were really at a high price level here; not much of a pullback or a dip in the market, but they were big buyers just before the run-up before the Covid crash. And right at the Covid crash, they moved to the buy side again. So I do think that money makes the world go around and certainly makes stock prices go up or down when they become sellers in the marketplace. So that's another reason. And if we look at recently what's gone on in the market, look how big buyers they were back here, and they are buyers at the lows. They usually are pretty correct in accumulating the market. Now this is where they are now. They've just begun to get what I think is a sweet spot of their buying. A lot of buying came in as we saw a lot of buying back here. So this is another reason. Not only have we seen some valuation in this market, we also see that smart money is starting to move into into this Marketplace. So the flow of money, they started nibbling in here; they really become much more aggressive buying or accumulating. Now they don't just buy and try to sell in a day or two; they accumulate their position, and that that's what I think has been going on in the market at this time.
The other side of smart money is what we call dumb money or my advisory sentiment index. This is something I first wrote about in a book for Bloomberg, well, 25 years ago. Still the same data, same stuff we're looking at. When the majority of advisors are really bullish, uh, look what happens in the marketplace. When the majority are really bearish, look where we are in the marketplace. The majority of advisors are really bearish. Well, that's time usually to be a buyer. Here's a good example: the majority of advisors were saying you should be a seller here; in fact, you should have been a buyer. And where we are right now is about the same place. The advisors have become very bearish. Oh my gosh, you turn on the internet; anything and everybody's bearish these days, right? Everybody's afraid. Well, that's one thing; it's hard to learn to do, but you got to do it. You got to buy when it feels like you shouldn't be buying. Uh, and this is a good reflection of those emotions. When most people are bearish in the market, we're going to get at least some type of bounce in the market. The magnitude of that bounce, though, could come from the fundamental setup, like we looked at the smart money buying, is value in the marketplace or the time cycles there as well. So that's why I like to kind of combine all this stuff and put it together.
So with that in mind, the real problem I think is Wall Street is terrified, right? Donald Trump and the ter what is this going to do to the market? That's been the real driving force here, and I think there's an answer to that I'd like to share with you. In part, tariffs began where I am here in St. Croix in the beautiful US Virgin Islands. Alexander Hamilton came from this little island, went to Washington DC, was our first Secretary of the Treasury, and it had big tariffs. His idea was that if we could make it in America, big tariffs on it; if we couldn't make it in America, then no tariffs on it. And use tariffs as we did to fund the government. Until about 1913, there was no income tax; all of the government revenue came in from tariffs. So what tariffs may do is increase prices, but they will increase jobs because if things have a high tariff on them, we won't buy them from China or whoever; we'll make them here. So we should see an increase in the job market. We may see an increase in prices, but and of course, more jobs is really bullish. But this "drill baby drill" thing is really interesting. This will lower inflation if Donald Trump is correct and he's going to really open up the gates of oil, and that's what he talks about. Who knows what will happen, but if that does happen, that's going to lower inflation, which, as I see it, is an offset to tariffs increasing prices.
So in terms of inflation, which has been the the talk of everybody in economics recently, I think we're going to continue to see less inflation. Here's why: inflation is really crude oil. The black line is the inflation index; sticky inflation. The red line is crude oil. Look closely; they go together, right? Price of crude oil goes up; inflation goes up. Crude oil goes up; inflation goes up. I mean, inflation is a crude oil is a huge part of the inflation data. Here we see that relationship, 2007 coming forward. Crude oil goes up; inflation goes up. Crude oil comes down; inflation comes down. I mean, they're just sister and brother with one another. Not always; occasionally we see a little divergence, but by and large, the cost of crude oil is the main driver of inflation. And here's where we are right now. What I've actually done in these charts I just showed you, I push forward crude oil prices about a year in advance because crude oil actually predicts in advance inflation. This is notice that we had a big increase in inflation here, but this crude oil data in red was known a year and a half in advance, just like now. We see, oh, crude oil is over here; it's been continuing coming down. That suggests inflation is going to continue coming down. So if you really want to get a good idea of inflation, well, if we have a massive rally in crude oil this year, we're going to inflate. But at this point right here, right now, it does not look like that's going to happen. Uh, so we have a pretty good idea, just looking at the relationship of inflation to crude oil, that we're going to continue to see lower inflation. And maybe more important, as I see it, is that if we do "drill baby drill," there will be more oil. And whenever you have more of any commodity, what happens to prices? Prices go down. You're going to have essentially the same demand, but more quantity, so price will decline, which means less inflation, which I think is a positive for the economy, for us as buyers and sellers, and for the stock market itself. So "drill baby drill," this is going to be really interesting to watch to see if they really do "drill baby drill," because if they drill down, you're going to see inflation go down.
