Kodak: Can It Pass The Smell Test ?

INVESTOR’S first read.com – Daily edge before the open
DJIA: 20,539
S&P 500: 3,258
Nasdaq Comp.:10,542
Russell: 1,500
Thursday July 30, 2020    8:33 a.m.
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brooksie01@aol.com
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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%.
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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.
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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
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Brief bio: In investment business 58 years, writing about stock market  for 52 years, including  investment publishers, brokers, research firms, investment bankers, plus my own investment advisories,  mostly as independent contractor to maintain independence of analysis.  “In the trenches” for every bear/bull market  since 1962. Started before  quote machines  as a tape reader/trader, posting charts by hand. Primarily  a technical analyst, but research includes fundamental, monetary, economic, psychological factors. Research recommendations/profiles of hundreds small companies.
Love rough and tumble… telling the story. CNBC-TV, Been writing investors first read.com daily before the open for 11 years. ………………………………………………………………..
      Did you ever wonder what would happen to the market if the Fed did not continually nudge it when it weakens ?
Ever wonder how we can survive a crisis after this one
after the Fed and U.S. government have blown it all on this one.
Perhaps it should be given some thought, because on November 4, it will be a new ball game.  Our economy must be in horrendous shape.  Clearly the Fed thinks so, and most of Congress…………and I, as well.
The Street is betting the effort by the Fed and Congress  will be successful, that the damage done by  the pandemic will pass and the economic expansion will be on the mend.
That would be a good bet if the S&P 500 were 30% lower. At current levels it does not discount any adversity.
If the Street is wrong, we are faced with a horrendous bear market as the market probes for a level that discounts future prospects.
So many new investors at these overvalued levels will get pummeled. It would take years to get back even.  At great risk are investors who will need to tap their portfolio for big ticket items like a house, education, medical expenses, or for older people who will need to access it for retirement.
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Eastman Kodak (KODK)
       Eastman Kodak’s stock soared to $60 from $1.50 two days as a result of the Trump administration’s $765 million loan to produce active pharmaceutical ingredients (API), most of which are currently produced abroad by China and India.
The loan, the first of its kind and sourced from Defense Production Act, is suspicious, since it could have been given to any number of drug companies that are already in the business.  The concept of producing these ingredients  here makes sense, since only 21% of the “essential ingredients”  for drugs are produced here.
More suspicious to me is the jump to $!0 from $1.50 at the open Tuesday followed by a surge to $60 in early trading Wednesday. Who knew about the contract in advance ?  Later in the day, Kodak’s stock settled back and closed at $33.20 yesterday.  Imagine paying $1.50 two days ago – imagine being the fool who paid $60 yesterday.
Looks like $21 is possible as traders scurry to log in gains. Sellers should come in the high 30’s.
This one STINKS !
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       Last Friday I  projected levels where the following tech leaders would find support. After sharp declines, they rebounded from my projected lows.

Projected Lows (Friday, July 24 and Wednesday’s close)

Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 230
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,000
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 373
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 488
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,500
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366    Close: 1,499
NOTE:
Netflix (NFLX: 488) looks lower now – 461 possible
Tesla (TSLA:1,499) can slip to 1,473
    These stocks must regain leadership in order to juice the rest of the stock market.  Weakness stands to trigger a sell-off in all stocks.
That leadership would be confirmed by moves across: Facebook
(241),
Amazon (3,190), Apple ( 387), Netflix (526), Google (1,570) , Tesla (1,606), which at this  point would be a stretch.
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Downside risk is: Facebook (FB-217), Amazon (AMZN – 2,757), Apple (AAPL – 348), Netflix (NFLX – 461), Google (GOOG – 1,440), Tesla  (TSLA – 1,310).
The direction of these tech dynamos is key to the direction of the market as a whole. Together they account for 20% of the price action of the S&P 500.
Bottom Line:
Tempted to go all in, the Robinhood investors are already there, piling into KODK as it runs into the stratosphere.  I wish them well, but chasing a stock that risen twofold, fourfold, fortyfold in two days and has little to go for it but government funding, is going to burn you more often than not.  Such speculation is classic late-bull market euphoria.  While it is nice to see some old-time speculative interest versus this “watching paint dry” institutional  meandering, risks rise with prices, especially stocks that have little basis for investment.  OK, if you can buy KODK and sell it to someone else at a higher price, fine. However, eventually, someone will be left holding the bag as the stock vanishes.

