FAANG Stocks Roar….Others Snore

INVESTOR’S first read.com – Daily edge before the open
DJIA: 27,739
S&P 500: 3,385
Nasdaq Comp.:11,264
Russell: 1,564
Friday   August  21, 2020   
7:04 a.m.
NOTE: I do not plan to publish on Monday and Tuesday

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 18,591on March 24, 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) – it went higher.
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 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
       Warren Buffett says the market cap-to-GDP ratio “is probably the best single measure of where valuations stand at a given moment.”
James Emanuel, author and investor, highlighted it in his Aug.19 post to Seeking Alpha.com, using it as one of a number of hard-hitting indications of over valuation in the stock market.
Currently,  the Buffet indicator stands at 172% versus 109% at the bull market top in 2007 and  141% at the top of the dot-com bull market, and more than twice the long-term average of 82%.  (see full analysis below).
The FAANG stocks are driving the S&P 500 and Nasdaq. Not only are their businesses strong, but they sport huge  market capitalizations which causes them to have a dominating impact on the S&P 500 and Nasdaq Comp.  as a whole.
Since the December 2018 lows the ProShares ex-technology ETF (SPXT) appreciated 29% through Aug. 20, while the SPDR S&P 500 ETF  (SPY, )including the technology stocks appreciated 40%.
The invesco QQQ trust series I EFT (QQQ) soared 94%  in the period. In hindsight, this was the play.
Since the Dec. 2018 lows the FAANG stocks appreciated an average of 161%

Facebook ( FB:+120%), Amazon (AMZN +150%), Apple (AAPL: 238%), Netflix (NFLX: +116%), Google (GOOG: +64%).
The BIG “buy-low/ sell high” question is:
My calculation here starts at the low in December 2018, what would a sane person do with their shares when the Feb./Mar. flash crash hit ?
Would they have sold before the crash, or during it  as the market roared back and they felt they were lucky to get out with a 40% ,  60% gain at some point along the way ?
So, why are investors racing in to buy the FAANG stocks at this level ?  Will this question look silly a month from now – FAANG stocks much higher.

Bottom Line:
I believe we are in the eye of one of the most  dangerous storms of our time. Currently,  economic indicators are bouncing off severely depressed levels. The Leading Economic Indicators bounced  1.4% in July but remain well below highs.  While July’s industrial production  rose 3%  it remains below pre-COVID levels.
The key will be when we come out of the eye of the storm.  Will the bumps off depressed levels follow through with a full recovery or turn down ?  Wall Street seems to think so, but they were wrong last January.
And if the economic dominoes continue to tumble.  Will they be bad enough to trigger a plunge in stock prices as the market searches for a level that discounts the bad news and the uncertainty that lies ahead ?

The following  Seeking Alpha.com  post builds a  case for a major correction of 30% – 45%.
Must reading for serious investors.  Just copy and paste to your browser.

James Emanuel

Thursday August 20, 2020 (DJIA:27,692) “Bubble #2 to Burst Any Time Now”

The stock market hit some headwinds yesterday following the release of the July Federal Reserves’minutes, which cut  its forecast for the economy.  The report, which is always released a month late, referred to the  risk for the economy as “significant.”
Black Rock’s Bob Miller said, “This strongly suggests  both monetary and fiscal policy support will continue to be required for the recovery to remain on track.”
       This is an election year, you can be sure both are going to happen. Democratic House Speaker Nancy Pelosi indicated she would be willing to discuss a compromise on  another relief  package, which should happen within a week or two.
Meanwhile the Street is looking beyond the pandemic to a full recovery.
It was nice to see a stock other than a techy do well. TARGET (TGT) reported strong earnings for Q2, its stock jumped 12.65% in response. Lowe’s (LOW) stock jumped as well after good earnings, both beneficiaries of the pandemic.
However, if you pull 94 stocks out of the S&P 500 that are considered “Technology,” you get a different story about the robust market rally since the March flash crash lows.  While the tech stocks on average were up 20% for the year as a whole, the remaining 408 stocks in the S&P 500 were down on average.
The only outstandingly bullish development I see is the prospect for the Democrats to gain total control of the government, roll up its sleeves and  do the tough stuff that is needed to undue to damage done by this administration and  get America back on a winning track.
       Yes, there will be another stimulus bill and the Fed will do whatever it can to micro-manage the economy and stock market, but those are “props” to an economy that is currently in the “eye” of  a horrific storm.
The key will be what happens when we come out of the eye ?
         Will the economic dominoes continue to tumble ?  If so, the stock market will tumble. The entire disconnect between the market and the carnage in our economy and lives is based on an unjustified, naive assumption that all will be well by Q4 and beyond.
What spaceship is the Street flying on ?  We were on the brink of recession in Q4 of 2018, which the Fed was able to postpone until COVID-19 interceded.   What are we going back to ?
Why would the economy grow from this debacle when it is still unwinding ?
This isn’t high math, it’s common sense and the stock market has yet to begin to discount the adversity of what has happened and the uncertainty that confronts us.
          The adjustment to reality will be abrupt and most likely, a flash crash as institutions become aware (all at the same time) that there is no “V” recovery, it’s not even an “L,” it’s down, then sideways for the economy and stock market until the dominoes are no longer tumbling.
       OK, so no one wants to hear this ! Right ?  Why not just take a little off the table just in case I am right ?   In February and March, you saw what  can happen to the bluest of chips – DJIA down 38.4% in 21 days.
Wednesday August 19, 2020 (DJIA: 27,778) “Goldman Bullish At New Highs ??? Whoa !”

