Wall Street’s Darlings De-Faang-ed

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,065
S&P 500: 3,155
Nasdaq Comp.:10,390
Russell: 1,463
Tuesday  July 14, 2020    8:43 a.m.
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brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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NOTE: It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.   One other point, it is remotely possible President Trump will resign presumably for health reasons.  The impact on the market would be a big down for 90 minutes, then a very  sharp rally as the potential for long-lost unity in America would become a possibility.
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TODAY
      BIG spike and reversal in the popular growth stocks yesterday.
Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), Google (GOOG), aka FAANG stocks, closed down for the day after huge spikes up early in the day, resulting in one-day reversals, generally a bad sign.
I had a little sparring session with the Seeking Alpha folks yesterday.  Seems like there is just a bit too much bravado about owning Apple, Netflix and the stay-at-home stocks that needed to be challenged.
There is a lot of human nature in this zoo. Any time someone feels it is safe to boast about owning a winner, the stock is due for a comeuppance.  Funny how that works.
Even so, yesterday’s blog, “One More Spike Up Before Fall Plunge, ” was referring to just  this kind of action, a big surge upward that fails to hold.
It will be important to see if these stocks can  press to new highs or if yesterday marked their all-time high.
I expect the same thing to happen to the rest of the market that happened to the  FAANG stocks, but less  dramatically.
I thought July 27 would be a good target date for the 30% – 45% slide to start, but there are a lot of balls up in the air – more stimulus, Fed/Administration/Street hype.  Lies about future earnings as Q2 reports hit the street. There is a presidential election in 18 weeks.
I am seeing the same cockiness, arrogance and denial now, that I have seen at the top of the last 14 bull markets, in varying degrees but more so in 1968 1973, 2000, and 2007.
Today’s market is different in that the Fed is trying to micro-manage it. I don’t think a bunch of corner-office bankers are smart enough to do that without creating chaos.  Markets should be allowed to find a level that discounts known and perceived positives and negatives, not micro-managed to accommodate a vision.
The result is a bubble with horrifying results when pricked. I believe the Fed was responsible for Bubble #1 between December 2018 and February 2020. I believe it is responsible for Bubble #2 between March 23 and today.
The Fed needs to be de-FAANG-ED.
Bottom Line:
The bulls won’t go gently. At some point here, today, tomorrow in a week, buyers will be a “no-show” – enter flash crash #2.
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RECENT POSTS:
Monday July 13, 2020  “One More pike Before Fall Plunge”
Oh my, what a difference 11 years makes. If these guys would just walk around the block  and draw on common sense for arriving at decisions.
A Sunday Bloomberg article, “Wall street Forges a New Deal With Data in Coronavirus Age” highlights how far from common sense the Street has gotten.
Now the direction of the market will be decided by restaurant reservations on Open Table, TSA checkpoint data, international dining bookings, , COVID-19 reproduction rate, daily deaths, the positivity rate ( share of tests coming back positive), hospitalization and capacity rates, gasoline use data, traffic congestion, credit card usage, and yes,  Transport Authority turnstile entries.
How about the fact that a 6% decline in the S&P 500 does not come close to discounting what has happened, is happening and the damage it will cause in the future ?
The Nasdaq Composite is 3.8% above the February 19 level where the flash crash started ?  Granted, the index is hugely distorted by a handful of big-cap tech stocks,  but stocks were overvalued before the crash and are more so now with corporate earnings plunging and with little hope of a quick rebound.
        With all the uncertainty that bedevils this business, one thing is consistent –
Greed and fear.  Greed (and denial) at tops and fear at bottoms.
So, what will it take for the stock market to plunge ?
Humans being human.
Current fundamentals suck and the future is anyone’s guess.   It is difficult for money managers to justify investing at these levels faced with such overvaluation, adversity and untethered uncertainty.
        At some point  here,  fiduciary responsibility will override the urge to clip another percentage point or two for portfolios and buying will Vanish ergo a freefall as everyday selling finds buyers are a “no show.”
Memories of what happened in February/March with a  21-day 35.6% drop in the S&P 500 will resurface and sellers will  race to the exits adding to the initial plunge.
The result: a 30% – 45% plunge (starting July 27 ??) will occur heading into October.

Bottom Line:
Bear market bottoms are accompanied by gloom and doom, so much so, no one in their right mind can justify buying stocks based on current and potential developments.
Ironically, we have gloom and doom at a time the Nasdaq Comp. is hitting new highs  with the S&P 500 is within 6% of an all-time high.
Obviously, the Street is looking beyond the pandemic  crisis.  How far beyond is it willing to look ?   This looks like denial to me.  If several big hitters bail out, they all will bail out.
The Market Averages:  No matter how bad Q2 corporate earnings are, the Street will claim they are better than expected (SOP).  Will Companies return to a policy of guidance ?
In this environment, I expect one more push up before a sell off can occur, the DJIA rising above the spike on June 16 of 26,611  and the S&P 500 above June 9’s 3,222.   This is Wall Street’s definition of cognitive dissonance.
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Friday July 10, 2020 “Bubble Burst Looms – COVID-19 Repeat ?”
The level of stock prices does not take into account the amount of short-and long-term damage that has been done to the economy, as well as the uncertainty that mounts as dominos tumble.
But stock prices are what the Street thinks they are until that changes.
As long as investors buy the favorites and don’t sell the also-ran stocks, the market will go up.
At some point, institutions will decide prices are too rich, cannot be justified , and they will stop buying. Since most track the same indicators they will all decide not to buy at roughly the same time, ergo a flash crash.
As stocks tumble, fear creeps in and other investors sell, driving stocks lower.
When ?
The Street’s infatuation with tech stocks and generally the big blues reminds me of 1970 -1974’s “one-decision” stocks, the “nifty fifty” buy ‘em and never sell them.
       At the time, I was head of Economic and Stock Market Studies for John Winthrop Wright’s Wright Investors’ Services.  We cranked out study after study detailing why those stocks were overvalued, and for a while it seemed that we were dead wrong, they kept becoming more and more overvalued.
It took the 1973 -1975 recession and bear markets (1973-1974) and (1976-1978) to destroy the myth of the Nifty Fifty.
Included where some that are no longer around: Eastman Kodak, Polaroid, Sears Ch.11), Burroughs, Int’l Tel.& Tel.,  Black&Decker, Int’l Flavors & Frag., Gillette (merged/acquired), American Home, Coca-Cola, IBM, Johnson& Johnson, Xerox, McDonald to mention a few.
Once out of institutional favor, it took 8 – 10 years for these stocks to recoup their peak losses.
The stock market is like a stormy sea – respect it !
The current buy-hold myth will find its way out the rear exit, in time.
There is a reason for the bromide, Buy Low, Sell High.” It vastly increases the odds of success.
The fact the S&P 500 was able to drop 35.6% in 21 days strongly suggests the market was overpriced in February, as it is again today in the midst of a recession and a scary future.
Fear like this is usually present at market bottoms not tops.
BOTTOM LINE:
This is the “Sell High” part of the bromide, or at least raise cash to a level in keeping with one’s tolerance for risk.  It’s another man-made BUBBLE, and it will burst in spite of efforts by the Fed, Administration and Street to prop it up until after the November 3 elections.

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Thursday July 9, 2020 (DJIA: 25,706 “Bear Market Rally Top Looms”
This is the phase in the economy I referred to here several months ago where reports on the economy would make good reading, not because the economy was in an upward growth pattern, but because current data was going up against extremely depressed data.
       I always want to look at raw data, because percentage changes vary depending on what their starting point is.
Of course current and near-term data will make good reading, the big question is whether this is a blip or an indication of a sustainable recovery ?
       If COVID’s rampage hammered the economy earlier in the year its resurgence will do even more damage now because people and companies “are on the ropes,” and it won’t take much to finish them off.
       It’s all about the tumbling of dominos, all about businesses and  industries reeling from the impact COVID has on companies they support, about their customers and their customers, etc..

Today, Bloomberg.com – Business ran an article, “Covid-19 Is Bankrupting American Companies at a Relentless Pace,” listing companies and organizations that have gone bankrupt  due to COVID, but giving insight to how dominos tumble.   THAT IS WHERE THE ULTIMATE DAMAGE IS DONE.
The S&P 500 remains within 6.3% of all-time highs, the Nasdaq Comp., heavily skewed by a handful of huge tech stocks, is 6.6% above the highs hit on February 19.
The Street is in denial !   Presumably, it believes the stock market is immune to COVID’s wrath.
I don’t think the stock market has begun to discount the potential devastation that looms.
But it will. Once money managers realize that a 30% – 45% plunge is possible, even likely, they will stop buying thus creating a huge gap between buy orders and sell orders, leading to selling, resulting in yet another flash crash.
Normally, gloom is accompanied by rock bottom stock prices, a time when no one wants to buy stocks.  Not so here. Even “first timers” are speculating, and making money.
CLASSIC !  These are market top signals, not market bottom signals.
BOTTOM LINE:
I see a big slide in stock prices beginning anytime this month. The Fed, Administration and Street will hype the market at every turn to prevent a plunge before the November 3 elections.  Ignore them.
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Wednesday July 8, 2020 (DJIA: 26,067) “What Will Trigger the Next Flash Crash ?”
What will trigger the next flash crash ?
Anyone paying attention to what is happening, with any sense of stock valuation and  historic precedent , is aware that we are faced with enormous, unprecedented uncertainty and  risk.
The S&P 500 is only off 7.3% from its all-time high when it was at least 50% overvalued based on time-tested measures of value. That does not come close to             discounting the enormous damage that has been done to the economy and the dismal outlook for the future.
Knowing this, money managers,  can be  liable for the violation of their fiduciary responsibility to preserve capital if we get a severe plunge in the stock market that isn’t followed immediately by a rebound.
At some point, they will have to stop buying and that will kick off the next flash crash.
   The flash crash is the new normal for the stock market. Characterized by an abrupt free fall in stock prices which can reach double digits in days, the flash crash gives no warning or chance for investors to protect positions.
So far, all flash crashes have been followed by a recovery, the most dramatic one being the recovery from this year’s February/March plunge (DJIA: -38.4%, S&P 500: -35.6%, Nasdaq Comp.: -32.6%).
The DJIA rebounded to within 6.7% of its bull market top; the S&P 500 to within 4,8%, but the tech-heavy Nasdaq Comp. actually rose to  new highs.
       The next flash crash may not rebound quickly.
While most individuals and businesses are flush with cash after Fed and Congressional stimulus, a lot of damage has been done to confidence. The consumer appears to have hunkered down waiting for it to be safe to come out and spend and socialize like in pre-COVID times.
Odds are, the damage to the economy will continue as dominos tumble.
We are in a recession.  There never was a recession that was not accompanied by a bear market.
I think the DJIA, S&P 500, New York Composite, New York Transports, ValueLine Geometric (unweighted) are in a bear market, the Nasdaq Composite is not, because it is heavily weighted by a few monstrous companies that are distorting the index.
BOTTOM LINE:
All it takes is for institutions to stop buying and the market drops 8%-12% further in days.  Haunted by the 21-day 35% drop in the S&P 500 in February/March, institutions and individuals will become sellers, pounding stocks even lower.
Every effort will be made to avert another plunge before election day. Expect hype by the Fed, Administration and Wall Street.  A cash reserve in line for one’s tolerance for risk is necessary.
Be prepared for another plunge, as well as a buying opportunity at lower levels.
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Tuesday July 7, 2020  (DJIA: 26,067) “In December I Called For a January Bull Market Top, I Now See the Bear Market Rally Top This Month
I am repeating my Monday post below with the exception of the following.
July starts the beginning of Q3, which normally brings in the investment of new funds. However, today looks like it will begin on the downside, which may be reflecting profit-taking of certain stocks after sharp Q2 gains.
Yesterday, I indicated FactSet projected a decline in S&P 500 earnings for 2020 at 22%, that it would take a rebound from that of 28% to get back to pre-COVID levels. However Axios now reports analysts  are projecting a 28.6% plunge in 2020, which would require a  40% rebound.
Note: I repeated Monday’s post on Tuesday.
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Monday  July 6, 2020 (DJIA: 25,827)  “Ignore Hype By Fed, Administration and Wall Street, Market Sell Off This Month, Plunge Into Year-End”
The stock market will start declining  this month
When: Today, a week from now, how about July 27 when earnings are pounding the turf ?
How far down ?  30% – 45%
     For how long ?   Beyond the November 3rd Presidential Election.
     Why ? While the Fed, Administration and powers on Wall Street will stop at nothing to prop it up until after the November 3rd elections, an overvalued stock market must discount known and worsening fundamentals.
      Based on what ? Let’s start with 58 years experience in the trenches of this business, 52 as a writer of market analysis.
For another, the market was historically extremely overvalued BEFORE Covid19. With corporate earnings plunging, it is even more so. Last month 80%  of the S&P 500 companies did not  provide “guidance,” however,  FactSet.com projects a plunge of 44% for Q2 and 22% decline for CY 2020.
Obviously, with the S&P 500 only 7.4% down from an all-time February high of 3,383,  the Street is looking beyond 2020, but no one can know at this point what earnings will be, especially if economic dominos keep tumbling.
After a plunge of 22% in  earnings in 2020, earnings would have to rebound 28% next year to get back to pre-COVID levels where the P/E would still be 50% overvalued based on time-tested criteria.
      The huge rally in the stock market since the March 23, lows ( DJIA: 43% DJIA and S&P 500 and 54% in the tech-distorted Nasdaq Comp.), was partly due to the algo buy-the-dip, short covering, but mostly actions by the Fed and Congress to prevent outsized damage to the economy and stock market in a Presidential Election Year. Would this have happened in any of the three other years of the election cycle ? That is something to consider after  November 3rd.

