Current Market Carbon Copy of Oct./Nov. 2018
INVESTOR’S first read.com – Daily edge before the open
S&P 500: 2,886
Tuesday June 11, 2019 8:52 a.m.
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The market action between May and June this year is a carbon copy of the market action between October and November 2018.
What happened in November 2018 is the market averages tested the October low, rallied sharply then plunged more than 16% to the December low.
A repeat of last year’s pattern would take the market averages down to about DJIA: 24,650, S&P 500: 2,760, and Nasdaq Comp.:7,350 where the market would rebound briefly before a plunge of 15% -18%, that is “if” we get a repeat.
That pattern would be broken if the DJIA rises above 26,600, the S&P 500 above 2,940, and the Nasdaq Comp.:8,100.
Bottom line: There is a chance we are close to a whipsaw pattern of trading that will result in a plunge in prices in 4 to 6 weeks – no guarantees, of course, just keep an open mind and don’t chase stocks that have already rebounded, a good part of which may be short covering.
The Fed will attempt to prevent any major decline in prices going forward, but has already demonstrated it is politically biased. All these Fed Governors sport high level pedigrees. Along with that is an ego and a sensitivity to the kind of visible criticism that President Trump can vent. Independence ???
I have no problem with Fed action to prevent a recession. My blood boils when the Fed manipulates the market with “hints” that a cut in their Fed funds rate is in the offing at a time the market is trying to adjust to the possibility of a recession.
That announcement came the day after the market hit a four month low after breaking down from a top formation. That’s MANIPULATION !
The markets MUST be allowed to trade freely. By its action, the Fed prevented the market from finding a level that discounts the negatives present and foreseen. What’s worse, it may just have sucked a lot of buyers in at a time a recession looms. At these levels, the market averages do not discount the recession the Fed sees.
I have been forecasting the Fed will cut its benchmark fed funds rate on the 19th. Its July 30-31 meeting will not be accompanied by a press conference, so it is unlikely they will cut the rate then. If they announce an unscheduled press conference it would be a tip-off. They do not meet in August which leaves September 18, a long wait if they are trying to head off a recession.
Minor Support: DJIA:25,957;S&P 500:2,871;Nasdaq Comp.:7,727
Minor Resistance: DJIA:26,215; S&P 500:2,901;Nasdaq Comp.:7,862
Monday (June 10)
The stock market continues on a tear following Fed Chief Jerome Powell’s “hint” of a cut in its fed funds rate in the near future.
Before rushing in, investors should question why the Fed sees the need for a rate cut. I can answer that, they see signs of looming recession.
If their concerns are justified, why would anyone be buying ?
Clearly a price/earnings ratio (P?E) of 29.6 is not a good reason. That exceeds the P/E in December 2007 of 20.7 by 40%.
What’s more, cuts in the funds rate have preceded the last 7 recessions anr for the obvious reason – the Fed saw a recession coming and began the process of trying to ease its impact.
By its action, hinting of a rate cut in the near future after the market had begun adjusting for the coming recession was irresponsible. It sucked a lot of investors into the market, people thinking just because the Fed is dropping rates it was safe to buy.
THE PROBLEM HERE IS A 29.6 P/E DOES NOT DISCOUNT THE UGLINESS OF A RECESSION.
I believe markets should be allowed to trade freely without micro-managing by any organization, especially the Fed.
Friday (May 7)
I believe we are in the early stages of a recession.
I believe the Fed will cut its fed funds rate on June 19.
I believe the market will rally sharply in response
I believe that rally will be followed by the next leg of a bear market that
started on April 23 when the DJIA hit 26,695 (S&P 500:2,936).
The only hope the bulls have is if all tariffs are withdrawn, unlikely. Progress on tariffs can add to a rally, but not a reversal of a bear market.
Current levels of stock prices DO NOT DISCOUNT A RECESSION. That will take a 35% + plunge from here. Hype out of the Fed and White House can only suck investors in at inflated prices. _BEWARE !
Thursday (Jun 6)
The market’s rebound has broken several “technical” barriers, including a minor downtrend line and a “Head & Shoulders top,” suggesting more upside.
But, this market is tiptoeing through a minefield and anything can happen.
Good news about Tariffs can juice it even higher, bad news about the economy, indicating a recession is a better good bet than previously thought would reverse an overbought market to the downside.
These are uncharted waters, and the waters are murky at best, fraught with rip currents and rogue waves at worst.
