BEWARE of August !!

Investor’s first read – Daily edge before the open
DJIA: 18,533
S&P 500: 2,181
Nasdaq Comp.5,225:
Russell 2000: 1,231
Wednesday, August 10, 2016 9:08 a.m. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Another ho-hummer ?
Summer doldrums ?
I can see fireworks – in both directions – the return to volatility. August can get ugly – remember August’s flash crash a year ago ?
My point here is – stay focused.
The only economic news so far today is good news. Home mortgage apps for the August 5 week were up 3% (13% y/y) , refii’s’s up 10%.
Now that the release of Q2 earnings are well under way, the Street will be looking ahead to future quarters. is looking for S&P 500 earnings growth to be flat at plus 0.1% this year, excluding energy’s drag, to be plus 2.8%.
For the latter, quarter vs. quarter a year ago should begin to be far more favorable in 2017. Is the market thinking that far out ? Should it be ?
Uncertainty about the election does not appear to have had much impact on the stock market to-date. Expect that to change. By default, the Libertarian Party of Johnson/Weld may gain enough traction to muddy the waters, making the final result a tough call.
Don’t disrespect August just because you think everyone is on holiday.
The BIG money doesn’t sleep. O.K., they sleep better than most of us, but with one eye on the markets.
SUPPORT “today”: DJIA:18,467; S&P 500:2,173; Nasdaq Comp.:5,206.
RESISTANCE “today”: DJIA:18,613; S&P 500:2,193; Nasdaq Comp.:5,246 .
This market has defied anything I have ever seen EXCEPT that is, near market tops.
News headlines of new all-time highs attracts interest especially from investors who have not participated in this bull market. Likewise, it is forcing investment professionals (brokers, money managers, hedge funds and newsletter writers) to become more fully invested.
It is characteristic of late bull market behavior to prompt talk of a “New Era.”
I have heard the New Era talk before. It comes on stream when the market hits new highs after a long bull run at a time just about everyone concludes the market simply has to go higher and they better jump on board.
I see fundamental and technical signs that warn of a top, but then I started seeing those three weeks ago. It is a matter of how high is high, and a momentum that is self fulfilling.
Bull markets can reach unthinkable extremes when investors stampede into stocks fearing being left behind.
Then too, fear of total ruin at bear market bottoms can trigger panicky selling as investors scramble to salvage what’s left of a portfolio after a 30% -45% plunge.
Major tops and bottoms are marked by extremes. Savvy investors know this. Even so, it is a challenge for any human to resist the urge to chase running stock prices at unreasonable heights, or get chased out after a harrowing plunge in stock prices.
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of August 5, 2016, a reasonable risk is 18,435 a more extreme risk is 18,333. Near-term upside potential is 18,959.
(So far this is not holding up)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q2, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators:
* (Excellent pre-market read)
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.