What to do ?  Protect positions, raise cash in line with one’s tolerance for risk.
      Prepare for an outstanding buying opportunity which may be months or a year away. As I did on March 10, 2009 with the DJIA at 644., I would like to call that bottom.
This is a global problem.  Commenting to Bloomberg Sunday, Federal Reserve Bank President Thomas Barkin likens the recession to” riding the elevator down and taking the stairs back up.”
 BLUNDER that could stifle the economic recovery:
        In the haste to re-open the economy in time for the election, the Administration and many states did the one thing that stands to  deal a crushing blow to  an economy that is already on the ropes.  They re-opened too soon, resulting in a resurgence in the COVID pandemic and now the need to take measures that will curtail the COVID spikes but hurt the economy.
Perhaps the early re-opening could have been pulled off if  everyone was forced to take precautions including masks and social distancing.
Too many refused to do that – Nationwide spikes in infections is the result !
While  consumers are flush with cash, they are unwilling to come out and spend to the degree that will raise the economy out of recession any time soon.
DUE FOR RECESSION ANYWAY:
But the economy was due for a recession before COVID.  Without aggressive intervention by the Fed in early 2019, the economy would have been in a recession last year, it was on the threshold  of one in Q4 2018 at a time the S&P 500 was down 20%.

BOTTOM LINE:
     Does a 7.8% decline from extremely overvalued all-time highs in February  discount the damage that has been done, the dominos that will continue to fall and the uncertainty of what lies in wait in the future  ?
The Fed, the Administration and Wall Street will do  everything it can to prop the market up until the November 3 elections.
I don’t think it will work
. At some point money managers will not be able to justify new buying  and will be forced to raise cash to protect their client’s portfolio values, which is their fiduciary responsibility.
So, I see a major sell-off of 30% – 45% from here as reality sets in.
Our economy  and CONFIDENCE has been dealt a body blow of unprecedented proportions.  It is there for anyone without blinders to see.
          The only yardstick for analyzing risk now is common sense.
One more push up is likely, and would present an opportunity to raise cash. There will be hype about earnings not being as bad as expected, hype by the Fed, Administration and Street about a great recovery and proposals for more government checks to businesses and individuals – all in vain.
NONE OF THIS would happen in any other but a presidential election year.
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Friday: Holiday
Thursday  July 2, 2020 (DJIA: 25,734)
“V” Not Going to Happen -August Top ? Plunge Into the Fall
      Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One More Spike Before Fall Plunge

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,075
S&P 500: 3,185
Nasdaq Comp.:10,617
Russell: 1,422
Monday,  July 13, 2020    7:45 a.m.
…………………
brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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NOTE: It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.   One other point, it is remotely possible President Trump will resign presumably for health reasons.  The impact on the market would be a big down for 90 minutes, then a very  sharp rally as the potential for long-lost unity in America would become a possibility.
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TODAY
Oh my, what a difference 11 years makes. If these guys would just walk around the block  and draw on common sense for arriving at decisions.
A Sunday Bloomberg article, “Wall street Forges a New Deal With Data in Coronavirus Age” highlights how far from common sense the Street has gotten.
Now the direction of the market will be decided by restaurant reservations on Open Table, TSA checkpoint data, international dining bookings, , COVID-19 reproduction rate, daily deaths, the positivity rate ( share of tests coming back positive), hospitalization and capacity rates, gasoline use data, traffic congestion, credit card usage, and yes,  Transport Authority turnstile entries.
How about the fact that a 6% decline in the S&P 500 does not come close to discounting what has happened, is happening and the damage it will cause in the future ?
The Nasdaq Composite is 3.8% above the February 19 level where the flash crash started ?  Granted, the index is hugely distorted by a handful of big-cap tech stocks,  but stocks were overvalued before the crash and are more so now with corporate earnings plunging and with little hope of a quick rebound.
        With all the uncertainty that bedevils this business, one thing is consistent –
Greed and fear.  Greed (and denial) at tops and fear at bottoms.
So, what will it take for the stock market to plunge ?
Humans being human.
Current fundamentals suck and the future is anyone’s guess.   It is difficult for money managers to justify investing at these levels faced with such overvaluation, adversity and untethered uncertainty.
        At some point  here,  fiduciary responsibility will override the urge to clip another percentage point or two for portfolios and buying will Vanish ergo a freefall as everyday selling finds buyers are a “no show.”
Memories of what happened in February/March with a  21-day 35.6% drop in the S&P 500 will resurface and sellers will  race to the exits adding to the initial plunge.
The result: a 30% – 45% plunge (starting July 27 ??) will occur heading into October.

Bottom Line:
Bear market bottoms are accompanied by gloom and doom, so much so, no one in their right mind can justify buying stocks based on current and potential developments.
Ironically, we have gloom and doom at a time the Nasdaq Comp. is hitting new highs  with the S&P 500 is within 6% of an all-time high.
Obviously, the Street is looking beyond the pandemic  crisis.  How far beyond is it willing to look ?   This looks like denial to me.  If several big hitters bail out, they all will bail out.
The Market Averages:  No matter how bad Q2 corporate earnings are, the Street will claim they are better than expected (SOP).  Will Companies return to a policy of guidance ?
In this environment, I expect one more push up before a sell off can occur, the DJIA rising above the spike on June 16 of 26,611  and the S&P 500 above June 9’s 3,222.   This is Wall Street’s definition of cognitive dissonance.

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RECENT POSTS:
Friday July 10, 2020 “Bubble Burst Looms – COVID-19 Repeat ?”
The level of stock prices does not take into account the amount of short-and long-term damage that has been done to the economy, as well as the uncertainty that mounts as dominos tumble.
But stock prices are what the Street thinks they are until that changes.
As long as investors buy the favorites and don’t sell the also-ran stocks, the market will go up.
At some point, institutions will decide prices are too rich, cannot be justified , and they will stop buying. Since most track the same indicators they will all decide not to buy at roughly the same time, ergo a flash crash.
As stocks tumble, fear creeps in and other investors sell, driving stocks lower.
When ?
The Street’s infatuation with tech stocks and generally the big blues reminds me of 1970 -1974’s “one-decision” stocks, the “nifty fifty” buy ‘em and never sell them.
       At the time, I was head of Economic and Stock Market Studies for John Winthrop Wright’s Wright Investors’ Services.  We cranked out study after study detailing why those stocks were overvalued, and for a while it seemed that we were dead wrong, they kept becoming more and more overvalued.
It took the 1973 -1975 recession and bear markets (1973-1974) and (1976-1978) to destroy the myth of the Nifty Fifty.
Included where some that are no longer around: Eastman Kodak, Polaroid, Sears Ch.11), Burroughs, Int’l Tel.& Tel.,  Black&Decker, Int’l Flavors & Frag., Gillette (merged/acquired), American Home, Coca-Cola, IBM, Johnson& Johnson, Xerox, McDonald to mention a few.
Once out of institutional favor, it took 8 – 10 years for these stocks to recoup their peak losses.
The stock market is like a stormy sea – respect it !
The current buy-hold myth will find its way out the rear exit, in time.
There is a reason for the bromide, Buy Low, Sell High.” It vastly increases the odds of success.
The fact the S&P 500 was able to drop 35.6% in 21 days strongly suggests the market was overpriced in February, as it is again today in the midst of a recession and a scary future.
Fear like this is usually present at market bottoms not tops.
BOTTOM LINE:
This is the “Sell High” part of the bromide, or at least raise cash to a level in keeping with one’s tolerance for risk.  It’s another man-made BUBBLE, and it will burst in spite of efforts by the Fed, Administration and Street to prop it up until after the November 3 elections.

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Thursday July 9, 2020 (DJIA: 25,706 “Bear Market Rally Top Looms”
This is the phase in the economy I referred to here several months ago where reports on the economy would make good reading, not because the economy was in an upward growth pattern, but because current data was going up against extremely depressed data.
       I always want to look at raw data, because percentage changes vary depending on what their starting point is.
Of course current and near-term data will make good reading, the big question is whether this is a blip or an indication of a sustainable recovery ?
       If COVID’s rampage hammered the economy earlier in the year its resurgence will do even more damage now because people and companies “are on the ropes,” and it won’t take much to finish them off.
       It’s all about the tumbling of dominos, all about businesses and  industries reeling from the impact COVID has on companies they support, about their customers and their customers, etc..

