INVESTOR’S first read.com – Daily edge before the open
S&P 500: 2,984
Nasdaq Comp.: 7,973
Friday August 30, 2019 9:18 a.m.
NOTE: Market closed Monday
Reportedly, the market’s two-day surge was a response to a comments Chinese government official, Jingyi Pan of IG that suggested a halt in the one-upmanship in hikes by both sides, i.e. China would not respond to another US hike with one of their own.
US money managers bought that ? How amateurish ! Granted, the market would rally sharply, but tariffs aren’t the only issue here, and with stocks as over valued as they are, the markets would have to slide back again as recession fears become reality (ex tariffs).
Movements up and down in the market have been powered by “news whipsaw” not rational thinking.
A recent study by Ned Davis, one of the Street’s most brilliant technicians for many years concludes that stocks are higher than they have ever been 80% of the time going back to 1928 and are historically expensive relative to overall corporate profits, revenue and book.
The euphoria of a 10-year bull market is hard to shut off. Up-ticking bull markets, one’s that snap back immediately after corrections can be addictive to the point investors simply cannot walk away.
This will be a case-in-point once again.
The market averages are locked in a 10-day trading range . The DJIA must break above26,247, S&P 500 above2,940 and Nasdaq Comp. above 8,066 to give the market a chance of attacking the all-time highs. The breakout should come this morning, but needs more substantial news of tariffs.
What’s more, I suspect this breakout will end up as a fake out in a week or less, especially if tariff joisting takes a turn for the worse.
Minor Support: DJIA:26,307; S&P 500:2,917;Nasdaq Comp.:7,907
Minor Resistance: DJIA:26,437; S&P500:2,924;Nasdaq Comp.:8,051
Thursday Aug. 29 “Rally MUST Hold or Major Damage Done”
Whipsaw news markets are a dilemma for investors trying to buy or sell at best price. Traders can trade them if the news items are spread far enough apart. Not so here.
Plunging interest rates are driving buyers to yield stocks and ones with great growth prospects…..BUT, they are paying up for those overpriced stocks.
The Street and most investors still feel comfy with stocks, even with a recession looming and all of the uncertainty over trade where corporate supply chains are being ripped to shreds, coveted markets moved to other countries.
Decision makers do not know what to expect next. That’s not a problem that will go away when tariffs are lifted. Who knows what Trump will do next ?
All this should depress stocks, so far it hasn’t.
When key managers of serious money on the Street get scared by what their inflexible algos don’t see, they will sell in size prompting others to see and you’ll get a flash crash of 12% -16% in three days.
Wednesday Aug. 28 “Never a Recession Without a Bear Market”
The only consistent thing here is inconsistency. The only inconsistent thing here is the TRUTH.
How can a stock market find a level that reasonably reflects issues positive and negative when information from the top is both inconsistent and false ?
So far, the Street has endorsed a bullish posture, ignoring the potential ravages of a global recession and dysfunctional, untruthful governance.
In a reasonable environment, this stock market should decline 20%-25% just for openers to discount the possibility negative news will prevail….and possibly it will get worse than expected.
That raises the odds that if it becomes suddenly overwhelmingly obvious a nasty recession will smack the world solidly between the eyes, the market will go straight down IMHO 35% and stay there for a long time, NOT bounce back when the Fed waves its magic wand.
Because it will take a long time for the U.S. regain credibility it has lost in recent years and to regain markets that have been lost to other countries as a result of its poorly administered trade policies.
A very naïve Street is spoiled by a 10-year bull market mothered by Fed policy and verbal promises. It doesn’t want the party to end, so it is hanging tough to an algo-driven buy policy, hoping negatives will vanish.
One lesson I learned long, long ago is that you cannot afford the luxury of delusion in the stock market for long – they keep score every day. That vision has been tested over the last 5 – 8 years, but will bear out in time.
Tuesday Aug. 27 “News Whipsaw – Trade Deal On – Trade Deal Off !!
Just the mention of restarting trade talks in coming weeks is enough to give the Street hope for averting a recession and bear market. While this comes days after US threats to increase tariffs on China goods, it is what is said most recently that gets the attention of the Street.