The S&P 500 closed at a new high yesterday closing at 3,389 fractionally above the February 18 high of 3,386.  Officially, that qualifies the rally that started on March 23 at 2,237 as a “Bull Market.”
Powered by big-name growth stocks, the Nasdaq Comp. hit new highs in mid-June, the Dow Jones Industrial Average is still 6.4% below the February 12 highs. (see below)
Consumer and wholesale prices are increasing faster than expected, does this put pressure on the Fed to raise rates ?
Not yet, and certainly not before the election. While no meeting is scheduled until September 15-16, you may see some speculation about inflation forcing the Fed to raise rates.
Axios’ Markets’ Dion Rabouin noted yesterday that since its unprecedented intervention in March, the  Fed has been the driver of financial markets – holding up stock and bond prices through its massive bond-buying programs.
(Sound familiar)
Rabouin goes on to point out, Treasury yields spiked 26 basis points between Aug. 4 and Aug. 13, hitting the highest since June 24.
I would be stunned if the Fed even hinted at a rise in rates, after all the three amigos (Fed, Administration and Wall Street) have been doing everything in their power to prop the market through November 3.
David Kostin,, Equity Strategist for Goldman Sachs  just lifted its S&P 500 year-end price target to 3600 from 3000. 

His forecast is based on a number of “assumptions” to include an expected  decline in the “equity risk premium” (difference between return on equities and risk-free assets), a stronger economic expansion next year (assuming a vaccine), and higher than expected S&P 500 earnings.
       With the S&P 500 selling at 2,870 in mid-May, Kostin was telling clients the downside risk is greater than the upside potential.  As I recall, he and a host of other Wall Streeters were bullish in January on 2020 even as COVID was raising its ugly head.  Since November 2019, I was forecasting a bull market top for January, though it didn’t happen  until February.
“Assumptions” are tricky, especially if stretched as would be a strong economy next year based on a vaccine and higher S&P 500 earnings when the dominoes are still tumbling in face of a whole lot of damage done to the economy and people’s lives by COVID and measures to cope with it.
Common sense, not assumptions, suggests don’t try to quantify the unquantifiable.
As in January, I disagree with Goldman’s Kostin’s overly optimistic assessment.  I don’t think anyone has good reason to make a forecast like his with so many variables hovering. The risk here is he would be sucking investors in at a market that is hitting all-time highs when the market is clearly overvalued to begin with and getting more so with every uptick.
I think we are in the “eye” of the economic storm and will start blasting out the other side when the current bounce from the severely depressed numbers in Q1 and Q2 are behind us  If I am right, we will get flash crash #2 (bear market ) in coming months.
Expect a stimulus plan announcement in coming days, also progress on trade talks
Can the three amigos hold it off until November 4 ?
Don’t know.  I do expect a host of hype and lies between now and then., announcements of COVID cures, treatments and vaccines, outlandish misinformation  about the economy.

Appreciation needed to hit new highs
DJIA:  6.4 %
S&P 500: Hit new high yesterday, closed 0.22% higher
Nasdaq Comp.: is 13.9% above February high
Russell 2000:  9.3%%
New York  Composite Index of 1,900 stocks: 9.9%
Dow Jones Transportation Index:  4.5%%
ValueLine Composite of 1,675 stocks, an “unweighted” index giving equal weight to each stock (-17.5%)
The Nasdaq is distorted by a handful of large market cap Tech stocks. While that is true to some extent for the S&P 500, which is the institutional benchmark index.  That said, it’s hitting an all-time high may attract enough volume to enable these behemoths to unload big positions.
Tuesday  August 18, 2020 (DJIA:27,844) “How Would The Street Respond to Democratic SWEEP ?
I found the first night of the Democrat convention inspiring. It was upbeat and positive. And yes, the Democrats showed a lot of  Red, White and Blue and rightly so, because what the Republicans have done to the rule of law, our Constitution, our credibility here and abroad, our global security, economy and fiscal health  is un-American, a disgrace to all who have sacrificed for the preservation of our cherished democratic “republic.”

