BIG Monet Selling Why Everyone Else is Buying

INVESTOR’S first read.com – Daily edge before the open
DJIA :26,526
S&P 500: 2,924
Nasdaq Comp.:7,967
Russell 2000:1,546
Friday June 28, 2019
   9:29 a.m.
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gbifr79@gmail.com
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TODAY:
      Signs of a recession are cropping up everywhere for those who objectively will see them.  Yet, the Street keeps buying running stocks up to historically extremely overvalued levels, obviously expecting the Fed to cut interest rates if the economy falls off the cliff.
This is classic late stage bull market stuff, happens at every market top. The unwillingness to buy at extremely undervalued levels is characteristic at bear market bottoms.  Humans doing what they do best – being human.
If one must play, they should play with a limited amount of one’s funds while maintaining a healthy cash reserve to reduce the carnage when the market goes straight down.
Monday I asked, “Is the BIG money selling while all else are  buying ?”
      Yes, according to InvesTech Research which points out that Margin Debt, (borrowings to buy stock) has been falling off over the past 16 months. Margin Debt is taken on by savvy traders who leverage positions to make more money, fully knowing risks are increased.  Their exit should indicate they are locking in profits.
Jesse Felder, The Felder Report agrees saying, “Leveraged investors could be signaling a bear market is now underway,” and backed it up with graphs. He noted, “Margin debt is now falling at an annual rate of 15%, a level of de-risking that has always been accompanied by a minimum 20% decline in the S&P 500 over the past half century.”

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TECHNICAL

      The big question here is, why did the Fed reverse its policy earlier in the year from restraint to ease ?    What are they afraid of ?

Minor Support: DJIA:2626,473;S&P 500:2,918;Nasdaq Comp.:7,946
Minor Resistance: DJIA:26,605; S&P 500:2,932; Nasdaq Comp.:7,988

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Thursday   (June 27)
On balance, this is not a good week for economic indicators: Jobless Claims  and  Retail and Wholesale Inventories up, Durable Goods , New Home Sales, Consumer Confidence, Retail Sales, Net Exports, and  the Dallas Fed Business Index are down.  The third estimate for Q1 GDP at a 3.1%  an annual rate of growth is unchanged.
As I have been saying, we are in the early stages of a recession. It will gain momentum in spite of a Fed rate cut on July 31 or September 18 at the latest.
Once underway, the Fed will not be able to stop a recession, slow down its intensity – yes, stop no.
So why is the Stock market hovering at new highs ?
The Street thinks it can ignore a recession and look out to 2020 – 2012.
       After all, the average recession going back to 1945 lasts less than a year.
But, as I have repeatedly noted, stocks are overvalued heading into a recession and  extremely overvalued at the mid-point of a recession.  The Shiller P/E at 29.7 is 80%  higher than its historic norm of 16.6.
        Humans being human, will get scared when the market tumbles 15%, 20%, 30% and sell driving prices lower.
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Wall Street’s problem is they do not want the party to end. Some big hitters will break ranks and sell, others will follow.
In the interim, there will be buyers in response3 to promises of success in trade talks and a Fed rate cut, but most of that is priced into the market.

 

