Bulls Hoping Institutions Will Pay Up for Stocks

Investor’s first read – Daily edge before the open
S&P 500: 2,180
Nasdaq Comp.5,213:
Russell 2000: 1,229
Tuesday, August 9, 2016 9:14 a.m. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
This is a slow week for economic reports. The bulls are still salivating over Friday’s solid Employment Situation report, which it appears was the best of both worlds, it reinforced confidence in a lackluster economy, but it wasn’t big enough to trigger a Fed increase in rates.
So, where are we ?
The bulls are in control, willing to buy on dips in prices. The U.S. economy is in a plateau, some good news – some bad. The Street is not yet concerned about
the election, oil prices have stabilized after a brief plunge, and no additional EU members have announced an intention to leave..
Unless the bulls step back to let normal bay-in and day-out selling to drive prices down, they will continue to call the shots.
Now that the release of Q2 earnings are well under way, the Street will be looking ahead to future quarters. FactSet.com 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.
SUPPORT “today”: DJIA:18,449; S&P 500:2,173; Nasdaq Comp.:5,186 .
RESISTANCE “today”: DJIA:18,591; S&P 500:2,187; Nasdaq Comp.: 5,237.
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: mam.econoday.com.
*Bloomberg.com (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.

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