So there, I said what must be said, not because it will increase my readership but because we are at a crossroads as a country, as a civilization, and those who come after us (I’m 83) deserve better than what we have been subjected to over the last 4 years – a malignantly narcissistic president and Congress that borders on being constitutional anarchists.

Enough !   Time for honest, competent Americans at all levels  in our government to clean up this mess and forge a future for all of us.


My optimism doesn’t count, the BIG money has  the clout.  “They” ran the market up before Trump was elected president, and kept running it up after.  It now stands at levels of overvaluation not seen  except for the dot-com bubble in 2000.

     I think so, down 30% + through election day. The perception on the Street will be higher taxes, the re-instatement of regulations to protect Americans from abusive practices, the tightening of the rule of law to define legal boundaries,  a new head of the Federal Reserve Board, and the sometimes painful process of attacking problems that have gotten a low priority under the present administration – environment, fiscal responsibility, inequality, education and healthcare.

      That is what will make us strong, secure the future, fortify our economy and justify LOFTY PRICE/EARNINGS RATIOS.
Monday  August 17, 2020 “No “Last Call” on This One, The Party Will Just End”
Bubble #2 continues to expand gradually but relentlessly.  Only computers could be this stupid. The signs of excess are obvious by  any standard of measurement.  Clearly, the price/earnings ratio  and Buffet ratio of the market value to GDP scream excess.
Until  computers in a  cruise control buy mode are  re-programmed, the bubble will expand.
The algos will be changed when  money managers will not be able to justify buying under these conditions: historic overvaluation, open-ended, unquantifiable recession, and an aging economy that was teetering on recession even before COVID hit.
     At extremes, it’s all about value, what you get for what you pay. It is at stock market bottoms and at stock market tops, though the extent of the extreme varies.
Covid-19 burst Bubble #1
, so what will burst Bubble #2 ?
My guess would be the realization that the recession will extend a lot longer than the Street is betting on, that dominoes will tumble one after another as the damage COVID-19 and the necessary measures needed to cope with it come home to roost.
Right now, we are in the eye of the storm, when we are seeing token economic rebounds off extremely depressed levels. Once past that, the numbers will not justify buying at historically grossly overvalued levels.
It will become obvious to most institutions at the same time, since most key on the same indicators. The result: Flash crash #2.
Talk of cures and vaccines for COVID will surface,  as will forecasts of a rebound from the recession.
When the Street is finished with the FAANG stocks, they’ll turn to value to inflate the bubble further, but to no avail.
There won’t be a “last call” for this one, the market will  just turn down in search of a level that discounts known and perceived negatives and uncertainties.
Friday August 14, 2020  “New Normal: Flash Crash”

The market is still in the eye of a very dangerous storm when economic reports are improved but mostly because they are compared with depressed numbers.
Yesterday’s market was more of a “failure  to follow through” than a rally failure, which I have been alerting you to as a sign a correction was due.
We are at a crossroad, where we could edge higher or slide into a correction that could extend into late October.
Reason, and history, suggests lower prices, but this market defies reason and ignores history.
The market is at all-time highs, stock valuations are through the roof, the economy sucks with dominos tumbling as I write. Who will run the country over the next four years is uncertain.
The only thing I am sure of is “hype” by the Fed, Administration and Street, which is designed to prop the market up beyond November 3.
That alone has driven stock prices up 44% from December 2018, when the Fed shifted gears and launched its campaign to reverse a 20% plunge in the market and head off a recession resulting in Bubble #1.
The race for the presidency is now real, we know who the contenders are, which means the ugliness begins, as character assassinations, misinformation and outright lies fly with abandon.
Risk for the stock market rises with each expansion of  Bubble #2  (March to present)  Generally, this market has stood up to adversity and uncertainty, aside from the 21-day, 35% plunge in stock prices in February/March.
I expect the market to come out of the eye of the economic storm in September/October unless of course the economy gains traction.
        Investors should take precautions, because the new normal in the stock market is the flash crash, a precipitous plunge in prices triggered by unexpected news, or simply on a given day buyers don’t show up.