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RECENT POSTS:
Wednesday  July 29, 2020 “FAANG Stocks Need to Rebound….Or It Is Trouble”

.     It is hard  to explain the huge disconnect between the buoyant stock market and the economy  which is in recession and the ravages of COVID-19 which has infected 4.3 million and terrified everyone else.
Obviously, the Street is looking beyond the problem to a time when the economy rises out of recession and current stock prices are justified.
I don’t see it that way.  For one, COVID is crushing economies in our country and around the world.  Its impact stands to be long-lasting, even within  new treatments and  vaccines.
Then too, the S&P 500 was extremely overvalued before COVID and more so now with corporate earnings plummeting.  Additionally, we are faced with uncertainty about the result of the election in November and its impact on the economy, companies and lives.
Wall Street is betting that all is well – Don’t you !
The FAANG stocks listed below are looked upon as market leaders and for good reason, they have been hot when everything else is lukewarm.
Two weeks ago, they topped out with a dramatic one-day reversal closing at the lows for the day and trending down ever since. My blog next day (July 14), headlined, “Wall Street’s Darlings De-Fanged.”
Last Friday I  projected levels where the following tech leaders would find support. After sharp declines, they rebounded from my projected lows.

Projected Lows (Friday, July 24)

Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 230
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,000
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 373
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 488
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,500
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366    Close: 1,476
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Facebook (FB), Amazon (AMZN), Apple (AAPL) and Google (GOOG) will report earnings Thursday.  Netflix (NFLX) and Tesla (TSLA) have already reported.
It is anyone’s guess how the Street will react to these reports.  If a company doesn’t “beat” by enough, its stock can tumble. Generally, the Street projects a bit on the low-end.
The rebound of these  stocks must be watched  closely and especially the reaction of those companies reporting this week.
These leaders must exceed the following prices in order to re-establish their leadership.  Falling short, suggests weakness which could spill over to the market as a whole.
Resistance That Must Be Overcome:
Facebook (241)
Amazon (3,190)
Apple ( 387)
Netflix (526)
Google (1,570)
Tesla (1,606).
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Downside risk from  here:
Facebook
(FB)   Tuesday close ( 230)    Risk (217)
Amazon (AMZN) Tuesday close: 3000   Risk (2757)
Apple (AAPL) Tuesday ☹373)   Risk (348)
Netflix (NFLX) Tuesday Close (488)    Risk (461)
Google (GOOG) Tuesday Close (1,500)   Risk (1,440)
Tesla  (TSLA)   Tuesday Close:  1,476   Risk (1,310)
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Bottom Line:
At some point, the stock market must adjust for adversity and uncertainty.
Technically, it is as if the market has crawled far out on a limb which will snap at some point, leading to another flash crash.
The swing factor will be the realization that a “V” recovery is not in the cards, that it will be more like an “L.,” which I have been saying for many months.
Fed Chief Powell has centerstage at 2:30 today, with no surprises. The orchestrater of Bubble #1 (December 2018 – February 2020), Powell has appeared to me to be an enabler of Republicans holding on to Senate control, even re-electing President Trump, so anything can happen.
I just think buyers will be a “no show” some day, as money managers realize how deeply our economy has been impacted and how far into  the future the problems will persist.  That would result in another flash crash (new normal).
Currently, I see a flash crash impacting the market averages as follows.
DJIA 21,500,   S&P 500: 2,534,  Nasdaq Comp. 8,028.  With major plunges, the extent is determined by what new negatives impact  the downside momentum as stocks are tumbling, and especially at those junctures where the market is attempting to find support and rebound.


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Tuesday  July 29, 2020  “I Was Wrong ! The Market’s Plunge Did Not Start July 27,  But It Is Coming – Flash Crash #2
Monday July 27, the day I said  the market would begin its plunge into the fall came and went with a rise in the market averages, not a plunge.
I am undeterred in my belief it will come.
      If I can take credit for anything, it was my pinpoint  of Friday’s correction lows on of the following.  After sharp declines in early trading, these tech leaders rebounded nicely from those lows  Friday and rose again yesterday.
Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 233  today
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,055 today
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 379 today
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 495 today
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,530 today
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366    Close: 1,539 today

