Lecture Notes: Stock Market Rally Analysis

Introduction

• Presenter: Larry Williams
• Thesis: It is rally time in the stock market for several reasons.

Reasons for the Expected Market Rally

1. Market Undervaluation

   • The market is currently undervalued, not oversold or overbought.
   • Valuation measures available on stockcharts.com (Will Value).

2. Smart Money Buying

   • Professionals have begun purchasing stocks.
   • Historical data shows when professionals buy, markets tend to rally.

3. Timing and Cycles

   • Cycles and seasonals indicate it is the right time to buy.
   • Historical cycles show lows every 5-6 months, aligning with current market conditions.

4. 2025 Forecast Report Insights

   • Predicted a market upturn starting mid-March, aligning with current observations.

Valuation Model

• Will Value: Identifies periods of market undervaluation.
• Historical undervaluation periods coincide with market rallies.
• Current market is in the undervalued zone.

Money Flow Index

• Indicates smart money buying behavior.
• Professional buying correlates with market rallies.

Dumb Money and Sentiment

• Advisory Sentiment Index: Inverse indicator where bearish adviser sentiment suggests buying opportunities.

Economic Context: Tariffs and Inflation

• Historical Context:
  • Tariffs as government revenue pre-1913.
• Current Impact:
  • Tariffs may raise prices but could increase domestic jobs.
  • Potential for reduced inflation with increased oil drilling ("drill baby drill").
  • Relationship between crude oil prices and inflation: lower oil prices suggest lower inflation ahead.

Crude Oil's Impact

• Relationship with Inflation:

  • Crude oil is a major driver of inflation.
  • Current crude prices indicate potential for continued lower inflation.

• Impact on Stock Prices:

  • Historical data shows correlation between crude oil and stock market movements.
  • Current crude prices suggest a stock market rally.

Gold and Crude Oil

• Similar patterns exist between crude oil and gold prices.
• Suggests alignment and potential predictive power.

Stock Opportunities

1. Tesla (TSLA)

   • Smart money buying and seasonal patterns suggest a rally.
   • Undervalued and aligned with upcoming cyclical patterns.

2. XLP (Consumer Staples ETF)

   • Includes companies like Procter & Gamble, Walmart.
   • Undervalued with favorable cyclical and seasonal patterns.

3. Nvidia (NVDA)

   • Recently undervalued, with professional buying observed.

Economic and Geopolitical Triggers

• Potential resolution of the Ukraine conflict could act as a catalyst for a market rally.

Conclusion

• Overall Sentiment: Expecting a market rally for various fundamental, technical, cyclical, and seasonal reasons.