Today, Bloomberg.com – Business ran an article, “Covid-19 Is Bankrupting American Companies at a Relentless Pace,” listing companies and organizations that have gone bankrupt  due to COVID, but giving insight to how dominos tumble.   THAT IS WHERE THE ULTIMATE DAMAGE IS DONE.
The S&P 500 remains within 6.3% of all-time highs, the Nasdaq Comp., heavily skewed by a handful of huge tech stocks, is 6.6% above the highs hit on February 19.
The Street is in denial !   Presumably, it believes the stock market is immune to COVID’s wrath.
I don’t think the stock market has begun to discount the potential devastation that looms.
But it will. Once money managers realize that a 30% – 45% plunge is possible, even likely, they will stop buying thus creating a huge gap between buy orders and sell orders, leading to selling, resulting in yet another flash crash.
Normally, gloom is accompanied by rock bottom stock prices, a time when no one wants to buy stocks.  Not so here. Even “first timers” are speculating, and making money.
CLASSIC !  These are market top signals, not market bottom signals.
BOTTOM LINE:
I see a big slide in stock prices beginning anytime this month. The Fed, Administration and Street will hype the market at every turn to prevent a plunge before the November 3 elections.  Ignore them.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Wednesday July 8, 2020 (DJIA: 26,067) “What Will Trigger the Next Flash Crash ?”
What will trigger the next flash crash ?
Anyone paying attention to what is happening, with any sense of stock valuation and  historic precedent , is aware that we are faced with enormous, unprecedented uncertainty and  risk.
The S&P 500 is only off 7.3% from its all-time high when it was at least 50% overvalued based on time-tested measures of value. That does not come close to             discounting the enormous damage that has been done to the economy and the dismal outlook for the future.
Knowing this, money managers,  can be  liable for the violation of their fiduciary responsibility to preserve capital if we get a severe plunge in the stock market that isn’t followed immediately by a rebound.
At some point, they will have to stop buying and that will kick off the next flash crash.
   The flash crash is the new normal for the stock market. Characterized by an abrupt free fall in stock prices which can reach double digits in days, the flash crash gives no warning or chance for investors to protect positions.
So far, all flash crashes have been followed by a recovery, the most dramatic one being the recovery from this year’s February/March plunge (DJIA: -38.4%, S&P 500: -35.6%, Nasdaq Comp.: -32.6%).
The DJIA rebounded to within 6.7% of its bull market top; the S&P 500 to within 4,8%, but the tech-heavy Nasdaq Comp. actually rose to  new highs.
       The next flash crash may not rebound quickly.
While most individuals and businesses are flush with cash after Fed and Congressional stimulus, a lot of damage has been done to confidence. The consumer appears to have hunkered down waiting for it to be safe to come out and spend and socialize like in pre-COVID times.
Odds are, the damage to the economy will continue as dominos tumble.
We are in a recession.  There never was a recession that was not accompanied by a bear market.
I think the DJIA, S&P 500, New York Composite, New York Transports, ValueLine Geometric (unweighted) are in a bear market, the Nasdaq Composite is not, because it is heavily weighted by a few monstrous companies that are distorting the index.
BOTTOM LINE:
All it takes is for institutions to stop buying and the market drops 8%-12% further in days.  Haunted by the 21-day 35% drop in the S&P 500 in February/March, institutions and individuals will become sellers, pounding stocks even lower.
Every effort will be made to avert another plunge before election day. Expect hype by the Fed, Administration and Wall Street.  A cash reserve in line for one’s tolerance for risk is necessary.
Be prepared for another plunge, as well as a buying opportunity at lower levels.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Tuesday July 7, 2020  (DJIA: 26,067) “In December I Called For a January Bull Market Top, I Now See the Bear Market Rally Top This Month
I am repeating my Monday post below with the exception of the following.
July starts the beginning of Q3, which normally brings in the investment of new funds. However, today looks like it will begin on the downside, which may be reflecting profit-taking of certain stocks after sharp Q2 gains.
Yesterday, I indicated FactSet projected a decline in S&P 500 earnings for 2020 at 22%, that it would take a rebound from that of 28% to get back to pre-COVID levels. However Axios now reports analysts  are projecting a 28.6% plunge in 2020, which would require a  40% rebound.
Note: I repeated Monday’s post on Tuesday.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>                                                        
Monday  July 6, 2020 (DJIA: 25,827)  “Ignore Hype By Fed, Administration and Wall Street, Market Sell Off This Month, Plunge Into Year-End”
The stock market will start declining  this month
When: Today, a week from now, how about July 27 when earnings are pounding the turf ?
How far down ?  30% – 45%
     For how long ?   Beyond the November 3rd Presidential Election.
     Why ? While the Fed, Administration and powers on Wall Street will stop at nothing to prop it up until after the November 3rd elections, an overvalued stock market must discount known and worsening fundamentals.
      Based on what ? Let’s start with 58 years experience in the trenches of this business, 52 as a writer of market analysis.
For another, the market was historically extremely overvalued BEFORE Covid19. With corporate earnings plunging, it is even more so. Last month 80%  of the S&P 500 companies did not  provide “guidance,” however,  FactSet.com projects a plunge of 44% for Q2 and 22% decline for CY 2020.
Obviously, with the S&P 500 only 7.4% down from an all-time February high of 3,383,  the Street is looking beyond 2020, but no one can know at this point what earnings will be, especially if economic dominos keep tumbling.
After a plunge of 22% in  earnings in 2020, earnings would have to rebound 28% next year to get back to pre-COVID levels where the P/E would still be 50% overvalued based on time-tested criteria.
      The huge rally in the stock market since the March 23, lows ( DJIA: 43% DJIA and S&P 500 and 54% in the tech-distorted Nasdaq Comp.), was partly due to the algo buy-the-dip, short covering, but mostly actions by the Fed and Congress to prevent outsized damage to the economy and stock market in a Presidential Election Year. Would this have happened in any of the three other years of the election cycle ? That is something to consider after  November 3rd.

What to do ?  Protect positions, raise cash in line with one’s tolerance for risk.
      Prepare for an outstanding buying opportunity which may be months or a year away. As I did on March 10, 2009 with the DJIA at 644., I would like to call that bottom.
This is a global problem.  Commenting to Bloomberg Sunday, Federal Reserve Bank President Thomas Barkin likens the recession to” riding the elevator down and taking the stairs back up.”
 BLUNDER that could stifle the economic recovery:
        In the haste to re-open the economy in time for the election, the Administration and many states did the one thing that stands to  deal a crushing blow to  an economy that is already on the ropes.  They re-opened too soon, resulting in a resurgence in the COVID pandemic and now the need to take measures that will curtail the COVID spikes but hurt the economy.
Perhaps the early re-opening could have been pulled off if  everyone was forced to take precautions including masks and social distancing.
Too many refused to do that – Nationwide spikes in infections is the result !
While  consumers are flush with cash, they are unwilling to come out and spend to the degree that will raise the economy out of recession any time soon.
DUE FOR RECESSION ANYWAY:
But the economy was due for a recession before COVID.  Without aggressive intervention by the Fed in early 2019, the economy would have been in a recession last year, it was on the threshold  of one in Q4 2018 at a time the S&P 500 was down 20%.

BOTTOM LINE:
     Does a 7.8% decline from extremely overvalued all-time highs in February  discount the damage that has been done, the dominos that will continue to fall and the uncertainty of what lies in wait in the future  ?
The Fed, the Administration and Wall Street will do  everything it can to prop the market up until the November 3 elections.
I don’t think it will work
. At some point money managers will not be able to justify new buying  and will be forced to raise cash to protect their client’s portfolio values, which is their fiduciary responsibility.
So, I see a major sell-off of 30% – 45% from here as reality sets in.
Our economy  and CONFIDENCE has been dealt a body blow of unprecedented proportions.  It is there for anyone without blinders to see.
          The only yardstick for analyzing risk now is common sense.
One more push up is likely, and would present an opportunity to raise cash. There will be hype about earnings not being as bad as expected, hype by the Fed, Administration and Street about a great recovery and proposals for more government checks to businesses and individuals – all in vain.
NONE OF THIS would happen in any other but a presidential election year.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Friday: Holiday
Thursday  July 2, 2020 (DJIA: 25,734)
“V” Not Going to Happen -August Top ? Plunge Into the Fall
      Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

George Brooks
Investor’s first read.com
brooksie01@aol.com
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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bubble Burst Looms – COVID-19 Repeat ?

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,706
S&P 500: 3,152
Nasdaq Comp.:10,544
Russell: 1,402
Friday,  July 10, 2020    8:41 a.m.
…………………
brooksie01@aol.com
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
NOTE: It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.   One other point, it is remotely possible President Trump will resign presumably for health reasons.  The impact on the market would be a big down for 90 minutes, then a very  sharp rally as the potential for long-lost unity in America would become a possibility.
………………………………………………………………..

TODAY
       The level of stock prices does not take into account the amount of short-and long-term damage that has been done to the economy, as well as the uncertainty that mounts as dominos tumble.
But stock prices are what the Street thinks they are until that changes.
As long as investors buy the favorites and don’t sell the also-ran stocks, the market will go up.
At some point, institutions will decide prices are too rich, cannot be justified , and they will stop buying. Since most track the same indicators they will all decide not to buy at roughly the same time, ergo a flash crash.
As stocks tumble, fear creeps in and other investors sell, driving stocks lower.
When ?
The Street’s infatuation with tech stocks and generally the big blues reminds me of 1970 -1974’s “one-decision” stocks, the “nifty fifty” buy ‘em and never sell them.
       At the time, I was head of Economic and Stock Market Studies for John Winthrop Wright’s Wright Investors’ Services.  We cranked out study after study detailing why those stocks were overvalued, and for a while it seemed that we were dead wrong, they kept becoming more and more overvalued.
It took the 1973 -1975 recession and bear markets (1973-1974) and (1976-1978) to destroy the myth of the Nifty Fifty.
Included where some that are no longer around: Eastman Kodak, Polaroid, Sears Ch.11), Burroughs, Int’l Tel.& Tel.,  Black&Decker, Int’l Flavors & Frag., Gillette (merged/acquired), American Home, Coca-Cola, IBM, Johnson& Johnson, Xerox, McDonald to mention a few.
Once out of institutional favor, it took 8 – 10 years for these stocks to recoup their peak losses.
The stock market is like a stormy sea – respect it !
The current buy-hold myth will find its way out the rear exit, in time.
There is a reason for the bromide, Buy Low, Sell High.” It vastly increases the odds of success.
The fact the S&P 500 was able to drop 35.6% in 21 days strongly suggests the market was overpriced in February, as it is again today in the midst of a recession and a scary future.
Fear like this is usually present at market bottoms not tops.
BOTTOM LINE:
This is the “Sell High” part of the bromide, or at least raise cash to a level in keeping with one’s tolerance for risk.  It’s another man-made BUBBLE, and it will burst in spite of efforts by the Fed, Administration and Street to prop it up until after the November 3 elections.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:
Thursday July 9, 2020  “Bear Market Rally Top Looms”
This is the phase in the economy I referred to here several months ago where reports on the economy would make good reading, not because the economy was in an upward growth pattern, but because current data was going up against extremely depressed data.
       I always want to look at raw data, because percentage changes vary depending on what their starting point is.
Of course current and near-term data will make good reading, the big question is whether this is a blip or an indication of a sustainable recovery ?
       If COVID’s rampage hammered the economy earlier in the year its resurgence will do even more damage now because people and companies “are on the ropes,” and it won’t take much to finish them off.
       It’s all about the tumbling of dominos, all about businesses and  industries reeling from the impact COVID has on companies they support, about their customers and their customers, etc..