Tomorrow may be something else.
That said, the market has some room to run before it hits resistance generally in the DJIA 26,300- 26,400 area (S&P 500: 2,925-2,940).
There is support at DJIA 25,500 (S&P 500:2,830).
We are in a tight trading range which can be resolved either way near-term, depending on news flow on the economy/recession and trade talks.
The Administration and Fed are in panic mode to avert a recession in a presidential election year, so nothing would surprise me.
There is absolutely no consistency in government policy except inconsistency.
That does not breed CONFIDENCE, and confidence is the difference between low valuation of stocks and ultra-high valuation which is where we are now.
These conditions are not easy for the nimblest of traders to exploit, so the average investor would be advised to stay on the sidelines with a healthy cash reserve.
August 26 :STOP the LIES !!”
There is an enormous credibility problem here with the potential for a very bad ending for naïve investors who continually get sucked back into an historically overvalued market by inconsistent rhetoric from the Street, the White House and the Fed.
Credibility and confidence are key to how stocks are valued, the difference between a price earnings ratio for the S&P 500 of 20 or 29.
What 20 x earnings ? Why not ?
The S&P 500 was priced below 20x earnings in the turbulent 1970s and 1980s and during the 2007-2009 recession/bear market. Today’s domestic and international chaos is on par with, or worse than, any of those years.
After the G7 meeting over the weekend, what can we believe
– The U.S. will raise tariffs further ? Talks with China will restart ? Tax cuts ? Index Capital Gains to inflation ? or “We’re doing tremendously well…our consumers are rich” President Trump.
More sharp turns than a punt returner, a line dancer.
1_Stop lying to us
2- Let the market find a level that discounts known and perceived positives and negatives. STOP the verbal manipulation.
Friday Aug. 23 “Don’t Rush to Buy Fed Chief Powell’s Hype”
The market will open on the downside after China just announced it will strike back on U.S. threat to impose tariffs on $300 billion of Chinese goods with its own tariffs on $75 billion of U.S. goods, levies ranging from 5%-10% (Sept 1 and Dec. 15). A 25% tariff on automobiles and 5% tariff on parts will become effective Dec. 15.
Fed Chief Jerome Powell speaks before the Central Bankers Forum today at Jackson Hole, Wyoming. While President Trump is pressuring the Fed for one major cut in the fed funds rate, or several smaller cuts, it is uncertain Powell will yield to the pressure.
I expect him to say the Fed will track the nation’s struggling economy and cut rates if it sees fit.
Trump will attend the G-7 meeting in Biarritz, France this weekend. Climate change and trade tensions will be discussed among other issues.
Thanks to a 14-point rise in Boeing’s stock (BA: see below) the DJIA was up 49 points yesterday instead of down 50 points. At 354, BA is the DJIA’a highest priced stock. Since the DJIA is a “price-weighted” average, a move in BA impacts the DJIA 10 times more than a move in Pfizer (PFE: 35).
Boeing (BA: 354) Stock jumped again yesterday. Hundreds of Boeing’s 373 Max aircraft were grounded by major airlines after two fatal crashes last year. I didn’t think a 24% drop from its all-time high of 446 adequately discounted downside risk, so I began to track it. I noted the company has desperately needed just a little good news from a brokerage research firm or airline that could reverse its downward spiral chase shorts and bring in some buyers. Yesterday, it may have got what it needed when Cowen & Co analyst Cai von Rumohr reported the FAA’s certification flight for the 737 could take place in 4 to six weeks. It will take better news than that, but BA’s downside risk is now limited and no longer as great a risk as I feared. Coverage here will end for now.
What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 120 months, the longest in history, twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months. The unemployment rate is 3.6% which was hit in May. Technically, we won’t know when the start of the current recession is official for months after the fact, since that conclusion is reached by the Nat’l Bureau of Economic Research (NBER) and they consider host of economic indicators.
>Bear markets lead the beginning of recessions by 3 to 12 months. The current bull market at 123 months is 4 times the average of the last 15 bulls going back to 1957
>Nine out of the last 10 recessions have occurred with a Republican in the White House.
Investor’s first read.com
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Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.