So we can also look at the relationship of crude oil to stock prices. I'd like you to look at this closely. Again, we're seeing crude oil in red, and we're seeing stock prices in blue. This is the crash of 1987. Look what happened: that big rally in '87, big increase in crude prices, and then down came crude, down came the stock market. Then crude started to rally; stocks started rallying. Crude started to come down, and stocks followed suit as well. So there is also a relationship between crude oil and stock prices, for obvious reasons. Here we see from 1998 into 2002. Remember the stock market topped in 2000, 2002; it went down a lot; the S&P even more. Well, look what happened to crude oil prices at the end of 1999. Crude oil started to come down, and that big bull market stocks have been in ah turned into a big bear market. Look at that, what a relationship between these two fundamentals do cause things to happen. The market's not, as I've always said, charts don't drive the markets; conditions drive the markets. And this is one of the leading conditions. Here we continue seeing this, as I'm going to explain a little bit more about this red line, which is crude oil prices, in a moment. There was a crash of 2008; the market, crude oil came down; stocks followed. Crude oil went up; stocks followed. Pretty good relationship. And now what I've been doing again, I've been pushing forward the price of crude oil; in this case, pushing the price of crude oil forward uh by about a year, a little over a year, and that's been a really good sign of what's going to happen to the stock market. We'd up and bounce around. Look at the decline we've had in stock; yeah, there it is in crude oil. And now we should start start to see a rally. So this relationship of crude oil and stock prices I think is good. I'm going to blow it up for you a little bit so you see a better relationship to right here. So this is where we are right here, right now, and this is saying crude oil also suggesting for us a potential rally in the market. So another real reason, just as we saw a rally back here, just we saw this rally, rally back here, a real reason for stocks to have a rally at this time.
Now what I've done here, this is one of my little secrets I'd like to share with you: crude oil price is inverted. So when you see the red line here, this is crude oil turned upside down. In other words, crude oil was actually not rallying here; it was declining. So there's an inverse relationship between these two. So keep in mind that what you've seen is crude oil prices inverted, and when they're inverted, they lead stock prices. So this is just one more little um arrow you can add to your quiver to help you understand the market, to look at these relationships between stock prices and really the most important thing in the world right now is crude oil. You know the Golden Rule turned to be black. The Golden Rule used to be who has the gold rules, right? That's changed. Here's a simple question: how long can you live without having gold? How long can you live without having crude oil? Well, you can live probably the rest of your life or for a long time without having gold, but what happens if we don't have any crude oil in the world? We have a world of problems. The cars stop, the machinery stops, the airplanes stop, the trucking; well, we're in a world of hurt. So this is why crude oil is so important and such a critical part of the economy and why it has such an effect on stock prices, inflation, and and just the concomitant relationship across the board. So we really have to focus on this as a driving force of the economy of the world.