Wednesday  (June 26)
The G-20 will meet Friday and Saturday in Osaka, Japan where Presidents Trump and Xi Jinping  are expected to discuss trade, but without any major breakthrough, except a promise to meet for further discussions in the near future.
We should get a better idea of how global economies a faring, as well as input on the impact of Trump’s tariffs.
Fed Chief Powell has insisted the Fed won’t cut its fed funds rate to please Trump, which leads me to believe he will anyhow, not to  avoid the President’s criticism, but  to head off a recession.
I have warned of a recession for many months, and believe it is already underway.
The Street doesn’t share my concern, it is still in a buy mode, or shall I say its computer algorithms are still bullish.
That will end in a 12% – 18% plunge as everyone on the Street gets a SELL signal at the same time.
When ?  Don’t know !
Bad news doesn’t do it, a dysfunctional government doesn’t do it, an overvalued stock market doesn’t deter  paying up for stocks.
On a given day no one will show up to buy, and prices will plunge followed by sellers and more downside as it becomes obvious, this should have happened six months ago, before the Fed stepped in with its hype that the “economy is in a good place”  to prevent the market from finding a genuine comfort level that discounts a recession.
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Tuesday   (June 25)
There are just too many balls up in the air for the Street to decide what to do next.  This week is loaded with economic reports that could pressure  the Fed to cut rates on July 31, which I previously thought was unlikely because there is no press conference scheduled for that day, and for a rate cut they would want one. Should they schedule a press conference, it would be a tip-off they are cutting rates.
Key economic reports today are: New Home Sales (9:00), Consumer Confidence (10:00), Richmond Fed. Bus. (10:00).
The G20 meeting in Japan will be held Friday and Saturday.  President Trump and China’s President Xi Jinping have agreed to talk trade at the summit, but expectations of tangible progress are low.
The U.S./Iran issue will remain uncertain at least until next week.
Then too, we have a stock market at all-time highs, which by many standards is over-priced and due for a technical correction  after a sharp 8.7%, Fed-induced surge.
The Street is undeterred by all exterior events, at least until it becomes aware how vulnerable the market is. This indifference and self-fulfilling  tunnel vision is typical of late stage bull markets.
The market will hang tough until someone breaks ranks to stop buying, worse yet start selling, then it will be straight down.
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Monday  (June 24)
The financial press and market pundits are  now focused on the market averages new all-time highs.  This suggests the Street is even more enthusiastic about the  market’s valuation and future than at any time before.
Presently the S&P 500 hit an all-time high last week.  The DJIA must post a gain of 232 points (0.0087%) and Nasdaq jump 145 points (1.8%) to follow suit.
But what about the Dow Jones Transports (DJTA), a barometer for the  rail, road and air industries   ?  It must gain 1,271 points to reach all-time highs (12.3%) to be hitting all-time highs.
Why wouldn’t the Dow transports confirm the  other market averages (indexes) ?
If they came close, I wouldn’t waste time mentioning it, but  the gap here is huge.
The fact the Fed reversed its policy from restraint to ease in January triggered a surge in equity markets, which got a further boost by Fed Chief Powell’s hint last week a cut in its fed funds rate was imminent.
On the surface, that’s enough to whet the bulls’ appetite, but it begs the question “WHY” is the Fed doing this ?
The long and short answer is – RECESSION !
Is the BIG money selling while all else are  buying ?
Yes, according to InvesTech Research which points out that Margin Debt, (borrowings to buy stock) has been falling off over the past 16 months. Margin Debt is taken on by savvy traders who leverage positions to make more money, fully knowing risks are increased.  Their exit should indicate they are locking in profits.
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Friday  (June 21)
One thing certain about the Fed, it continually manages to push stock prices to overvalued levels with rhetoric and occasionally action.
     If it is concerned with early evidence of a recession, it should say so flat out. The stock market would then be able to find a level that discounts  risk.
Shuffling back and forth like a bunch of drunk line dancers, it manages have it both ways all the while delaying the inevitable – a recession and a bear market.
The market must find a level that weighs both risk and opportunity, without this charade by the Fed.
The stock market is hitting all-time highs at a time:
-the White House is in a turmoil
Mid-East tensions are about to boil.
-individual, corporate and government debt has swelled to uncomfortable levels.
-international trade is in a flux adversely impacting the corporate decision process.
-global economies are on the edge of recession.
-signs of recession here in the United States have prompted bearish forecasts by
Morgan Stanley, whose Business Conditions Index had its biggest plunge  ever, A. Gary Shilling who has an outstanding track record for calling recessions, ands a survey by the Duke University/CFO Global Business Outlook which finds 48% of the CFOs surveyed see a recession this time next year.
ALL THIS WITH THE SHILLER PRICE/EARNINGS RATIO HIGHER THAN IT HAS EVER BEEN EXCEPT FOR 1999-2000, THE DOT-COM BUBBLE BURST BEAR MARKET THAN PLUNGED 50.50%.
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Thursday  (June 20)
What’s better than a Fed rate cut  yesterday  ?
Promise Of Two Cuts This Year.
      The Fed passed on a fed funds rate cut yesterday, but came within a hair of promising two cuts before year-end.
       That’s great for home buyers/sellers, but a cruncher for people on fixed incomes, since interest rates across the board plummeted  after Fed Chief Jerome Powell’s presser yesterday.
Obviously Wall Street liked the end result, the market jumped yesterday and is soaring today with new all-time highs a given.
So what is the Fed really saying ?
Part of the Fed decision is cowing to President Trump whose vitriol would humble sensitive egos at the Fed if it didn’t attempt to head off a recession in coming months.
The primary reason for the Fed’s moon walk since January is it is scared stiff of a recession, especially in a presidential election year, and they have good reason for concern.
While the Street is thrilled for the tack the Fed taking, stocks are once again becoming seriously overpriced with the Shiller  S&P 5900 price/earnings ratio at 29.8, above that at the beginning of the Great Recession/Bear Market, above that hit in 1929, but below 44.2 hit in the dot com bubble in 1999. The S&P 500 price to sales ratio is at an all-time high of 2.18.
With a recession looming, the market is high RISK.  But memories of a 55% plunge in the S&P 500 in 2007-2009 are short and speculative fever has taken hold so further upside is possible, just not reasonable.

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What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 116 months, the second longest on record and  twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months.  The unemployment rate hit a low of 3.7 percent in November, jumped to 3.9 percent in December and to 4.0 percent in January. Now, averages include months below and above 3.8. What’s more, we won’t know when the current recession if we have one begins because that conclusion is  reached by the Nat’l Bureau of Economic Research (NBER) long after the fact.
>Bear markets lead the beginning of recessions by 3 to 12 months.  The current bull market at 119 months is four times the average of the last 15 bulls going back to 1957
 >Nine out of the last 10 recessions have occurred with a Republican in the White House.
>The current economic expansion has lasted 123 months. That’s 65 months (2.1x) longer than the average expansion (58.4 months) going back to 1945.
>
Of the 10 recessions since 1950,the average time between the low point in the unemployment rate and the start of a recession was 3.8 Months.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months.
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George Brooks
Investor’s first read.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.

 

 

 

 

 

 

 

 

 

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