Final Phase of Obama’s Bull Market

Investor’s first read – Daily edge before the open
DJIA: 19,812
S&P 500: 2,280
Nasdaq Comp.:5,600
Russell 2000:1,369
Wednesday, January 25, 2017 9:03 a.m.
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TECHNICAL
The S&P 500 and Nasdaq Comp. moved up to new highs, starting a new upleg in the market. The DJIA and Russell 2000 lag behind but have positive patterns.
The market is tracking the blow-off I referred to yesterday that can push to much higher levels.
As long as the Street expects a big tax cut, deregulation and a big increase in spending the market has legs, barring a major new negative, or sudden evidence that Congress will push back on Trump’s planned stimulus.
The last two quarters of 2016 featured a rebound in corporate profits after a year of flat-to-down earnings.(see below: ”Corporate earnings”). A return to profitability stands to continue this year, though a continued strong U.S. dollar may slow its rise.
Currently, the S&P 500 is over-priced at 16.9 times projected 12 months earnings vs. a 5-year average of 15.1. The Street isn’t concerned, so long as it gets the goodies noted above.
As noted in the past, late-stage bull markets tend to enter a highly speculative phase where price/earnings ratios are meaningless, where investors believe the party will last forever and are driven to load up on stocks, even leverage positions in riskier and riskier stocks.
Making money becomes easier. Tips make the rounds at a faster clip, and people who rarely buy individual stocks begin to buy aggressively, as they hit the “I can’t stand it anymore” point and make the plunge.
Often, the less you know about the fundamentals of investing, the more money you can make.
This continues until something triggers a reversal, or the BIG money pulls the plug. Investors see the first correction as a “gift,” and load up even more. At that point, the hook is set, leading to their demise.
No sweat ! We aren’t there yet. With the promise of massive tax cuts, deregulation and a big spend, the Street is only beginning to ramp up their speculative juices.
What I said here about tops will be forgotten by 4 p.m. today, but I will remind readers along the way when it is the last thing they want to hear. They will hate me for raining on their parade, and hate me more if I am right – the perils of what I do.
Let’s not get ahead of the curve. Yes, unexpected bad news can stop the market in its tracks, but that can happen at any time. At times, it did happen during this bull market’s 242% rise, but the bull shook it off and continued to rise. This is the final phase. It can last 3 months 9 months, a year – don’t know at this time. I have written about it often, but it always seemed out of reach.

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ISSUES TO CONSIDER
– the prospect of big corporate tax cuts, deregulation, a big spend on the military and the infrastructure and the restructuring of long-standing trade agreements.
-the uncertainties of the repeal of Obamacare this computer sucks wind so
-talk of privatization of Medicare and Social Security
-possible undermining of NATO and the European Union
-a trade war of sorts.
-lifting of sanctions on Russia for its incursion in the Crimea and actions in Syria, adding to questions already breached.
-continued internal polarization of America and the possible extension of such to other countries.
-intense economic stimulation by the Trump/Republican Congress stands to trigger a rebound of inflationary pressures forcing the Fed to bump interest rates sooner than expected.
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RESISTANCE “today”:DJIA:20,078;S&P 500:2,298; Nasdaq Comp.:5,643
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POLITICAL/STOCK MARKET
Cutting corporate taxes to 15% stands to reduce Federal government revenues by upwards of $800 billion. So, what if the “big” spend runs upwards of another $800 billion, where are the cuts going to come from to avert a significant increase in the national debt ?
Most likely from social programs that the lower income people have come to rely on. Aren’t they the ones who voted for Trump ?
Does withdrawal from TPP open the door for China to fill the void we abandon ? China thinks so.
If we sever ties with the United Nations, what doors are we opening for our adversaries ?
What about creating 25 million jobs in the U.S. ? Sounds great when campaigning for office, but where will these jobs come from ?
Automation is sinking its deadly talons into the existing job force, which is great for business bottom lines, but eliminating jobs. Robots are manufacturing robots, computers can now fillet a fish. Oil rigs are increasingly being automated. Nabors Inds., the world’s largest offshore driller, tells Bloomberg it will cut workers at each well to five from 20 via automation.
THIS is the real jobs crisis. Companies benefit, yet much of their spare cash goes into repurchase of stock, not training employees. This is the crisis Trump should be addressing.
It is disturbing that President Trump cannot accept that he lost the popular vote by 2.9million votes. He insists three-to five million illegals gave Clinton that margin. He offers no proof, but if he claims that often enough, the public will believe it. That’s one reason why he repeats it over and over again. The other is so he can believe it himself. Even top Republicans are appalled. SCARY !
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Corporate earnings (update)
Factset now sees Q4 earnings for the S&P 500 up 3.4% vs. a Dec.31 est. of 3.0%.. Earnings for 2017 are expected to increase 11.4%. Currently, the P/E based on earnings 12 months out is 16.9 x, which compares with a 10-year average P/E of 14.4 and a 5-year P/E of 15.1.
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MY TECHNICAL ANALYSIS of the 30 DJIA Companies: (UPDATE)
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 January 6, 2017, a reasonable risk is 19,926 a more extreme risk is 19,879 Near-term upside potential is 20,288.
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 STATUS OF MARKET: bullish
 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.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Brooks007read@aol.com
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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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