So we can also look then at Black Gold and yellow gold. I think the gold people enjoy looking at this. The yellow line you see is obviously gold prices, and the black line is uh crude oil, Black Gold, right? Crude oil. And you see again, pretty much they dance the same tune, don't they? Black Gold goes up; real gold goes up. Black Gold goes up; real gold goes up. They come down together; they go up together. So there's a relationship there that you as an investor or a trader can also take advantage of. Here we see it into 2020. Black Gold went up; gold went up. Black Gold came down; gold went down. Black Gold went up; gold went up. Okay, so we get to see that relationship, um, and it's a powerful relationship that's been there a long time. This is where we are right now. I'm bringing this up to date for you. Uh, Black Gold started to go up late 2022, and gold started to come up. Black Gold got really strong; gold really picked up to the upside. So I know what you're thinking: where are we right here, right now, Larry? Well, it looks like we get choppy, but around 6:15 this relation, which is another inverted relationship, shows that again we start to see gold move back to the upside. It looks like gold should make new highs in here. So this is early June, middle of June, which should start to another really good buy point. We can look how closely this has happened in the past. There was a forecast buy point; no, look at that, known six, seven months in advance, right? This, remember, gold prices here are lagged. In other words, crude oil prices in black are pushed forward. So we knew about this in advance, just like we know about this now. We know about this now. These points, this is critical for your understanding, were known in advance. The problem most of us have is this traded; we really don't have a good view of the future. Like we look at a chart, we don't know if it's going to go up or down. We might have a bias, emotional or intellectual bias, but here we say, oh, I got it. This is what most likely will happen in the future because really, as speculators, we need to live in the future. You can't think about today; you have to be living; I'm living out here. What's the rest of this year going to finish? What's going to happen? I'm I'm living out here, and I can see from the forecast of crude oil a pretty good idea what's going to happen to gold. Again, crude oil is inverted; all the crude oil data you see here has been inverted. In other words, it's been turned upside down. Uh, where it looks like it's been rallying, no, crude oil was going down during this time period. So you need to understand that if you're going to look at the relationship of these items.
Well, let's get more about Okay, looks like a lot of good things might be happening, Larry, but is it time? And I think we are in a bullish wave. This is part of my cyclical studies. Uh, this red line shows a wave that really kicks into the marketplace. You see it kicked in here, kicked in here, kicked in here. It's been pretty reliable. Here, September 2021, it kicked in just at the lows. In '22, it kicked in, kicked in again, and again in 2023 last year, kicked in again. And this is where we are now, at the end of this month. This red cycle kicks in; typically in the past, prices have rallied about 80% of the time when we've seen this wave. Now is that a cycle? Um, it's hard to say exactly what this is, but it's a wave that continues to drive prices in the market, and this wave is just about where we are now. So we're getting into the end of this month; we should see this bullish wave kick up into prices as we've seen it in the past. Will it call the absolute low? No. But does it give you a a good idea when to start to look for a rally? Yeah. Um, and it's saying that we're just about there. The middle part, end of this month, we're almost in the middle of March now, should be a time to expect prices to rally. So I think it's rally time.
So there's some stocks we might want to look at. One would be Tesla. If we look at my money flow index, we see that smart money, which is buying Tesla back here and over here and here and here and here and here, right? Look what they started to buy Tesla again. So you go to stockcharts.com, you put in our money flow index, you see when money, big money started to buy. So that's one reason I think Tesla could rally. Now if we also look at the seasonal pattern in Tesla, it also starts to turn to the upside just about the middle of April last year, year before. So we have the seasonal is starting to get bullish on this market, and we see smart money has started to buy. We can also look at my valuation index, and we see Tesla is undervalued here, as it was undervalued here, as was undervalued here, and undervalued back here. I know there's a lot of news about Elon Musk and oh, he's going to destroy the government or save the government. I don't know what's going to happen; they're going to throw out some good babies with the bathwater and all this cutting, that's for sure. But when I look at the conditions of the stock, I see what I like to see: undervalued. The right time is coming soon, and we've seen smart money start to buy the stock. That to me sets it up as a buy point.
