Fed to Hike Rates Wednesday

Investor’s first read – Daily edge before the open
DJIA: 19,756
S&P 500: 2,259
Nasdaq Com.:5,444
Russell 2000:1,388
Monday, December 12, 2016 9:03 a.m.
Surging oil prices and plunging bond prices have captured the headlines today. A weekend deal between OPEC and non-members to cut production is extending a surge in oil prices which started in mid-November.
Long-term bonds plunged further A of Friday, the iShares 20-yr. U.S. Treasury bond has plunged 18.1% since July, so much for safe investments.
A year ago oil prices and stocks were in a classic late stage plunge. On December 8, last year, I headlined “Selling Climax Oil Stocks At lower levels, and in January, I posted “panic prices” where six stocks and ETFs could be bought when they hit bottom, four hit the panic price before rebounding never to return to those levels.
With few exceptions, the big one’s always come back after a thrashing. It is a question of exploiting extremes. That’s where charting helps.
Corporate earnings.
Factset now sees Q3 earnings for the S&P 500 up 3.0%. On Sept. 30, its projection was for a decline of 2.2%. Q4 is projected at a gain of 5.2%, the year projected to come in at plus 0.1%. Earnings for 2017 are expected to increase 11.4%. Currently, the P/E based on 12 months out is 17.1x, which compares with a 10-year average P/E of 14.3x.
The Fed will meet next week to announce a decision to bump, or not bump, interest rates higher. Currently, the Street could care less.
Expect a bump in rates Wednesday. The market may drop briefly, but expectations of tax cuts, the lifting of regs. and big spend by Congress should bring buyers back in a day or two.
It looks like the consumer, service and factory sectors all are gaining traction. Surging oil prices will boost inflationary pressures. The charts on “mam.econoday.com” tell the story graphically.
Expectations are driving stock prices upward. That is a driver that is hard to reverse until the market becomes overpriced, or it becomes obvious Trump and Congress cannot deliver on all the post-election promises. Actually the market will top out ahead of the public becoming aware of the fact, some people are able to anticipate developments like this and sell.
All this talk is well ahead of January 20. Congress may not be as cooperative as Trump hopes.
SUPPORT “today”: DJIA:19,659; S&P 500:2,247; Nasdaq Comp.:5,423
RESISTANCE “today”:DJIA:19,801;S&P 500:2,266;Nasdaq Comp.:5,456
The six months between November 1 and May 1, tend to outperform the six months between May 1 and November 1, labelled the “Best Six Months” by the Stock Trader’s Almanac which began tracking the pattern in 1986.
What could be better than promises of lower corporate taxes, less oversight, and BIG government spend on top of a sneaky strong economy ?
That’s what it looks like at this point in time. One thing about the stock market, it loves pie in the sky.
How so ?
Because it defies quantification, or at least until the truth is known. You see, this is more about human nature (greed, fear) and less about reality.
Really, a stock’s price is merely a matter of opinion, which is based on confidence or lack thereof.
This could be the grandest of all bull markets. It has a good start, up 231% in 7-1/2 years. It probably has a lot further to go, so long as the Street salivates over the prospects of a corporate windfall in coming years, and nothing gets in the way to prevent it.
When the end comes, no one will believe the few who warn of it, in fact, they will despise such seers for raining on their parade, despise them even more when the market crashes.
Like I said, it is all about human nature.
iShares 20-Year Treasury ETF down 14% in 4 months
Long-term bonds have gotten hammered in the last three months. The iShares 20-yr U.S. treasury bond ETF has lost 18.1% since July. That’s nearly 8 times the yield an investor expected over 12 months. Obviously, bonds can be risky. Let’s not forget the name of the game is to buy low and sell high, which applies to long bonds as well as stocks.
A survey of economists reported by Bloomberg yesterday calls for U.S. inflation to surpass the Fed’s target in every quarter of 2017, which if even half true should depress long-term bonds even more.
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 November 27, 2016, a reasonable risk is 18,556 a more extreme risk is 18,837 Near-term upside potential is 19,556
 OPPORTUNITY: RISK: Selective opportunity ! Risk is reality at some point
 CASH RESERVE: 25% – 35%.
 KEY FACTORS: Speculative fever driven by expectations of tax cuts, lifting of regs., and lots of money dumped on economy.
Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
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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