Market Needs a Rest, But Fever is Rampant

Investor’s first read – Daily edge before the open
DJIA: 20412
S&P 500:2,328
Nasdaq Comp.: 5,763
Russell 2000:1,392
Tuesday, February 14, 2017 9:12 a.m.
Fed Chief Janet Yellen speaks this morning at 10:00.
I don’t expect a rate bump, but Yellen may hint at one if the economy heats up in face of Trump’s planned stimulus.
In terms of impact on stock prices, the Fed has taken a back seat in recent months in spite of its rate increase in December, the second in a year. Reportedly, the Fed will bump rates three more times in 2017.
That will depend on the economy and how fast Trump’s goals on tax cuts and increased spending take shape.
The market is on a roll, the Street senses a killing, and the potential for one of those runaway markets that reach outrageous levels of overvaluation.
Looking ahead to what can go wrong, that shouldn’t happen, but this is the stock market where human emotions go to extremes on the upside, as well as on the downside.
The stock market is historically overpriced, but can get more so. Serious investors will play hard, but keep a cash reserve in the event of unexpected bad news, as well as to take advantage of opportunities by buying one stock and selling another with less potential.
Four Fed officials speak today starting at 8:50 a.m. with Jeffrey Lacker, followed by Fed Chief Janet Yellen at 10:00, then Dennis Lockhart at 12:50 p.m., then Robert Kaplan at 1:00 p.m..
Wednesday is big for reports on the economy (Consumer Price Ix., Retail Sales, Empire State Mfg., Industrial Production, Atlanta Fed Business, Business Inventories, and the Housing Market Ix.). Thursday we get Housing Starts, Jobless Claims, and the Philly Fed Business, Friday it’s E-Commerce Retail and Leading Indicators.
SUPPORT “today”: DJIA:; S&P 500:; Nasdaq Comp.:
RESISTANCE “today”:DJIA:;S&P 500:;Nasdaq Comp.:
– 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 possibility they will take longer than expected, worst case be disappointing.
-the uncertainties of the repeal of Obamacare
-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.
-an increasing erosion of investor confidence in President Trump.
-the real possibility of Trump putting the country on a war footing to ensure patriotic support for the mid-term elections, or a pre-emptive attack on North Korea or Iran.
The Trump administration detests checks and balances, and that is precisely why they are in place. Odds favor one or more constitutional crises this year as Trump’s marauders endeavor to impose their far right agenda.
Obviously, the Republican Party has been radicalized. No more reasonable debate leading to a compromise.
This is (so far) a bloodless coup, a rape and pillage of anything that smacks of social services, equal opportunity and compensation for people of color and of other than the male gender.
Conservatives no longer exist. I miss them, at least they were consistent and reasonable within reason. This mob is extreme, and in my opinion un-American based on what our Founding Fathers gave us, all the progress made improving on that since and the hundreds of thousands of lives that were given to preserve all that.
At some point, this disruption will adversely impact the stock market with the potential for a 35% – 45% bear market.
NOTE: Talk of privatizing a portion of Social Security for people under 55 years of age is making the rounds. The program has worked very well with funds invested in special issue bonds yielding 1.375% to 5%. Why screw with it. Human nature dictates investors tend to buy stocks at highs and sell at lows. What’s more, this idea is being floated with the stock market at all-time highs. What’s even more, Congress will be tempted in future years to increase the portion of Social Security funds allocated to stocks to satisfy projections into the future and justify its tapping the Social Security funds for other expenditures. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Corporate earnings (updated Feb. 11, 2014)
Factset now sees Q4 earnings for the S&P 500 up close to 5.0% vs. a Dec. 31 projection of plus 3.0%.
Earnings for all of 2016 is now projected to be plus 0.5%.
Q1 earnings are projected to increase 9.9% on revenue growth of 7.5%. Q2 is projected at ao plus 9.1% and 2017 as a whole are projected at a plus10.3% down from earlier estimates of 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 17.3% well above the 10-year average of 14.4%..
MY TECHNICAL ANALYSIS of the 30 DJIA Companies: (UPDATED 2/13/17)
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 27, 2017, a reasonable risk is 20,361 a more extreme risk is 20,286 Near-term upside potential is 20,967 .
 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:
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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