Today, Bloomberg.com – Business ran an article, “Covid-19 Is Bankrupting American Companies at a Relentless Pace,” listing companies and organizations that have gone bankrupt  due to COVID, but giving insight to how dominos tumble.   THAT IS WHERE THE ULTIMATE DAMAGE IS DONE.
The S&P 500 remains within 6.3% of all-time highs, the Nasdaq Comp., heavily skewed by a handful of huge tech stocks, is 6.6% above the highs hit on February 19.
The Street is in denial !   Presumably, it believes the stock market is immune to COVID’s wrath.
I don’t think the stock market has begun to discount the potential devastation that looms.
But it will. Once money managers realize that a 30% – 45% plunge is possible, even likely, they will stop buying thus creating a huge gap between buy orders and sell orders, leading to selling, resulting in yet another flash crash.
Normally, gloom is accompanied by rock bottom stock prices, a time when no one wants to buy stocks.  Not so here. Even “first timers” are speculating, and making money.
CLASSIC !  These are market top signals, not market bottom signals.
BOTTOM LINE:
I see a big slide in stock prices beginning anytime this month. The Fed, Administration and Street will hype the market at every turn to prevent a plunge before the November 3 elections.  Ignore them.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Wednesday July 8, 2020 “What Will Trigger the Next Flash Crash ?”
What will trigger the next flash crash ?
Anyone paying attention to what is happening, with any sense of stock valuation and  historic precedent , is aware that we are faced with enormous, unprecedented uncertainty and  risk.
The S&P 500 is only off 7.3% from its all-time high when it was at least 50% overvalued based on time-tested measures of value. That does not come close to             discounting the enormous damage that has been done to the economy and the dismal outlook for the future.
Knowing this, money managers,  can be  liable for the violation of their fiduciary responsibility to preserve capital if we get a severe plunge in the stock market that isn’t followed immediately by a rebound.
At some point, they will have to stop buying and that will kick off the next flash crash.
   The flash crash is the new normal for the stock market. Characterized by an abrupt free fall in stock prices which can reach double digits in days, the flash crash gives no warning or chance for investors to protect positions.
So far, all flash crashes have been followed by a recovery, the most dramatic one being the recovery from this year’s February/March plunge (DJIA: -38.4%, S&P 500: -35.6%, Nasdaq Comp.: -32.6%).
The DJIA rebounded to within 6.7% of its bull market top; the S&P 500 to within 4,8%, but the tech-heavy Nasdaq Comp. actually rose to  new highs.
       The next flash crash may not rebound quickly.
While most individuals and businesses are flush with cash after Fed and Congressional stimulus, a lot of damage has been done to confidence. The consumer appears to have hunkered down waiting for it to be safe to come out and spend and socialize like in pre-COVID times.
Odds are, the damage to the economy will continue as dominos tumble.
We are in a recession.  There never was a recession that was not accompanied by a bear market.
I think the DJIA, S&P 500, New York Composite, New York Transports, ValueLine Geometric (unweighted) are in a bear market, the Nasdaq Composite is not, because it is heavily weighted by a few monstrous companies that are distorting the index.
BOTTOM LINE:
All it takes is for institutions to stop buying and the market drops 8%-12% further in days.  Haunted by the 21-day 35% drop in the S&P 500 in February/March, institutions and individuals will become sellers, pounding stocks even lower.
Every effort will be made to avert another plunge before election day. Expect hype by the Fed, Administration and Wall Street.  A cash reserve in line for one’s tolerance for risk is necessary.
Be prepared for another plunge, as well as a buying opportunity at lower levels.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Tuesday July 7, 2020 “In December I Called For a January Bull Market Top, I Now See the Bear Market Rally Top This Month
I am repeating my Monday post below with the exception of the following.
July starts the beginning of Q3, which normally brings in the investment of new funds. However, today looks like it will begin on the downside, which may be reflecting profit-taking of certain stocks after sharp Q2 gains.
Yesterday, I indicated FactSet projected a decline in S&P 500 earnings for 2020 at 22%, that it would take a rebound from that of 28% to get back to pre-COVID levels. However Axios now reports analysts  are projecting a 28.6% plunge in 2020, which would require a  40% rebound.
Note: I repeated Monday’s post on Tuesday.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>                                                        
Monday  July 6, 2020 “Ignore Hype By Fed, Administration and Wall Street, Market Sell Off This Month, Plunge Into Year-End”
The stock market will start declining  this month
When: Today, a week from now, how about July 27 when earnings are pounding the turf ?
How far down ?  30% – 45%
     For how long ?   Beyond the November 3rd Presidential Election.
     Why ? While the Fed, Administration and powers on Wall Street will stop at nothing to prop it up until after the November 3rd elections, an overvalued stock market must discount known and worsening fundamentals.
      Based on what ? Let’s start with 58 years experience in the trenches of this business, 52 as a writer of market analysis.
For another, the market was historically extremely overvalued BEFORE Covid19. With corporate earnings plunging, it is even more so. Last month 80%  of the S&P 500 companies did not  provide “guidance,” however,  FactSet.com projects a plunge of 44% for Q2 and 22% decline for CY 2020.
Obviously, with the S&P 500 only 7.4% down from an all-time February high of 3,383,  the Street is looking beyond 2020, but no one can know at this point what earnings will be, especially if economic dominos keep tumbling.
After a plunge of 22% in  earnings in 2020, earnings would have to rebound 28% next year to get back to pre-COVID levels where the P/E would still be 50% overvalued based on time-tested criteria.
      The huge rally in the stock market since the March 23, lows ( DJIA: 43% DJIA and S&P 500 and 54% in the tech-distorted Nasdaq Comp.), was partly due to the algo buy-the-dip, short covering, but mostly actions by the Fed and Congress to prevent outsized damage to the economy and stock market in a Presidential Election Year. Would this have happened in any of the three other years of the election cycle ? That is something to consider after  November 3rd.

What to do ?  Protect positions, raise cash in line with one’s tolerance for risk.
      Prepare for an outstanding buying opportunity which may be months or a year away. As I did on March 10, 2009 with the DJIA at 644., I would like to call that bottom.
This is a global problem.  Commenting to Bloomberg Sunday, Federal Reserve Bank President Thomas Barkin likens the recession to” riding the elevator down and taking the stairs back up.”
 BLUNDER that could stifle the economic recovery:
        In the haste to re-open the economy in time for the election, the Administration and many states did the one thing that stands to  deal a crushing blow to  an economy that is already on the ropes.  They re-opened too soon, resulting in a resurgence in the COVID pandemic and now the need to take measures that will curtail the COVID spikes but hurt the economy.
Perhaps the early re-opening could have been pulled off if  everyone was forced to take precautions including masks and social distancing.
Too many refused to do that – Nationwide spikes in infections is the result !
While  consumers are flush with cash, they are unwilling to come out and spend to the degree that will raise the economy out of recession any time soon.
DUE FOR RECESSION ANYWAY:
But the economy was due for a recession before COVID.  Without aggressive intervention by the Fed in early 2019, the economy would have been in a recession last year, it was on the threshold  of one in Q4 2018 at a time the S&P 500 was down 20%.

BOTTOM LINE:
     Does a 7.8% decline from extremely overvalued all-time highs in February  discount the damage that has been done, the dominos that will continue to fall and the uncertainty of what lies in wait in the future  ?
The Fed, the Administration and Wall Street will do  everything it can to prop the market up until the November 3 elections.
I don’t think it will work
. At some point money managers will not be able to justify new buying  and will be forced to raise cash to protect their client’s portfolio values, which is their fiduciary responsibility.
So, I see a major sell-off of 30% – 45% from here as reality sets in.
Our economy  and CONFIDENCE has been dealt a body blow of unprecedented proportions.  It is there for anyone without blinders to see.
          The only yardstick for analyzing risk now is common sense.
One more push up is likely, and would present an opportunity to raise cash. There will be hype about earnings not being as bad as expected, hype by the Fed, Administration and Street about a great recovery and proposals for more government checks to businesses and individuals – all in vain.
NONE OF THIS would happen in any other but a presidential election year.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Friday: Holiday
Thursday  July 2, 2020 (DJIA: 25,734)
“V” Not Going to Happen -August Top ? Plunge Into the Fall
      Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Wednesday: Not Published
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Tuesday June 30, 2020 (DJIA 25,595) “Rally Sets Stage for Big Sell Off in the Fall”
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

George Brooks
Investor’s first read.com
brooksie01@aol.com
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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bear Market Rally Top Looms

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,067
S&P 500: 3,169
Nasdaq Comp.:10,492
Russell: 1,421
Thursday,  July 9, 2020    8:41 a.m.
…………………
brooksie01@aol.com
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
NOTE: It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.   One other point, it is remotely possible President Trump will resign presumably for health reasons.  The impact on the market would be a big down for 90 minutes, then a very  sharp rally as the potential for long-lost unity in America would become a possibility.
………………………………………………………………..

TODAY
     This is the phase in the economy I referred to here several months ago where reports on the economy would make good reading, not because the economy was in an upward growth pattern, but because current data was going up against extremely depressed data.
       I always want to look at raw data, because percentage changes vary depending on what their starting point is.
Of course current and near-term data will make good reading, the big question is whether this is a blip or an indication of a sustainable recovery ?
       If COVID’s rampage hammered the economy earlier in the year its resurgence will do even more damage now because people and companies “are on the ropes,” and it won’t take much to finish them off.
       It’s all about the tumbling of dominos, all about businesses and  industries reeling from the impact COVID has on companies they support, about their customers and their customers, etc..

