Investor’s first read – Daily edge before the open
DJIA: 19,151
S&P 500: 2,213
Nasdaq Com.:5,398
Russell 2000:1,347
Monday, November 28, 2016 9:11a.m.
When does all this end ? It’s another leg up in a 7-year 8-month bull market that is now up 232%. No one knows how successful the Republicans will be at cutting taxes, lifting regs. and goosing the economy with infrastructure spend.
No one wants to be left behind, just in case most of this aggressive program can pass muster. If the light appears to be green, this leg up has a lot further to run. If, suddenly it appears that these programs will hit a wall, the market is headed south.
Usually the market hates uncertainty, now it relishes it, because there is “hope” for a big killing, the best of all worlds, lower taxes – Wow ! , no more shackles on Wall Street – and tons of government spend.
This stuff is better suited for an economy that is emerging from a recession and a stock market that is not over priced. It is bubble stuff, pie in the sky, a speculative frenzy that can only have a bad ending.
In the interim, the Street will milk it for whatever they can.
How much further ? No telling when the fever runs this high. There will be corrections that look like the party is over only to reverse back up to new highs.
Trump stocks were laggards before the election, so most have room to run further. This is not dot-com mania where the same group became overpriced, then became more overpriced.
Late stage bear markets are easier to read, since there is a pattern of buying/selling preceding the current pricing. We are in new territory now and must read momentum and how quick buyers jump in when the market tries to correct.
Trump Stocks For Your Portfolio
The headlines are everywhere, “Trump Stocks for Your Portfolio.”
This happened when Obama won in 2008, and Bush in 2000.
The Street’s pros are generally wary about chasing a story or expected development that promises to be a big score for a stock or industry group sometime in the future, but those barriers fade quickly as temptation overwhelms reason, and the stampede begins.
Recently, I mentioned infrastructure stocks as potential beneficiaries under a Trump administration, as well as banks, and drug companies.
Drugs have been getting a big play, since it is assumed there would no longer be the risk of a cap on drug price increases. Yesterday, they were touted as acquisition* candidates*, since the small companies offer the big companies a chance to get into a research area quickly without years of development.
Generally, the drug group is up more than 560% in this bull market vs. 225% for the S&P 500. But, they sold off sharply from a peak in 2015, but seemed to have found a bottom for the past nine months, until the day after election day, when they took off.
These stocks have the potential to really run, primarily because the potential for some is open-ended, maybe they will come up with a cure for one of the big diseases ?
While a drug company’s key products are wading through trials, there is little to stop them, or until a submission gets rejected, then it is a vertical drop, a gap after trading is stopped during the day, or at the open.
All it would take to slow the run of the group as a whole would be for Congress to resist removing the cap on excessive price increases.
For further information and specific stocks, check the MarketWatch article at the end under “Note: Source…..
Corporate earnings.
Factset now sees Q3 earnings for the S&P 500 up 3.2%. On Sept. 30, its projection was for a decline of 2.2%. Q4 is projected at a gain of 3.3%, the year projected to come in at plus 0.1%. Earnings for 2017 are expected to increase 11.4%. Currently, the P/E based on 12 months out is 16.8x, which compares with a 10-year average P/E of 14.3x.
Interest rates
Just in case anyone is interested, Fed Chief Janet Yellen told Congress yesterday to expect interest rates to increase “relatively soon,” referring to a continuation of economic growth and inflationary pressures. With regard to inflation, Yellen said, “We don’t know economically what is going to happen.” (Great !, just what we wanted to hear)
At some point, someone with clout will say that most or all of Trump’s grandiose plans will fall short, or may not get passed at all, and the market will take a hit.
We won’t know until we get closer to decision time by Congress.
IMPORTANT: While the economic recovery was below norm, the stock market has not been, rising 227%.
Currently the stock market is overpriced, but can rise higher based on speculative fever.
That 7 ½ years of slow torturous growth serves as a “base” for a potential surge in economic activity.
At this point, it’s all a big unknown. The bears say, lookout below !. The bulls say, all clear ahead !
SUPPORT “today”: DJIA:19,087; S&P 500:2,207; Nasdaq Comp.:5,385
RESISTANCE “today”:DJIA:19,233;S&P 500:2,222 ;Nasdaq Comp.:5,421
The six months between November 1 and May 1, tend to outperform the six months between May 1 and November 1, labelled the “Best Six Months” by the Stock Trader’s Almanac which began tracking the pattern in 1986.
iShares 20-Year Treasury ETF down 14% in 4 months
Long-term bonds have gotten hammered in the last three months. The iShares 20-yr U.S. treasury bond ETF has lost 16.1% since July. That’s nearly 8 times the yield an investor expected over 12 months. Obviously, bonds can be risky. Let’s not forget the name of the game is to buy low and sell high, which applies to long bonds as well as stocks.
A survey of economists reported by Bloomberg yesterday calls for U.S. inflation to surpass the Fed’s target in every quarter of 2017, which if even half true should depress long-term bonds even more.
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of November 27, 2016, a reasonable risk is 18,556 a more extreme risk is 18,837 Near-term upside potential is 19,556
 OPPORTUNITY: RISK: Selective opportunity ! Risk is reality at some point
 CASH RESERVE: 25% – 35%.
 KEY FACTORS: Speculative fever driven by expectations of tax cuts, lifting of regs., and lots of money dumped on economy.
Note: Source of weekly economic calendar and good recap of indicators:
*MarketWatch – Michael Brush – 10 Biotech companies ripe for buyout courtesy Donald Trump
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
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.

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