Memories tend to be short with a 24/7 news cycle that pummels viewers with overload. It’s been 11 years since the bear savaged investors and the economy to the point only a handful of gutsy investors were willing to buy grossly oversold stocks.
Unfortunately, many sold out at the bottom and never got back in.
I see little respect for what can happen today, and part of that is due to the fact this Fed, headed up by Jerome Powell has assured the Street it will be there to goose stocks if there is a risk of a big decline.
I don’t believe Ben Bernanke or Janet Yellen would be as much a worrywart about a 7%-8%* drop in the market to hint about a rate cut to stem the tide, or was it politics that drives him.
I believe in letting the market find its comfort level. I think we are already in the early stages of a recession, so artificially propping up the stock market only puts investors at greater risk.
The biggest negative facing CEOs, money managers, business owners, the consumer and investors today is CREDIBILITY, Too much lying at the highest levels. How can CEOs plan when they do not know what to expect next ?
A huge price will be paid for that, and this stock market with prices simply a matter of opinion, are vulnerable.
* incorrectly referred to as S&P 500 plunge of 10.2%
Wednesday (June 5)
Just as I have been saying, the Fed is scared stiff that a recession/bear market will be ravaging the economy and investors in 2020, a presidential election year.
What I have a problem with is the Fed’s timing of statements about policy as the stock market is adjusting for a recession, which after 10 years and huge problems could be devastating.
It’s a deliberate and political manipulation of the stock market and stands to suck more and more investors in at higher levels where their portfolios will get crushed.
After a 6.7% May plunge in the S&P 500, Fed Chief Jerome Powell said Tuesday it was closely monitoring the impact of trade developments and would act as appropriate to sustain the economic expansion.
That means a rate cut and a return to Quantitative Easing (QE) if necessary. When will they ever learn.
Lower interest rates won’t help with individual, corporate and government debt inflated to such serious levels.
Wake up ! A rate cut has preceded the last 7 recessions. The Fed cuts rates because it is trying to prevent or reduce the impact of a recession.
The stock market must be allowed to find a level that discounts known and perceived adversity, which in this case could mean 35% to 45% plunge in the stock market.
Tuesday (June 4)
As I have been saying, since February 22, the Fed will cut rates if it looks like we are entering a recession. Yesterday St. Louis Fed President James Bullard said a rate cut may be necessary to “re-center inflation and inflation expectations at target and also to provide some insurance in case of a sharper-than-expected slowdown.”
That’s crap ! What he is really saying is that the Fed is scared stiff we may be in a recession next year, a presidential election year. Forget the inflation stuff, it’s just a smokescreen for playing politics. Inflation has been non-extent for years.
Guarding the nation against inflation is just a justification for the Fed’s existence. They did a great job in the 2008-2009 Great Meltdown, but have been market manipulators ever since. Let the market find its own comfort level !
While a rate cut stands to trigger a rally, especially in a depressed market, it would be bad news.
Fed rate cuts preceded the last 7 recessions going back to 1960.
It says the Fed sees a recession underway and is beginning the process of reducing its impact.
This is exactly what I have been warning about:
“Fed to Cut Rate if Economy Deteriorates Further” ( Feb.22, DJIA: 25,850)
“Fed May Cut Fed Funds rate – Why Not to Cheer” (Mar.12, DJIA:25,650)
“Raise Cash if Fed Hints at Rate Cut” (Mar. 29, DJIA: 25,877)
“A Drop in Fed Funds Rate Precedes Recessions” Mar 28, DJIA: 25,652)
“Street Betting on Rate Cut Designed to Head Off Recession”(Apr 2, DJIA:”26,258)
:Fed Rate Cut in Attempt to Prevent Recession” (May 28, DJIA: 25,585)
“Fed Rate Cut Can’t Stop the Recession/Bear Market” (May 30, DJIA: 25,126)
“MARKET ON Edge – Not Even a Fed Rate Cut June 19 Could Stop a Recession/ Bear Market” May 31, DJIA:25,169)
When the Fed cuts rates, June 19 or September 18, it will trigger a sharp rally. That can be risky for buyers on the news this month because there is high risk of more downside. We will have to wait until September when the market will be lower and a rally less risky.
Obviously, good news, or administration hype about tariffs would trigger buying, as well, but only delay the inevitable – recession/bear market. Too much damage has been done, too much uncertainty about what to expect next has crippled confidence.
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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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.