Today, Bloomberg.com – Business ran an article, “Covid-19 Is Bankrupting American Companies at a Relentless Pace,” listing companies and organizations that have gone bankrupt  due to COVID, but giving insight to how dominos tumble.   THAT IS WHERE THE ULTIMATE DAMAGE IS DONE.
The S&P 500 remains within 6.3% of all-time highs, the Nasdaq Comp., heavily skewed by a handful of huge tech stocks, is 6.6% above the highs hit on February 19.
The Street is in denial !   Presumably, it believes the stock market is immune to COVID’s wrath.
I don’t think the stock market has begun to discount the potential devastation that looms.
But it will. Once money managers realize that a 30% – 45% plunge is possible, even likely, they will stop buying thus creating a huge gap between buy orders and sell orders, leading to selling, resulting in yet another flash crash.
Normally, gloom is accompanied by rock bottom stock prices, a time when no one wants to buy stocks.  Not so here. Even “first timers” are speculating, and making money.
CLASSIC !  These are market top signals, not market bottom signals.
BOTTOM LINE:
I see a big slide in stock prices beginning anytime this month. The Fed, Administration and Street will hype the market at every turn to prevent a plunge before the November 3 elections.  Ignore them.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:
Wednesday July 8, 2020 “What Will Trigger the Next Flash Crash ?”
What will trigger the next flash crash ?
Anyone paying attention to what is happening, with any sense of stock valuation and  historic precedent , is aware that we are faced with enormous, unprecedented uncertainty and  risk.
The S&P 500 is only off 7.3% from its all-time high when it was at least 50% overvalued based on time-tested measures of value. That does not come close to             discounting the enormous damage that has been done to the economy and the dismal outlook for the future.
Knowing this, money managers,  can be  liable for the violation of their fiduciary responsibility to preserve capital if we get a severe plunge in the stock market that isn’t followed immediately by a rebound.
At some point, they will have to stop buying and that will kick off the next flash crash.
   The flash crash is the new normal for the stock market. Characterized by an abrupt free fall in stock prices which can reach double digits in days, the flash crash gives no warning or chance for investors to protect positions.
So far, all flash crashes have been followed by a recovery, the most dramatic one being the recovery from this year’s February/March plunge (DJIA: -38.4%, S&P 500: -35.6%, Nasdaq Comp.: -32.6%).
The DJIA rebounded to within 6.7% of its bull market top; the S&P 500 to within 4,8%, but the tech-heavy Nasdaq Comp. actually rose to  new highs.
       The next flash crash may not rebound quickly.
While most individuals and businesses are flush with cash after Fed and Congressional stimulus, a lot of damage has been done to confidence. The consumer appears to have hunkered down waiting for it to be safe to come out and spend and socialize like in pre-COVID times.
Odds are, the damage to the economy will continue as dominos tumble.
We are in a recession.  There never was a recession that was not accompanied by a bear market.
I think the DJIA, S&P 500, New York Composite, New York Transports, ValueLine Geometric (unweighted) are in a bear market, the Nasdaq Composite is not, because it is heavily weighted by a few monstrous companies that are distorting the index.
BOTTOM LINE:
All it takes is for institutions to stop buying and the market drops 8%-12% further in days.  Haunted by the 21-day 35% drop in the S&P 500 in February/March, institutions and individuals will become sellers, pounding stocks even lower.
Every effort will be made to avert another plunge before election day. Expect hype by the Fed, Administration and Wall Street.  A cash reserve in line for one’s tolerance for risk is necessary.
Be prepared for another plunge, as well as a buying opportunity at lower levels.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Tuesday July 7, 2020 “In December I Called For a January Bull Market Top, I Now See the Bear Market Rally Top This Month
I am repeating my Monday post below with the exception of the following.
July starts the beginning of Q3, which normally brings in the investment of new funds. However, today looks like it will begin on the downside, which may be reflecting profit-taking of certain stocks after sharp Q2 gains.
Yesterday, I indicated FactSet projected a decline in S&P 500 earnings for 2020 at 22%, that it would take a rebound from that of 28% to get back to pre-COVID levels. However Axios now reports analysts  are projecting a 28.6% plunge in 2020, which would require a  40% rebound.
Note: I repeated Monday’s post on Tuesday.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>                                                        
Monday  July 6, 2020 “Ignore Hype By Fed, Administration and Wall Street, Market Sell Off This Month, Plunge Into Year-End”
The stock market will start declining  this month
When: Today, a week from now, how about July 27 when earnings are pounding the turf ?
How far down ?  30% – 45%
     For how long ?   Beyond the November 3rd Presidential Election.
     Why ? While the Fed, Administration and powers on Wall Street will stop at nothing to prop it up until after the November 3rd elections, an overvalued stock market must discount known and worsening fundamentals.
      Based on what ? Let’s start with 58 years experience in the trenches of this business, 52 as a writer of market analysis.
For another, the market was historically extremely overvalued BEFORE Covid19. With corporate earnings plunging, it is even more so. Last month 80%  of the S&P 500 companies did not  provide “guidance,” however,  FactSet.com projects a plunge of 44% for Q2 and 22% decline for CY 2020.
Obviously, with the S&P 500 only 7.4% down from an all-time February high of 3,383,  the Street is looking beyond 2020, but no one can know at this point what earnings will be, especially if economic dominos keep tumbling.
After a plunge of 22% in  earnings in 2020, earnings would have to rebound 28% next year to get back to pre-COVID levels where the P/E would still be 50% overvalued based on time-tested criteria.
      The huge rally in the stock market since the March 23, lows ( DJIA: 43% DJIA and S&P 500 and 54% in the tech-distorted Nasdaq Comp.), was partly due to the algo buy-the-dip, short covering, but mostly actions by the Fed and Congress to prevent outsized damage to the economy and stock market in a Presidential Election Year. Would this have happened in any of the three other years of the election cycle ? That is something to consider after  November 3rd.

What to do ?  Protect positions, raise cash in line with one’s tolerance for risk.
      Prepare for an outstanding buying opportunity which may be months or a year away. As I did on March 10, 2009 with the DJIA at 644., I would like to call that bottom.
This is a global problem.  Commenting to Bloomberg Sunday, Federal Reserve Bank President Thomas Barkin likens the recession to” riding the elevator down and taking the stairs back up.”
 BLUNDER that could stifle the economic recovery:
        In the haste to re-open the economy in time for the election, the Administration and many states did the one thing that stands to  deal a crushing blow to  an economy that is already on the ropes.  They re-opened too soon, resulting in a resurgence in the COVID pandemic and now the need to take measures that will curtail the COVID spikes but hurt the economy.
Perhaps the early re-opening could have been pulled off if  everyone was forced to take precautions including masks and social distancing.
Too many refused to do that – Nationwide spikes in infections is the result !
While  consumers are flush with cash, they are unwilling to come out and spend to the degree that will raise the economy out of recession any time soon.
DUE FOR RECESSION ANYWAY:
But the economy was due for a recession before COVID.  Without aggressive intervention by the Fed in early 2019, the economy would have been in a recession last year, it was on the threshold  of one in Q4 2018 at a time the S&P 500 was down 20%.

BOTTOM LINE:
     Does a 7.8% decline from extremely overvalued all-time highs in February  discount the damage that has been done, the dominos that will continue to fall and the uncertainty of what lies in wait in the future  ?
The Fed, the Administration and Wall Street will do  everything it can to prop the market up until the November 3 elections.
I don’t think it will work
. At some point money managers will not be able to justify new buying  and will be forced to raise cash to protect their client’s portfolio values, which is their fiduciary responsibility.
So, I see a major sell-off of 30% – 45% from here as reality sets in.
Our economy  and CONFIDENCE has been dealt a body blow of unprecedented proportions.  It is there for anyone without blinders to see.
          The only yardstick for analyzing risk now is common sense.
One more push up is likely, and would present an opportunity to raise cash. There will be hype about earnings not being as bad as expected, hype by the Fed, Administration and Street about a great recovery and proposals for more government checks to businesses and individuals – all in vain.
NONE OF THIS would happen in any other but a presidential election year.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Friday: Holiday
Thursday  July 2, 2020 (DJIA: 25,734)
“V” Not Going to Happen -August Top ? Plunge Into the Fall
      Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Wednesday: Not Published
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Tuesday June 30, 2020 (DJIA 25,595) “Rally Sets Stage for Big Sell Off in the Fall”
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What Will Trigger the Next Flash Crash ?

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,890
S&P 500: 3,145
Nasdaq Comp.:10,343
Russell: 1,414
Wednesday,  July 8, 2020    8:55 a.m.
…………………
brooksie01@aol.com
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.   One other point, it is remotely possible President Trump will resign presumably for health reasons.  The impact on the market would be a big down for 90 minutes, then a very  sharp rally as the potential for long-lost unity in America would become a possibility.
………………………………………………………………..

What will trigger the next flash crash ?
Anyone paying attention to what is happening, with any sense of stock valuation and  historic precedent , is aware that we are faced with enormous, unprecedented uncertainty and  risk.
The S&P 500 is only off 7.3% from its all-time high when it was at least 50% overvalued based on time-tested measures of value. That does not come close to             discounting the enormous damage that has been done to the economy and the dismal outlook for the future.
Knowing this, money managers,  can be  liable for the violation of their fiduciary responsibility to preserve capital if we get a severe plunge in the stock market that isn’t followed immediately by a rebound.
At some point, they will have to stop buying and that will kick off the next flash crash.
   The flash crash is the new normal for the stock market. Characterized by an abrupt free fall in stock prices which can reach double digits in days, the flash crash gives no warning or chance for investors to protect positions.
So far, all flash crashes have been followed by a recovery, the most dramatic one being the recovery from this year’s February/March plunge (DJIA: -38.4%, S&P 500: -35.6%, Nasdaq Comp.: -32.6%).
The DJIA rebounded to within 6.7% of its bull market top; the S&P 500 to within 4,8%, but the tech-heavy Nasdaq Comp. actually rose to  new highs.
       The next flash crash may not rebound quickly.
While most individuals and businesses are flush with cash after Fed and Congressional stimulus, a lot of damage has been done to confidence. The consumer appears to have hunkered down waiting for it to be safe to come out and spend and socialize like in pre-COVID times.
Odds are, the damage to the economy will continue as dominos tumble.
We are in a recession.  There never was a recession that was not accompanied by a bear market.
I think the DJIA, S&P 500, New York Composite, New York Transports, ValueLine Geometric (unweighted) are in a bear market, the Nasdaq Composite is not, because it is heavily weighted by a few monstrous companies that are distorting the index.
BOTTOM LINE:
All it takes is for institutions to stop buying and the market drops 8%-12% further in days.  Haunted by the 21-day 35% drop in the S&P 500 in February/March, institutions and individuals will become sellers, pounding stocks even lower.
Every effort will be made to avert another plunge before election day. Expect hype by the Fed, Administration and Wall Street.  A cash reserve in line for one’s tolerance for risk is necessary.
Be prepared for another plunge, as well as a buying opportunity at lower levels.
 

 

RECENT POSTS:

Tuesday July 7, 2020 “In December I Called For a January Bull Market Top, I Now See the Bear Market Rally Top This Month
I am repeating my Monday post below with the exception of the following.
July starts the beginning of Q3, which normally brings in the investment of new funds. However, today looks like it will begin on the downside, which may be reflecting profit-taking of certain stocks after sharp Q2 gains.
Yesterday, I indicated FactSet projected a decline in S&P 500 earnings for 2020 at 22%, that it would take a rebound from that of 28% to get back to pre-COVID levels. However Axios now reports analysts  are projecting a 28.6% plunge in 2020, which would require a  40% rebound.
Note: I repeated Monday’s post on Tuesday.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>                                                        
Monday  July 6, 2020 “Ignore Hype By Fed, Administration and Wall Street, Market Sell Off This Month, Plunge Into Year-End”
The stock market will start declining  this month
When: Today, a week from now, how about July 27 when earnings are pounding the turf ?
How far down ?  30% – 45%
     For how long ?   Beyond the November 3rd Presidential Election.
     Why ? While the Fed, Administration and powers on Wall Street will stop at nothing to prop it up until after the November 3rd elections, an overvalued stock market must discount known and worsening fundamentals.
      Based on what ? Let’s start with 58 years experience in the trenches of this business, 52 as a writer of market analysis.
For another, the market was historically extremely overvalued BEFORE Covid19. With corporate earnings plunging, it is even more so. Last month 80%  of the S&P 500 companies did not  provide “guidance,” however,  FactSet.com projects a plunge of 44% for Q2 and 22% decline for CY 2020.
Obviously, with the S&P 500 only 7.4% down from an all-time February high of 3,383,  the Street is looking beyond 2020, but no one can know at this point what earnings will be, especially if economic dominos keep tumbling.
After a plunge of 22% in  earnings in 2020, earnings would have to rebound 28% next year to get back to pre-COVID levels where the P/E would still be 50% overvalued based on time-tested criteria.
      The huge rally in the stock market since the March 23, lows ( DJIA: 43% DJIA and S&P 500 and 54% in the tech-distorted Nasdaq Comp.), was partly due to the algo buy-the-dip, short covering, but mostly actions by the Fed and Congress to prevent outsized damage to the economy and stock market in a Presidential Election Year. Would this have happened in any of the three other years of the election cycle ? That is something to consider after  November 3rd.