These have been the market leaders for  months, driving the Nasdaq Comp. to new all-time highs when the DJIA and S&P 500 did not.
But they  turned down after  dramatic one-day reversals two weeks ago.
This week we will get a big test of their leadership as  Q2 earnings get posted.
Facebook (FB) reports earnings on Wednesday; Amazon (AMZN), Apple (AAPL) and Google (GOOG) report Thursday.  Netflix (NFLX) and Tesla (TSLA) have already reported.
The rebound of these  stocks must be watched  closely and especially the reaction of the companies reporting this week.
These leaders must exceed the following prices in order to re-establish their leadership.  Falling short, suggests weakness which could spill over to the market as a whole.
Resistance That Must Be overcome:
Facebook (241), Amazon (3,190), Apple ( 387), Netflix (526), Google (1,570) Tesla (1,606).
Bottom Line:
It is just a matter of time  until a few BIG hitters walk away, worse yet sell in-size,  and it is LIGHTS OUT.  Everyone will scramble to find a buyer for their stock – Flash Crash #2  !
Here is what is hard to understand. Knowing the historic overvaluation of most stocks, the unpredictably of COVID-19, the political unrest in our country, and potential for a severe recession/depression, how money managers can justify buying at these levels without incurring legal blowback if the market crashes.
Rally failures would be a sign that the BIG money is selling.
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Recent headlines:
“Bear Market Rally Top Looms”  (July 9 )
Bubble Burst Looms !  COVID-19 Repeat”   (July 10)
One More Spike Before Fall Plunge”   (July 13)
“Wall Street’s Darlings De-Fanged”  (July14)
Vaccine – a Gamer Changer ?”   (July 15)
“Market Turns Down July 27”  (July 16)
One More Push Before a Crunch ?”   (July 20)
“Rally to Set Up Correction”   (July 21)
“At Some Point: Market to Open – No Buyers in Sight”   (July 22)
“Last Push Before Bubble Bursts (July 27 ??)  (July 23)
“FAANG Stocks Floundering”   (July 24)
“Risk Surging in Overvalued Market”  (July 27)
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Monday, July 27, 2020 (DJIA: 26,469) “Risk Surging in Overvalued Market”
     For months I have warned that a  correction into the fall would develop, and two weeks ago I said it would start on July 27 – today.
If I am wrong about the 27th,
 I erred by going with my “gut” about a specific day, NOT that a plunge into the fall won’t happen.  It will.
Friday, I called for a spike down in the FAANG stocks, picking the price level where I expected them to rebound from, which they did.
Facebook (FB): 223  – Low: 226    Close: 230
Amazon (AMZN): 2,887 – Low:2,888     Close: 3,008
Apple (AAPL):363 – Low: 356     Close: 370
Netflix (NFLX):466  – Low: 467      Close: 480
Google (GOOG):1,486  – Low: 1,488   Close: 1,511
Tesla (TSLA):1,407  –  Low 1,366    Close: 1,417
As noted Friday, the rebound of these stocks must be watched closely. Failure to bounce sharply would be a huge warning signal for the group and market as a whole.
Danger of Disconnect:
The Street’s disconnect with what has happened, is happening and an unpredictable future, has created a highly dangerous situation, unlike anything I have seen in 58 years in this business, 52 years as a writer.
Knowing the historic overvaluation of most stocks, the unpredictably of COVID-19, the political unrest in our country, and potential for a severe recession/depression, I question how money managers can justify buying at these levels without incurring legal blowback if the market crashes.
If just a few BIG hitters walk away, worse yet sell in-size, it is LIGHTS OUT.  Everyone will scramble to find a buyer for their stock – Flash Crash #2
Look, I am not a card-carrying bear, but we are tiptoeing through a minefield here with the market close to all-time highs.   There is no guarantee that we will get an “all’s well,” when COVID is under control.  Dominos will tumble for a long time.
       I think the Street’s algos have it wrong.   Unfortunately, this is what an 11-year old Fed-nurtured economic expansion and bull market will do for objective analysis.
Stuff happens.  Between 1968 and 1981 we had four recessions and six bear markets which included domestic, international  and political upheavals – comparable in many ways to today. . The Price/earnings ratio for the bluest of chips hit single digits !
What Can “Temporarily” Delay a Sell Off :
> Effective treatment and vaccine for COVID  -19 though many months away.
> Earnings that are reported as better than expected because the projections were low-balled in the first place.
> Expect hype by the Fed, Administration and Street, on the economy and especially on  a vaccine in effort to prop the market before November 3.