Here's another stock you might want to consider. This is an ETF, XLP. XLP is consumer staples; it's a group of consumer companies. Let's see here, they are Procter & Gamble, Costco, Walmart, Coca-Cola; all the things that we all eat and use and shop at, right? That's what's in XLP. And we look at my cycle forecast and XLP; it suggests we're coming into a low. We see that it's in an undervalued zone, as it was back here, and professional money was buying here. They're not quite aggressive buyers yet; maybe after this week they will be, but we're starting to see this market get set up as well. When I turn my cycle machine, I see we're also getting oh, the first part of April, we're getting into a low for XLP. So this is another market I think you want to consider. And again, when we get into this zone, this blue line, we have about an 80% probability of rallying from somewhere in the middle of April, 1st of April, into September. So there's another stock I think you might want to pay some attention to uh as things progress. Okay, so let's take a look at what they own. Those are the companies that XLP has invested in. You don't have to buy Coca-Cola or Walmart or Costco; you could buy this stock, and you're effectively going to have a position in all of these stocks. That might be an easier way for some some people who want to be in the consumer goods section. And I think this section probably will not be as much influenced uh by tariffs because um some of these are, but Coca-Cola is sugar, and they're making Coca-Cola and beverages, right? Philip Morris is now basically Altria Food Company; PepsiCo, again, food company; Mondelez, food; Altria Food; Colgate-Palmolive, soap and stuff; not a lot of things we're importing with high tariffs on them. Target, maybe a little differently; maybe Costco, but by by and large, this group I don't think will have as much of an impact on tariffs or higher prices, which might result in lower sales.
Nvidia. This is a stock; last year everybody wanted to own; this year nobody wants to own. So where are we right here, right now with the stock? It just started to become undervalued, as it was back here; was close to undervalued back here. So here's another stock that a lot of people have been following it, some for the wrong reasons, but we're starting to see it get set up as well. So what's professional money been doing? What's the funds been doing? They are big buyers up here, and they just recently started to buy it again. So that's a bullish consideration for us to consider. Those who are, a lot of you are in Nvidia and going, oh, what am I going to do? Well, you have some hope here; you have some relief for this stock now because we're starting to see undervalued and professional money coming into this Marketplace. We can also look at the seasonal pattern here. Uh, the seasonal pattern, we should rally a bit and then take off the middle of April; that's what usually happens. Now this is what I want to point out to you; look at this carefully. The red line, notice Nvidia is lower here than it was here. Most stocks are lower now than they were back in January; that's most stocks. The stocks I want to buy are the ones that are higher now than they were in January; those are the ones that attract me the most because they held up the best on this recent decline. You may have noticed back here when we're looking at XLP, it's higher now than it was back here, so it's held up better than say uh Nvidia, right, which has come down. So I want to look for the stocks that didn't get beat up; that's one of the criteria I look for. So we look at ASML, which is about the same business as Nvidia; oh, it's held up much better, hasn't it? So you might want to look at that in terms of your stock selection or your own stock screening: which stocks in this recent decline held up the best? Uh, the ones that got beat the most, they might have a bounce back, but obviously they were in stronger hands; this was in stronger hands coming down than Nvidia was coming down. So I like to buy stocks that have been in strong hands. We look at Apple right now. Apple just just kissed old lows; it was stronger than Nvidia. Nvidia, remember, most stocks are a lot lower now than they were here. So Apple also has held up comparatively better than the average itself, and it is at a cyclical point when we would expect this market to rally based on the seasonal pattern in the stock market.
So that kind of wraps up um what I see in stocks here. Uh, I think the big thing is coming up is what could cause this rally; what's going to ignite it? And I think it's going to be this: the war in Ukraine was end; that Donald Trump will negotiate some type of agreement between Ukraine and Russia and maybe NATO, who knows, and the US. And I think that is most likely going to be the trigger mechanism to see things like Apple start to move back to the upside, just because it's an emotional uh setting in the marketplace, like, oh, something got accomplished here. So I think that's the most important news to pay attention to. But if we look at my cycle forecast, remember, they're all saying we should rally right here, right now. So I think the news will come out and just justifies what the cycle has already told us.
So to wrap this all up, I think it's rally time, and I think it's rally time for fundamental reasons, for technical reasons, for cyclical and seasonal reasons. I hope you've enjoyed today's presentation. I hope you've learned from it. Um, there's so much to learn about the markets; it's really my privilege to share what little I know with you. And thanks again to stockjar.com because they made all of this possible.