What to do ?  Protect positions, raise cash in line with one’s tolerance for risk.
      Prepare for an outstanding buying opportunity which may be months or a year away. As I did on March 10, 2009 with the DJIA at 644., I would like to call that bottom.
This is a global problem.  Commenting to Bloomberg Sunday, Federal Reserve Bank President Thomas Barkin likens the recession to” riding the elevator down and taking the stairs back up.”
 BLUNDER that could stifle the economic recovery:
        In the haste to re-open the economy in time for the election, the Administration and many states did the one thing that stands to  deal a crushing blow to  an economy that is already on the ropes.  They re-opened too soon, resulting in a resurgence in the COVID pandemic and now the need to take measures that will curtail the COVID spikes but hurt the economy.
Perhaps the early re-opening could have been pulled off if  everyone was forced to take precautions including masks and social distancing.
Too many refused to do that – Nationwide spikes in infections is the result !
While  consumers are flush with cash, they are unwilling to come out and spend to the degree that will raise the economy out of recession any time soon.
DUE FOR RECESSION ANYWAY:
But the economy was due for a recession before COVID.  Without aggressive intervention by the Fed in early 2019, the economy would have been in a recession last year, it was on the threshold  of one in Q4 2018 at a time the S&P 500 was down 20%.

BOTTOM LINE:
     Does a 7.8% decline from extremely overvalued all-time highs in February  discount the damage that has been done, the dominos that will continue to fall and the uncertainty of what lies in wait in the future  ?
The Fed, the Administration and Wall Street will do  everything it can to prop the market up until the November 3 elections.
I don’t think it will work
. At some point money managers will not be able to justify new buying  and will be forced to raise cash to protect their client’s portfolio values, which is their fiduciary responsibility.
So, I see a major sell-off of 30% – 45% from here as reality sets in.
Our economy  and CONFIDENCE has been dealt a body blow of unprecedented proportions.  It is there for anyone without blinders to see.
          The only yardstick for analyzing risk now is common sense.
One more push up is likely, and would present an opportunity to raise cash. There will be hype about earnings not being as bad as expected, hype by the Fed, Administration and Street about a great recovery and proposals for more government checks to businesses and individuals – all in vain.
NONE OF THIS would happen in any other but a presidential election year.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Friday: Holiday
Thursday  July 2, 2020 (DJIA: 25,734)
“V” Not Going to Happen -August Top ? Plunge Into the Fall
      Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Wednesday: Not Published
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Tuesday June 30, 2020 (DJIA 25,595) “Rally Sets Stage for Big Sell Off in the Fall”
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Monday June 29, 2020 (DJIA: 25,595)  “A Fiduciary Responsibility to Preserve Capital” 
What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
George Brooks
Investor’s first read.com
brooksie01@aol.com
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.

 

 

 

 

 

 

 

 

 

 

 

 

 

In December I Called For a January Bull Market Top, I Now See the Bear Market Rally Top This Month

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,287
S&P 500: 3,179
Nasdaq Comp.:10,433
Russell: 1,442
Tuesday,  July 7, 2020    7:35 a.m.
…………………
brooksie01@aol.com

NOTE:  PRESENTLY, I DO NOT PLAN TO POST WEDNESDAY AND THURSDAY
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.   One other point, it is remotely possible President Trump will resign presumably for health reasons.  The impact on the market would be a big down for 90 minutes, then a very  sharp rally as the potential for long-lost unity in America would become a possibility.
………………………………………………………………..

I am repeating my Monday post below with the exception of the following.
July starts the beginning of Q3, which normally brings in the investment of new funds. However, today looks like it will begin on the downside, which may be reflecting profit-taking of certain stocks after sharp Q2 gains.
Yesterday, I indicated FactSet projected a decline in S&P 500 earnings for 2020 at 22%, that it would take a rebound from that of 28% to get back to pre-COVID levels. However Axios now reports analysts  are projecting a 28.6% plunge in 2020, which would require a  40% reboun >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
MONDAY’S POST REPEATED:                                                        
Monday  July 6, 2020 “Ignore Hype By Fed, Administration and Wall Street, Market Sell Off This Month, Plunge Into Year-End”
The stock market will start declining  this month
When: Today, a week from now, how about July 27 when earnings are pounding the turf ?
How far down ?  30% – 45%
     For how long ?   Beyond the November 3rd Presidential Election.
     Why ? While the Fed, Administration and powers on Wall Street will stop at nothing to prop it up until after the November 3rd elections, an overvalued stock market must discount known and worsening fundamentals.
      Based on what ? Let’s start with 58 years experience in the trenches of this business, 52 as a writer of market analysis.
For another, the market was historically extremely overvalued BEFORE Covid19. With corporate earnings plunging, it is even more so. Last month 80%  of the S&P 500 companies did not  provide “guidance,” however,  FactSet.com projects a plunge of 44% for Q2 and 22% decline for CY 2020.
Obviously, with the S&P 500 only 7.4% down from an all-time February high of 3,383,  the Street is looking beyond 2020, but no one can know at this point what earnings will be, especially if economic dominos keep tumbling.
After a plunge of 22% in  earnings in 2020, earnings would have to rebound 28% next year to get back to pre-COVID levels where the P/E would still be 50% overvalued based on time-tested criteria.
      The huge rally in the stock market since the March 23, lows ( DJIA: 43% DJIA and S&P 500 and 54% in the tech-distorted Nasdaq Comp.), was partly due to the algo buy-the-dip, short covering, but mostly actions by the Fed and Congress to prevent outsized damage to the economy and stock market in a Presidential Election Year. Would this have happened in any of the three other years of the election cycle ? That is something to consider after  November 3rd.

What to do ?  Protect positions, raise cash in line with one’s tolerance for risk.
      Prepare for an outstanding buying opportunity which may be months or a year away. As I did on March 10, 2009 with the DJIA at 644., I would like to call that bottom.
This is a global problem.  Commenting to Bloomberg Sunday, Federal Reserve Bank President Thomas Barkin likens the recession to” riding the elevator down and taking the stairs back up.”
 BLUNDER that could stifle the economic recovery:
        In the haste to re-open the economy in time for the election, the Administration and many states did the one thing that stands to  deal a crushing blow to  an economy that is already on the ropes.  They re-opened too soon, resulting in a resurgence in the COVID pandemic and now the need to take measures that will curtail the COVID spikes but hurt the economy.
Perhaps the early re-opening could have been pulled off if  everyone was forced to take precautions including masks and social distancing.
Too many refused to do that – Nationwide spikes in infections is the result !
While  consumers are flush with cash, they are unwilling to come out and spend to the degree that will raise the economy out of recession any time soon.
DUE FOR RECESSION ANYWAY:
But the economy was due for a recession before COVID.  Without aggressive intervention by the Fed in early 2019, the economy would have been in a recession last year, it was on the threshold  of one in Q4 2018 at a time the S&P 500 was down 20%.

BOTTOM LINE:
     Does a 7.8% decline from extremely overvalued all-time highs in February  discount the damage that has been done, the dominos that will continue to fall and the uncertainty of what lies in wait in the future  ?
The Fed, the Administration and Wall Street will do  everything it can to prop the market up until the November 3 elections.
I don’t think it will work
. At some point money managers will not be able to justify new buying  and will be forced to raise cash to protect their client’s portfolio values, which is their fiduciary responsibility.
So, I see a major sell-off of 30% – 45% from here as reality sets in.
Our economy  and CONFIDENCE has been dealt a body blow of unprecedented proportions.  It is there for anyone without blinders to see.
          The only yardstick for analyzing risk now is common sense.
One more push up is likely, and would present an opportunity to raise cash. There will be hype about earnings not being as bad as expected, hype by the Fed, Administration and Street about a great recovery and proposals for more government checks to businesses and individuals – all in vain.
NONE OF THIS would happen in any other but a presidential election year.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Friday: Holiday
Thursday  July 2, 2020 (DJIA: 25,734)
“V” Not Going to Happen -August Top ? Plunge Into the Fall
      Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Wednesday: Not Published
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Tuesday June 30, 2020 (DJIA 25,595) “Rally Sets Stage for Big Sell Off in the Fall”
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Monday June 29, 2020 (DJIA: 25,595)  “A Fiduciary Responsibility to Preserve Capital” 
What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
George Brooks
Investor’s first read.com
brooksie01@aol.com
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.

 

 

 

 

 

 

 

 

 

 

 

 

Ignore Hype By Fed, Administration and Wall Street, Market Sell Off This Month, Plunge Into Year-End

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,827
S&P 500: 3,130
Nasdaq Comp.:10,207
Russell: 1,431
Monday,  July 6, 2020    7:35 a.m.
…………………
brooksie01@aol.com

NOTE:  PRESENTLY, I DO NOT PLAN TO POST WEDNESDAY AND THURSDAY
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
………………………………………………………………..

The stock market will start declining  this month
When: Today, a week from now, how about July 27 when earnings are pounding the turf ?
How far down ?  30% – 45%
     For how long ?   Beyond the November 3rd Presidential Election.
     Why ? While the Fed, Administration and powers on Wall Street will stop at nothing to prop it up until after the November 3rd elections, an overvalued stock market must discount known and worsening fundamentals.
      Based on what ? Let’s start with 58 years experience in the trenches of this business, 52 as a writer of market analysis.
For another, the market was historically extremely overvalued BEFORE Covid19. With corporate earnings plunging, it is even more so. Last month 80%  of the S&P 500 companies did not  provide “guidance,” however,  FactSet.com projects a plunge of 44% for Q2 and 22% decline for CY 2020.
Obviously, with the S&P 500 only 7.4% down from an all-time February high of 3,383,  the Street is looking beyond 2020, but no one can know at this point what earnings will be, especially if economic dominos keep tumbling.
After a plunge of 22% in  earnings in 2020, earnings would have to rebound 28% next year to get back to pre-COVID levels where the P/E would still be 50% overvalued based on time-tested criteria.
      The huge rally in the stock market since the March 23, lows ( DJIA: 43% DJIA and S&P 500 and 54% in the tech-distorted Nasdaq Comp.), was partly due to the algo buy-the-dip, short covering, but mostly actions by the Fed and Congress to prevent outsized damage to the economy and stock market in a Presidential Election Year. Would this have happened in any of the three other years of the election cycle ? That is something to consider after  November 3rd.

What to do ?  Protect positions, raise cash in line with one’s tolerance for risk.
      Prepare for an outstanding buying opportunity which may be months or a year away. As I did on March 10, 2009 with the DJIA at 644., I would like to call that bottom.
This is a global problem.  Commenting to Bloomberg Sunday, Federal Reserve Bank President Thomas Barkin likens the recession to” riding the elevator down and taking the stairs back up.”
 BLUNDER that could stifle the economic recovery:
        In the haste to re-open the economy in time for the election, the Administration and many states did the one thing that stands to  deal a crushing blow to  an economy that is already on the ropes.  They re-opened too soon, resulting in a resurgence in the COVID pandemic and now the need to take measures that will curtail the COVID spikes but hurt the economy.
Perhaps the early re-opening could have been pulled off if  everyone was forced to take precautions including masks and social distancing.
Too many refused to do that – Nationwide spikes in infections is the result !
While  consumers are flush with cash, they are unwilling to come out and spend to the degree that will raise the economy out of recession any time soon.
DUE FOR RECESSION ANYWAY:
But the economy was due for a recession before COVID.  Without aggressive intervention by the Fed in early 2019, the economy would have been in a recession last year, it was on the threshold  of one in Q4 2018 at a time the S&P 500 was down 20%.