> Fed or Congressional stimulus. While helping individuals and institutions, the  dire need  for yet another program highlights the deepness of our problems.
Robinhood:
      Much is reported about how well the so-called Robinhood investors are doing. While dissed as newbies, novices, inexperienced, “oddlotters”, they are making money by “buying low, and selling high,” not in penny stocks, but tech stocks, airlines, stay-at-homes, breaking news stocks, etc..
Yesterday, Bloomberg quoted Bespoke Investment Group as noting how the newbie traders were buying the dip, not even afraid to jump on companies with serious financial problems.
One warning here for these gutsy traders who you can’t help but like. There will be a dip in the market that looks like a “gift”.   Instead, it will be the kiss of death for one’s trading portfolio …… if highly leveraged – worse.
That will be the dip before a flash crash that does not snap back quickly, a bear market, or depending on how one sees this one, the test of the March lows.
So far, it has paid off for these shooters to stretch a single into a double, but the risk of test of the March 23 lows looms.
What to do:  If it works, don’t change it, but don’t get greedy and….sit close to the exit.  Cash is an investment when risks are high. For one, it protects portfolio values in the event of a flash crash (new normal), two, it can be tapped if the market craters and gives investors a “dip”…. of 30% – 45%.
Bottom Line:
At these levels, price earnings that rank with the highest ever, the market does not discount current and future adversity, not even close.  These conditions breed another flash crash, if not today, in the near future.
Rallies must be watched for indications that they lack conviction.
Rally failures are deadly, as they reflect buyers are using strength to sell.
There will be a lot of hype and misinformation as the election approaches and it can trigger rallies – beware.
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Friday  July 24, 2020 (DJIA: 26,652) “FAANG Stocks Floundering”
       On July 14, I headlined, “Wall Street’s Darlings De-Fanged” after the prior day’s   outsized one-day reversal with the close at the day’s low for  of all but one.   It signaled exhaustion for the FAANG stocks: Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), Microsoft (MSFT), Tesla (TSLA) which was confirmed yesterday when they plunged.
Look for a spike down in each followed by a rally which must be read closely. Buying must be aggressive, or it signals serious weakness. The Street has been quick to jump on any pullback to buy these stocks. Failure now indicates the group is in line for a major consolidation/correction.
Near-term support must hold:
Facebook (FB): 223
Amazon (AMZN): 2,887
Apple (AAPL):363
Netflix (NFLX):466
Google (GOOG):1,486
Microsoft (MSFT):
Tesla (TSLA):1,407
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Don’t believe our economy is in  dire straits ?
Walk around the block,
look to the right, look to the left.  Efficiency of getting anything done has ground to a halt. Communication sucks. The tempo of business muted.  Parents and consumers are afraid to go out. Stimulus money will be hoarded if not spent, who knows what to expect next ?  Dominos will be tumbling for a long time as the key interaction between businesses and consumers is disrupted.
Will the announcement of a treatment/vaccine help ?   Of course, but serious damage has been done to the economy and confidence  in institutions, employers and the government.
So why are stock prices more overvalued now than before COVID-19 struck ?
For one, the Street is looking beyond this crisis and economic woes to a recovery. For another, so many investment decisions are based on algorithms. It appears they aren’t programmed for an extended and severe recession/depression.
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Bottom Line:
    Two weeks ago, I picked July 27 as the day that the big correction into the fall would begin. Admittedly, news could delay that. A stimulus package would be a life-saver for some, but would be an admission that  the economy is in very serious shape.
But this bubble is due to burst.
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Thursday July 23, 2020 (DJIA: 27,005) “Last Push Before Flash Crash (July 27 ??)    The New York Weekly Economic Index (WEI) has stalled after a rebounding from depressed May/June levels, according to Axios Markets. The index covers daily and weekly consumer, labor and production  data and confirms bearish readings  compiled by Goldman Sachs, Jefferies and Oxford Economics..