Thursday August 13, 2020  “Panic Mode Sets In For Administration and Fed”
Tech Stocks, aka FAANGs
After selling hit the BIG-name tech stocks Tuesday, I headlined “FAANG stocks Must Hold Gains Today,”  otherwise continue selling off.
An indication of whether the selling would continue, I wrote, would be a close at the low for the day, a rally failure.
Generally, they held  nice gains, but all markets were up following the announcement of Joe Biden’s running mate, Kamala Harris, not perceived as  big  a threat if elected to Wall Street interests, as more liberal vice presidential candidates would have been.
So, we really don’t have a good read yet.
Why is this important ?  Because these are market leaders. As a group, these five stocks are up close to 35% ao far this year, when the other 495 S&P 500 stocks are only up 5%.
Tesla (TSLA”1,554) soared 13% on news of a 5-fo1 stock split effective Aug. 31.  Several days ago,  Apple (AAPL: 452) announced a 4-for-1 split also effective Aug. 31.  Since AAPL is a DJIA stock it will not have the impact on the DJIA at 113 as it did at 452, since  the DJIA is a price-weighted average. Since the Mid-March sell off, AAPL contributed  1,655 points to the DJIA’s 9,840 point gain (17%).
Leading Tech Stocks
Sold Here (Aug. 6)         Close (Aug.11)
FB (265)                                                          259
AMZN (3,225                                             3,162
AAPL (455)                                                     452
NFLX (509)                                                      475
GOOG (1,500)                                             1,556
TSLA (1,489)                                                1,554* (5-for-1 split announced)
Risk levels for these stocks in a major sell off:  FB: (218), AMZN: (2,495), AAPL: (371), NFLX: (417), GOOG: (1,340), TSLA: (1,117).
But, we aren’t there yet. There are support levels along the way.  Rallies will have to fail to follow through before we conclude   BIG money is unloading these leaders. As noted, yesterday did not give us a good read, though it stemmed the negative tide.
Fed Chief Powell:
      Friday, I was happy to note I  was vindicated for my 18-month rant about the Fed manipulating the market, thanks to an article by Axios Market’s Dion Rabouin who  interviewed of a number of credible sources who claimed the Fed has “taken control of the market,”  and controls and sets prices in financial markets, resulting in a free market enterprise that no longer exists.
Throughout 2018, I blamed the Fed for creating Bubble #1 which led to a very overvalued market setting up a 34.9%  plunge in the S&P 500 when COVID-19 burst the bubble,   We are now in Bubble #2 where  the S&P 500 is even more overvalued than it was in Bubble #1.
According to an August 12 article in Alternet.com, Powell is the first chair of the Fed in two generations who is not an economist; instead he is a lawyer, multimillionaire private equity banker and former partner with Carlyle Group.
Heading into the November 3 election, we can expect the Fed, Administration and Street to stop at nothing to re-elect Donald Trump. A strong stock market is important to Trump staying in office.
But propping the market up may not work.  We will soon pass through the “eye” of the economic storm when progress on an economic recovery will be tougher to achieve  when current data no longer is compared with severely depressed data and  dominos tumble as economic problems expand.
I expect a major correction to develop between  now and the election.
Wednesday  August 12, 2020 “FAANG Stocks Must Hold Today”
      Selling hit  the BIG-name Tech stocks  yesterday , but we need to look for “rally failures, before concluding these leaders are heading for a major correction.
Today will be a big test for these  leaders.  They will  spurt up at the open, however the key will be if they can hold their gains at the close.

Here’s what happens to a group that has run up relentlessly, earning the distinction  of “Buy/Don’t ever sell.”
All’s well until buyers are a no-show. Normal, every day selling starts a small trend down.  Sensing buyers  have backed off, investors begin to lock in profits, starting a chain reaction as others  do the same.
Along the way, investors jump in at lower prices running the stocks up, BUT the buying dries up and a selling sets inRESULT:  a rally failure, with the stocks closing at the lows for the day, confirmation that a correction has set in.
Personal note:  I’m bullish on America for the first time in four years – tough road ahead – good vs evil – but finally there is hope.

Yesterday got off to a good start with a surge in prices as a result of President Trump’s suggestion of a  reduction in the capital gains tax.  – This is just the beginning – it’s all about November 3….more to come….don’t get sucker punched…this is a dangerous, overvalued market. There will be lies and hype ad nauseum, much of it mean and untrue.
We saw a rally failure yesterday when the market soared at the open after President Trump suggested a reduction in the capital gains tax.
At 2:00 p.m. it began to slip, closing the day at a loss.
The Nasdaq Comp. fared much worse, selling off at the open, rallying to mid-day then selling off in the afternoon posting a 1.70% loss for the day.
The big-name tech stocks, including Apple  (AAPL), broke positive patterns and sold off suggesting they may be on the verge of a correction.
What to do: Investors should decide what their tolerance for major risk is and raise enough cash to accommodate it.
      The new normal is the “flash crash,” a sudden precipitous plunge in stocks that comes out of nowhere catching investors by surprise. Initial risk is a 12% -18% plunge in days.
       Cash is an investment at times.  For one, it is a buffer against major losses in one’s portfolio.  For another, it is a reserve that can be tapped to buy-in at lower levels.  I believe there will be opportunities to do just that in coming months.

George Brooks
Investor’s first read.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.

















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