BOTTOM LINE:
     Does a 7.8% decline from extremely overvalued all-time highs in February  discount the damage that has been done, the dominos that will continue to fall and the uncertainty of what lies in wait in the future  ?
The Fed, the Administration and Wall Street will do  everything it can to prop the market up until the November 3 elections.
I don’t think it will work
. At some point money managers will not be able to justify new buying  and will be forced to raise cash to protect their client’s portfolio values, which is their fiduciary responsibility.
So, I see a major sell-off of 30% – 45% from here as reality sets in.
Our economy  and CONFIDENCE has been dealt a body blow of unprecedented proportions.  It is there for anyone without blinders to see.
          The only yardstick for analyzing risk now is common sense.
One more push up is likely, and would present an opportunity to raise cash. There will be hype about earnings not being as bad as expected, hype by the Fed, Administration and Street about a great recovery and proposals for more government checks to businesses and individuals – all in vain.
NONE OF THIS would happen in any other but a presidential election year.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
RECENT POSTS:                                                         
Thursday  July 2, 2020 (DJIA: 25,734) “V” Not Going to Happen -August Top ? Plunge Into the Fall
      Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Wednesday: Not Published
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Tuesday June 30, 2020 (DJIA 25,595) “Rally Sets Stage for Big Sell Off in the Fall”
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Monday June 29, 2020 (DJIA: 25,595)  “A Fiduciary Responsibility to Preserve Capital” 
What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
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Thursday  June 25, 2020 (DJIA: 25,445) “S&P 500 down 10% From All-Time Highs Does NOT  Discount Damage Done To Economy – Try 40% !”
      The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.
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Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020  (DJIA: 26,024) “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:
Off and on, the Fed has been in panic mode since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
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Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“V” Not Going to Happen – August top- Plunge into Fall

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,734
S&P 500: 3,115
Nasdaq Comp.:10,154
Russell: 1,427
Tuesday,  June 30, 2020    8:09 a.m.
…………………
brooksie01@aol.com

NOTE:  PRESENTLY, I DO NOT PLAN TO POST WEDNESDAY AND THURSDAY
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
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January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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Fueled by bumps in economic indicators from depressed levels and looking out beyond current problems, money managers continue to buy, fearful of getting beat by competition.
The buying will continue until late summer when the Street realizes COVID-19 has shuttered a significant part of the economy, AND a possible Democrat sweep of the presidential and Senate races will adversely impact the stock market.
I see a plunge starting in August and ending after the November 3 elections.
The three amigos,  the Fed, Administration and  Street will hype the economy and stock market, panicking if it doesn’t work.
COVID-19 spikes are forcing states to re-think “coming out” plans, which will be economically devastating in light of their increasing fiscal problems.  More importantly, if they do or don’t, the consumer is becoming more and more wary about the risk, triggering a domino effect.
It’s all in the “dominos” falling creating an open-ended problem economists can’t measure.
There will be trading opportunities for those buying overpriced stocks and selling them to investors willing to pay a higher price.  This has long been called the “greater fool theory,” i.e. a fool pays too much for a stock but finds a greater fool to buy it from him.      No one wants to miss out.
Classic bull trap.
       This market “is”  rigged by the three amigos, but that should end within 6-7 weeks when institutions ignore the hype lock in profits.
Whenever, a market ignores fact and reality over and over, it is being manipulated or simply driven by fantasy, and greed.
Most likely the DJIA will jump above June’s 27,580 and S&P 500” 3,222 before topping out.  This trap would suck a lot of innocent, excited  investors in as the smart (BIG) money sells and moves to the sidelines.  That will create a vacuum for stocks to fall freely, triggering a flash crash as the “public investor and Robinhood investor begin to panic and drive prices lower past the elections into early December.

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RECENT POSTS:                                                         
Tuesday June 30, 2020 (DJIA 25,595) “Rally Sets Stage for Big Sell Off in the Fall”
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !
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Monday June 29, 2020 (DJIA: 25,595)  “A Fiduciary Responsibility to Preserve Capital” 
What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
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Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
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Thursday  June 25, 2020 (DJIA: 25,445) “S&P 500 down 10% From All-Time Highs Does NOT  Discount Damage Done To Economy – Try 40% !”
      The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.
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Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020  (DJIA: 26,024) “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:
Off and on, the Fed has been in panic mode since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
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Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rally To Set Stage For Big Plunge in the Fall

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,595
S&P 500: 3,053
Nasdaq Comp.:9,874
Russell: 1,421
Tuesday,  June 30, 2020    8:09 a.m.
…………………
brooksie01@aol.com

NOTE:  PRESENTLY, I DO NOT PLAN TO POST WEDNESDAY AND THURSDAY
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November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
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With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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This is written on Monday after the close.
Yesterday will be touted as a successful test of support and a one-day reversal.  It was and should be good for a rally into resistance starting at DJIA:26497, S&P 500: 3,148,  Nasdaq Comp.: 10,187)
Obviously the Street is betting a recovery in the economy will develop soon enough that a cash reserve is not necessary.
While the tech-heavy Nasdaq Comp. punched to all-time highs last week, the DJIA remains down 13.4%, the S&P 500 down 10.0%, hardly a bull market.
FYI:  Half of the 580 point rise in the DJIA was accounted for by four  of the 30 DJIA stocks   _ Apple (AAPL: +8.15); Goldman Sachs (GS: +4.28);  Boeing (BA: +24.48); Home Depot (HD: 5.11).
While the DJIA was up 2.32%, The S&P 500 up 1.47% and the Nasdaq Comp.  up 1.32%.
All this in face of spiking COVID-19, the villain of the 21-day 35% plunge in the S&P 500earlier in the year.
       As a bear, I am not impressed.  I think significant risk lies ahead that is ignored by the Street.
Bottom line:
Institutions are locked into a buy mode with little interest in selling except for switches in positions.  With risks obviously high, that is a dangerous position for money managers to take, so selling to raise cash to protect client portfolios is not out of the question.
I think the stage is set for a big plunge in the fall prior to the November 3 election.   TOO MUCH ARROGANCE, TOO MUCH HYPE, TOO LITTLE RESPECT FOR A STORMY SURF !

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RECENT POSTS:                                                         
Monday June 29, 2020 (DJIA: 25,595)  “A Fiduciary Responsibility to Preserve Capital”  What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
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Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
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Thursday  June 25, 2020 (DJIA: 25,445) “S&P 500 down 10% From All-Time Highs Does NOT  Discount Damage Done To Economy – Try 40% !”
      The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.
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Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020  (DJIA: 26,024) “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:
Off and on, the Fed has been in panic mode since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
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Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A Fiduciary Responsibility to Preserve Clients’Capital

INVESTOR’S first read.com – Daily edge before the open
DJIA:25,015
S&P 500: 3,009
Nasdaq Comp.:9,757
Russell: 1,378
Monday,  June 29, 2020    8:09 a.m.
………………………
brooksie01@aol.com

NOTE:  PRESENTLY, I DO NOT PLAN TO POST THIS WEEK
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

November 15, 2019 (DJIA – 28,004)   I Called for a bear market to start in January, that the initial plunge would be 12%-18% – “straight down.” It started mid-February, dropped 16.3%, rallied then  plunged another 32.8%.
…………………………………………………..
January 20, 2020 (DJIA:29,348) My blog,  “INSANITY,” projected a bear market decline of  30% – 45%. The DJIA plunged 38.4% in 21 days.
…………………………………………………….
With the DJIA at 18,591, I wrote that , while I see lower prices later in the year, I expect a big rally with the upside potential of DJIA 22,037 (S&P 500 : 2,617).
With the DJIA at 23,942 (S&P 500) on April 15, I
called for  an end to  rally, up 29% but well short of how far the rally extended.  On May 18, I began to warn of  Bubble #2
………………………………………………………
      What on earth are these decision makers on Wall Street thinking ?   Have they no respect for what is happening out there ?  Do they think the stock market will be spared the devastation of tumbling dominos.  The Fed can only print so much of our money to delay financial carnage  until November 3.
There is a sea change underway, a change in national priorities and it is not good news for overpriced stocks.
The Shiller price earnings ratios (P/Es) for the S&P 500 have ranged between 44 and 8 over 50 years. Currently, the ratio is 28, or 69% above its 10 year mean of 16.7.
       That’s today, what about the ratio after earnings have been hammered by the current recession and risk of continuing damage done by COVID-19 ?       Based on what we are seeing, why would anyone want to pay that kind of premium for stocks, even considering there is nowhere else to invest.
The Fed, Administration and Street is desperately trying to prevent another free-fall in stock prices, at least until after the November election.
That could be the “trap” of all “traps,” as investors rush in encouraged by misleading hype that the crisis is over, a “V” recovery is imminent.
Maybe COVID-19 will vanish or me countered by a vaccine some day, but a lot of damage has already been done.
Besides, the economy was on the threshold of recession in Q4 2018. The Fed Was able to delay that with hype and cuts in its fed funds rate all of which created a stock market bubble that was burst in February when the recession set in after 11 years of expansion.
The economy was weak then and is weaker now.  The stock market was overvalued then and more so now.
      How about the Fed ?   With its balance sheet at $7 trillion, up from $4.4 trillion two years ago, and headed for $10 trillion, will it be in a position to counter the next crisis ?
I think the stock market is vulnerable to a plunge of 30% -50%. For the worst case to happen, money managers would have to stop buying, but in addition “sell.”
Why would they do this ?
They have fiduciary responsibility to preserve their clients’ portfolios’ value.
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TODAY
It is imperative that investors assess the level of risk they can  tolerate and be sure their level of cash addresses it now, so they are ready for the next leg down whether it comes tomorrow or months from now.
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RECENT POSTS:                                                         
Friday  June 26, 2020 (DJIA:25,745)  “Rigged ?”
     Stock market rigged ?
     It would seem so. The behavior of this market defies the rules of gravity and rational that has applied to stock markets over many years.
The stock market has no business trading at these levels
Based on time-tested measures of valuation, the S&P 500 was 40% overvalued when the 11-year old bull market bubble was pricked by COVID in February.
The resulting recession will hammer corporate earnings making the overvaluation much greater somewhere in the area of 50%.
After a 21-day 35% free-fall in February/March, the stock market  rebounded to within 10% of its all-time high.
That’s insane. That suggests to me, the Street has no respect for a stormy surf, one with rip tides that can suddenly suck you out into the deep waters.
This is what happens when a bull market/economic recovery extends well beyond the norm.  Memories are short, decision makers have little experience tday to base “respect” on. The Street is spoiled by years of Fed-nurturing.
For most of 2019, I warned of dangers of the Fed-orchestrated Bubble #1, which COVID burst in February.
I am warning of Bubble #2, which is driven by the three amigos, the Fed, the Administration, and the Street.
Can they prop the market up until November 3 ?
I am not the only old timer to warn of a bubble.
       In an Wednesday interview with MarketWatch’s Mark DeCambre, Jeremy Grantham, co-founder of money manager, Grantham, Mayo, Van Otterloo & Co.  says this bubble is the “Real McCoy, “crazy stuff,” adding “the chutzpah involved in having a bubble at a time of massive economic and  financial uncertainty is substantial.”
      One reason for Grantham’s bearishness is rampant trading by out-of-work investors, which reflects a market that may be “the most bubblicious he’s seen in his storied career.”
A new era ?   No more bear markets ?  Buy the dip, no sweat ?
Play if you want, but keep a cash reserve in keeping with your tolerance for risk.
Oh, sit close to the exits.  I agree with Grantham.  This is the bubbles of all bubbles. The last burst was a warning shot. The next triggers selling by money managers who realize they have a fiduciary responsibility to preserve capital as well as to increase portfolio value.
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Thursday  June 25, 2020 (DJIA: 25,445) “S&P 500 down 10% From All-Time Highs Does NOT  Discount Damage Done To Economy – Try 40% !”
      The S&P 500 is down only 10.1% from its all-time February high, a high that was gained before the impact of COVID  roiled global economies.
     A 10% discount in the S&P 500 from February’s all-time highs does not discount the damage done to our economy by COVID-19 and measures to adjust to it.
If the economy is not is great trouble, the Fed and Congress would not be panicking to head off a Depression.
     Here’s the problem:
Bottom Line:
Expect the three amigos, the Fed, the Administration and Wall Street to rush forth with hype  to prevent the stock market from finding a level that discounts the fact COVID-19 is spiking and the economy struggling to regain any meaningful positive momentum.
They will try to  prop the market up with promises and  misleading projections, but reality may chase the big buyers away setting the stage for “Flash Crash #2.
     Money managers have a fiduciary responsibility to grow AND preserve capital. If they see huge and extended risk ahead, they will stop buying and start selling.
That would result is a free fall and test the March 23 lows (DJIA: 18,136; S&P 500: 2,191: 6,031), which could be broken if enough panic sets in.
Again, a 10% decline from overvalued all-time highs DOES NOT DISCOUNT THE RISK THAT LOOMS.
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Wednesday  June 24, 2020 (DJIA: 26,156) “Risks Rising Relentlessly”