Add to that, lower readings by the St. Louis Fed’s coincident employment and TSA checkpoint data and anyone paying attention has to be concerned that stock market valuations far greater than those in February before a 35% flash crash.

This doesn’t have to be complicated. This is Bubble #2, the first being a Fed-nurtured bubble between December 2018 and February 2020.

Bubbles expand until something pricks them or they burst on their own.
The S&P 500 was extremely overvalued in February before the COVID flash crash.
With corporate earnings down sharply and no assurance of a significant rebound in the future, the S&P 500 is so much more overvalued today.

Bottom Line:
       Flash crash #2 when the bubble bursts.  Expect Q2 earnings to be a better read than expected, but that is because they will be low-balled on the Street to create that effect.
The Fed, Administration and Street don’t want the party to end and will do all they can to prevent a sell off before November 3.
At some point, the market will open and there will be no buyers.
Why ? Because money managers will have difficulty justifying paying up for stocks, especially since they are well aware the future is bleak and uncertain. There is liability here.
Chief investment officer at UBS Ag, Mark Haefele, was quoted today by Bloomberg News saying, “As large asset allocators, when we look across, there are very few alternatives to equities right now.”

But at these levels, Cash is an alternative.

No,  cash doesn’t earn a return, but it protects portfolio values against losses and provides a reservoir to tap when the market is more reasonably priced.

      Risk of another flash crash is great enough to justify a cash reserve of 35% – 50%. or  more, depending on one’s tolerance for risk.
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Wednesday July 21, 2020 “At Some Point: Market to Open – No Buyers In Sight”
    For most of the Street’s tech Sweethearts, also referred to as the FAANG stocks, July 13’s one-day reversal signaled a near-term top. The following day, I headlined “Wall Street’s Darlings De-Fanged.”
    Why on earth would I take on the tech stocks, the “buy ‘em and don’t look back” stocks ?  No one else is.
That huge July 13 spike up with a close at the low for the day was a warning signal for Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), Microsoft (MSFT), Tesla (TSLA). So far, that spike was the “top” for all but  Google (GOOG), which had its one-day reversal yesterday.
The tech cult runs deep, everyone loves a sure thing….until reality sets in.
As if I wasn’t looking for trouble on that score, I have been calling for a major correction starting July 27, fully aware a lot of things can happen on  that day and the days to follow.
     Well, if I am  crazy enough to do this every day before the open for 11 years  (very few do),  I must step up to the plate and take my cuts  even if risking a “whiff.”
 If the market were down 30% or more, I could be more optimistic  knowing the market was discounting  a host of adversity and uncertainty from a historically overvalued level.
On July 13, I called for, “One More Spike Before a Fall Plunge.” Since then, the market has risen until yesterday.
At some point (July 27), the market will open with no buyers in sight and whoosh, down it goes, a decline that depending on what new negatives hit it when it tries to rally, could pass 35% as memories of the February/March flash crash surface.
This time, the rebound would take a lot longer.
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Tuesday July 21, 2020 (DJIA: 26,680) “Rally to Precede Correction”
Axios Markets’ Dion Rabouin claims Wall Street analysts are discussing the increasing possibility of a “blue wave” Democratic sweep of Congress and the presidency, that  Goldman Sachs, Societe General, State Street , TD Securities and UBS are preparing lists of Biden buys.
      I am not sure about that – a blue wave is not a certainty, says Ryan Detrick, senior strategist for LPL Financial.
Detrick notes that since 1928, the stock market has accurately predicted the winner of the presidential election 87% of the time when the S&P 500 was higher three months before the election, with the incumbent  party usually winning, when lower the  incumbents lost.
I am well aware investors tend to  vote their wallet. I also think the Fed, Administration (obviously) and Street are doing their best to prop the market up until November 3.
Bottom Line
If I am right about a major correction going into the November 3 election, the odds of winning favor the Democrats.
We are now getting the surge I referred to yesterday and on July 13 (“One More Spike Before Fall Plunge”). I expect it to carry through Friday with a decline starting Monday, July 27.
A lot  of good and bad can happen in this short interim to change that forecast.  I expect the $600/month to be extended over the weekend. That’s good for individuals but bad in that it would be an admission that the economy is in the very “deep stuff.”
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Monday July 20, 2020 (DJIA: 26,671) “One More Push Before a Crunch”
Last Thursday, I reminded readers that on July 6, I warned of a market sell off this month, but after one more spike up before the plunge.
I picked July 27 as the day for the beginning of the plunge which could add up to a decline of 30% – 45%, as memories of the February/March flash crash re-surface.
My reasoning is simple.  In February, the S&P 500 was historically more overvalued that at any time in the past except for the 2000 dot-com bubble.
We have so many more problems today than we had in February, why should the S&P 500 sell within 5% of February’s level ?
Aided by a half dozen monster tech stocks, the Nasdaq Comp. is in a world of its own, most of them beneficiaries of the COVID-19 shutdown.
At some point, I expect the stock market to begin discounting the damage done by COVID and measures undertaken to counter it.
I think that has to happen soon, that’s why I picked July 27, right in the middle of Q2 earnings season.
We live in an unreal world, anything can happen, investors should prepare for the worst and be glad if  less than that happens.
I expect one more push up before the big crunch. Two things are certain – uncertainty and the bizarre.
Bottom Line:
The market will attempt to nice jump up  today, as I have expected before the beginning of a sell off. Q 2 earnings will be ugly, but the Street has likely low-balled projections enough it can report “better-than-expected” results.  What a con-job !   What an unreal world.
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George Brooks
Investor’s first read.com
brooksie01@aol.com
A Game-On Analysis, LLC publication
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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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