Again, I say the following because the Fed is the primary driver of the March 23 rebound at least until November 3.
James Athey, money manager at Aberdeen Standard Investments said yesterday, “Rightly or Wrongly, there’s a pretty widespread feeling that riskier assets won’t go down because the Federal Reserve won’t let them.”
    That’s why Bubble #2 is forming.
If the Fed is seeing serious economic problems lurking out there, why would it encourage asset prices to jump unrealistically ?   After a 21 day 36% drop in the S&P 500, what is it  about the danger of creating  bubbles  doesn’t the Fed understand ?
COVID is not going away, in fact it is spiking. 
It is unlikely states will go back into lockdown, but individuals may simply not go out as much as they would if COVID was no longer a worry.
Just a SAMPLING of what I am reading:
According to Axios AM (absolutely a daily must read), 43% of 7,317 small business owners that received money through Paycheck Protection Program (PPP)  say they could be out of cash in a month or less.
What’s worse, 69% of small businesses that did not receive PPP expect to run out of cash next month, and 76% of minority-owned businesses that did not get PPP will be out of money in July, half are already out now.
Travel spending will be down 45% by year end.  Obviously, businesses supporting that industry will be hurt, as well.
Health and fitness  businesses will  lose $350 million a week through year end.
All told, GDP is expected to shrink 5.2% this year alone, three times as much as in the 2009 recession.
Bottom Line:
      This economic recovery is over-hyped. The 43% rebound in the S&P 500 is unjustified – a bubble that will eventually get pricked by reality, or burst because it cannot inflate any longer.
What I am seeing, people without masks in face of a resurgence in COVID-19, and a Fed blind to the dangers of inflating a stock market bubble is appalling !
Arrogance in the first case, ignorance in the second. What are these people thinking ?  Or…can’t they ?
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Tuesday June 23, 2020  (DJIA: 26,024) “Fed is Doing It Again – Bubble #2  –
JEEZ ! Nooo… Not Again  – Ugh !    %&%#@”

When will Bubble #2 burst ?

August ?    November ?
It’s anyone’s guess – too many balls up in the air.
Reports on the economy will show improvement for a month or two simply because they are compared with “beatable” numbers, but then what ?
A line from yesterday’s post is worth a reprint:
Off and on, the Fed has been in panic mode since the economy and stock market started to melt down in Q4 of 2018 when the economy was on the threshold of recession and stock market had plunged 20% in 90 days.
Worth noting, COVID-19 did not strike until early this year, so my wild guess is, the Fed didn’t want a recession/bear market leading into or during a presidential election year.
The Fed has unchecked, unlimited and untethered power, and apparently  feels it has been charged with the responsibility to use it, even it drives stock prices to  dangerous levels.
That said, I don’t think a bunch of out-of-touch, prima donna  bankers should have so much power. Why are they not warning investors of  asset risk all the while they are panicking about an economy that is teetering on the edge of a cliff  ?
Bottom Line:
        I think we are in very dangerous waters here -sharks everywhere – COVID-19,  Iffy China trade deal, global meltdown, election chaos, and the risk that institutions with algos all keying on the same metrics will suddenly get a  SELL !
        That would be Flash Crash #2.
When ?     It will happen out of nowhere.  The bubble will be inflated by
hype from the Street, the Administration and the Fed until pricked by an event, or maybe it just gets too big and bursts on its own like it did in February.
Be prepared  !
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Monday June 22, 2020 (DJIA: 25,851) “Why is the Fed in Full Panic Mode ?”
Wow !  The Fed has always had unchecked power, but that is over the top.
But, the Fed couldn’t stop the 36% plunge in the S&P 500 earlier this year, or the 58% one in 2007-2009, or the 51% carnage in 2000-2002.
Here’s the problem with the Fed  micromanaging the stock market. It works for a while, at which a correction/bear market brings  stocks back        down to realistic levels.
The S&P 500 is already within 8.7% of the February all-time highs when it was historically overvalued. It is so much more so today.
      In a panic, the Fed has slashed its benchmark Fed funds interest rate to zero in less than a year.  More importantly it has inundated the markets with freshly printed money.
      A June 19, MarketWatch article,  “Money printing by the Federal Reserve has propelled stocks for more than a decade, but that effect may soon wear off,” highlights a disturbing issue.
When does the Fed max-out its ability to print money ?
       In March 2009, the Fed’s balance sheet was $2.08 trillion. It rose to $4.4 trillion in 2018 and now stands at $7 trillion en route to $10 trillion.
 More importantly, WHY the panic ?
        Is the Fed political ? Are they trying to insure Trump’s re-election and control of the Senate remain under business-friendly Republicans ?
Or…..Does the Fed see a devastating  economic, financial, and fiscal meltdown if it doesn’t undertake unprecedented measures to intervene ?
Bottom Line:
For whatever the reason, the Fed is not just propping the market up, but driving it higher. It is once again inflating a huge bubble, which at some point will burst.
Unfortunately, a lot of investors will get hurt when it does, especially newcomers like the Robinhood and its “merry men” investors.
One of they most classic signs of a market top is new investors making easy money in a late-stage bull market.  This can go on for a while. We will read of  individuals quitting jobs to trade the market, of  small fortunes made, of  novices writing “how to” books.
This frenzy will drive more and more investors into stocks, some borrowing (margin) to buy even more shares.
Undervalued stocks are becoming hard to find.  New investments in historically overvalued stocks will have to be sold at a more overvalued price to someone else (greater fool theory).
The end result will be the same as it always has – a crash. It is now a matter of when.
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Friday, June 19, 2020 (DJIA: 26,080)  “Flash Crash #2     Dead Wrong…..So Far”

The Fed has never demonstrated its power in determining the direction of stock prices as much as it has in recent months.
It did so between December 2018 and February 2020 when it single handedly created bubble #1, a 44.2% rise in the S&P 500 before the February 35.6% flash crash.
       Since that crash, it has orchestrated Bubble #2, which has driven the S&P 500 up 42.1%.
        No one can dispute its need to head off an economic depression, but as in 2019, the Fed did not warn of  an excessive expansion of asset values as it should have if concerned about investors incurring extreme risk.
Can this lead to Flash Crash #2 ?
I was right about Flash Crash #1, but so far am dead wrong about #2.
That is no reason to go all-in.
Unless the Street has tossed out the rule book of valuations that has survived decades of time-testing, a major correction looms as we head into the fall.
How deep ?
That depends on news flow. Do cases of COVID-19 accelerate ?  Are major advances to its treatment/vaccination made in the interim ?  Does the current economic bounce fail to follow through  ?  Will the Fed run out of  ammo and hype ?  Finally, will money managers panic ?
The latter would make the difference between a 30% plunge and a 55% plunge.
As I see it, the initial gap down with flash crashes is a result of institutions and traders withholding buy orders creating a vacuum of sorts where normal selling can’t find buyers without sizable discounts in price.
As the decline intensifies, so does the selling resulting in a climactic sell off.
Like I have noted repeatedly, I believe stocks should be allowed to find a level that accurately reflects known and perceived risks. No institution should be so powerful that it can interfere with that process.
       The DJIA is within 5.4%, the S&P 500 within 3.6% and the Nasdaq Comp 1% of its grossly overvalued all-time February highs,  but the economic outlook dire.
This begs the question,  if this is not true, why  then is the Fed writing blank checks and Congress in panic mode  ?
Suddenly speculative fever is heating up as investors panic for fear of missing out (FOMO), and institutions panic for fear of underperforming their competition.
A classic bubble !
When will it burst ?  Beats me, I was months early for #1.  The bubble may not pop (or get pricked) until August/September.
At some point reality will prevail.
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Thursday  June 18, 2020 (DJIA: 26,119) “Sideways Trading Range Into August – Then Plunge in Fall” The DJIA and S&P 500 have recovered more than two-thirds of the Feb./Mar. flash crash plunge, the Nasdaq Comp. is a smidge.
This assumes a full recovery form the shock delivered by  COVID-19 and the global response to contain it.
As warned here, we are seeing big jumps in economic indicators, as current reports register big gains over depressed numbers in prior months.  An example is the 17.7% jump in May retail sales over April.  Versus a year ago, the change was a minus 6.1%.  There will be more like this, but they will not indicate a full recovery.
While the Administration no longer recognizes COVID-19 as a threat, consumers just may with spikes in hospitalizations in Texas, Florida, Arizona and Arkansas.
Coming out parties abound, but all it takes to muffle an economic recovery is a reluctance of consumers (70% of GDP) to go out.
      Bear in mind, a good part of the March 23 to current rebound was short covering, traders who sold short expecting a second leg down only to be forced to buy-in when the market refused to decline, as the Fed continued to assure the Street it had their back.
I was right about a bounce with my March 24 blog saying I expected a big rally starting today (DJIA: 18,591, S&P 500: 2,237, Nasdaq Comp.: 6,860).
At the time I indicated I expected the market to renew its bear market plunge after a rally of about 17%.  WRONG. It kept rising.
Bottom Line:
The Fed must see an enormous risk to the economy if it doesn’t intervene in every way possible.  Why else would it relentlessly announce measures to head off a financial crisis the latest being its plan to buy corporate bonds.
We will get a better read after November 3.
I still hold to my belief we will see another leg down heading into August -October and an election where the President and Republican Senate may get ousted.
The Street was ecstatic when Trump was elected, I expect it to become fearful if he is beaten, since it stands to result in an increase in corporate taxes on favored treatment of corporations and high earners.
It appears (hope I’m wrong), the stock market has been managed (manipulated) over the last 18 months with the objective of re-electing Donald Trump and maintaining Republican control of the Senate.  Why else has there been so much Fed intervention before COVID-19 and after ?.
I think the Fed managed the stock market during Obama’s administration, but to a far less extent.  Too much power in the hands of a group that is narrowly focused and diversified.    Markets should trade freely. It’s the only way to get a true picture of what conditions are.
I believe flash crashes  (new normal) are caused by institutional investors and traders stepping away from the market when they see trouble of overvaluation, not by heavy selling.  The dearth of buy support enables stocks to drop vertically.
The selling  comes after a big decline.
It will happen again – Beware !  The next time could be as bad as in February/March.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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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.