New Normal: Flash Crash

INVESTOR’S first read.com – Daily edge before the open
DJIA: 27,896
S&P 500: 3,373
Nasdaq Comp.:11,042
Russell: 1,579
Friday August  14, 2020   
8:50
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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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      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.
BOTTOM LINE:
I expect the market to come out of the eye of the economic storm in September/October unless of course the economy gains traction.
      BASED ON MY MANY YEARS IN THIS BUSINESS, I THINK THIS IS A PHONY MARKET, PHONY ECONOMY AND PHONY ADMINISTRATION AND WE WILL PAY A PRICE FOR THAT AT SOME POINT.
        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.

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RECENT POSTS:
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)
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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.
BOTTOM LINE:
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.
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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.
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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.
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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.
BOTTOM LINE:
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.
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Tuesday  August 11, 2020  “The Less You Know, The More You Can Market” Market   Finally, I was vindicated for my 18 month rant about the Fed manipulating the market – Thank you Dion Rabouin – Axios Markets.com . If it comes from anyone, this is who I would prefer.
Quoting a number a credible sources, the message was clear about the Fed:  it
“has taken control of the market” ….   will “manipulate cost of credit”…  is “controlling and setting prices in financial markets”…its support of large companies have helped spawn a “buy-anything market”…. “A free-market enterprise no longer exists,” Scott Minerd, CIO of Guggenheim Partners says, adding “The definition  of market prices is whatever   the Fed says it will be.”
Since January 2019, I have accused the Fed of nurturing a surge in stock market prices, creating Bubble #1, which drove stock prices to overvaluation levels seen once in more than 75 years, the dot-com bubble of 2000 which burst, resulting in a 55% plunge in the S&P500 and an 85% plunge in Nasdaq comp.
.     The Fed’s Bubble #1 was burst by COVID-19, leading to  21-day, 35.4% plunge in the S&P 500  and 32.6% plunge in the Nasdaq Comp..
After both Fed and Congressional stimulus, we are now in Bubble #2 one that has taken stocks to an even higher level of overvaluation.  If this were anything but an election year, all this hype would NOT be taking place.
BOTTOM LINE
      As noted in last Thursday’s “SELL,” I went on to note the possibility that the S&P500 to punch to new all-time highs above February’s 3,383.  It’s a bubble and inflating at warp speed..   This is  known as a “dumb money” market, where the less you know, the more you can make.
Generally bull market tops roll over, giving a number of technical signals of an impending crunch, but not necessarily with the flash crash, which can come out of nowhere, triggered by news or simply a no-show by institutions on a given day.
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Leading Tech Stocks  –  Time to Lock In Profits
I began to track the following Tech stocks after projecting the lows they would hit in a decline that started July 21. They rebounded from these projections to close on August 6 at the following prices. At some point, institutions will want to begin locking in profits, since they all can’t sell at the same time…or will they ?
Last Thursday’s “Sell” included these stocks “Time To Lock-in Profits at
FB (265), AMZN (3,225), AAPL (455), NFLX (509),GOOG (1,500), TSLA (1,489).
They look tired !  Money is switching to blue chip DJIA stocks which still  6.4%
below the February’s all-time highs.  Netflix (NFLX: 483) and Tesla (TSLA: 1,418)
need a shot of “Red Bull, ” or they are going lower.
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Projected Lows on Friday, July 24     –  August  10 Close)

Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 263
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close :3,148
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 450
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 483
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,496
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366   Close: 1,418
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Eastman Kodak’s (KODK: 10.73)
Apparently, I was right about Eastman Kodak, originally noting “This one STINKS” and  warning, “something seems very wrong here.”
I am suspended coverage of Eastman Kodak (KODK) last week  pending an SEC
investigation and a number of  investigations by law firms pursuant to legal action.
RECAP
      I published the following  starting Thursday July 30.
KODAK
soared to $60 from $1.50 in 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.
Suspicious to me was the jump to $10 from $1.50 Tuesday, July 24.
> After hitting $60 on Wednesday it closed at $33.20
> I started coverage on Thursday morning noting, “This One STINKS” and I said  it  looked like a $21 stock.
> Friday it closed at $21.85
> Monday morning,  August 3,  I warned of a spike down to $12.80, and  it closed at $14.95.
> Tuesday, I stuck to the $12.80 projection where I thought short sellers would cover and run it up to $19-$20. I believe they began to cover at the open yesterday with a high volume jump to $17.88 before slipping to my projected low $12.86, then closed at $14.40. Shorts may buy today bumping the stock up to $15.88.   (Which it did on Aug. 5)
Something seems very wrong here. I am covering it because there appears a need to better understand its market action. Unless there are currently  unknown fundamentals to justify strength, this stock could be headed much lower, perhaps below $7.
Follow up: With its “loan” (???) now on hold, Kodak  dropped below  9 yesterday (as forecast)    and did indeed “STINK”  …as forecast
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Monday August 10, 2020  “Eye of the Storm”
In my Thursday “SELL”, I noted a “brief run to new highs by the S&P500 (3,393) is possible, and I think that will happen in coming days. It would only take a 1.07% move or 43 points to do it.
Powered by big-tech, large market cap stocks, the Nasdaq comp.  broke the February highs in June.
Other market indexes still Have a way to go.  The DJIA still has a 7.8% move up to hit new highs, the New York Index 11.1% to go, Russell 2000 index 9.3%, Dow transports 7.4% and the ValueLine composite (unweighted) 18.3% to get to new highs.
But the S&P 500 is the key index that institutions track, and breaking to new all-time highs would  attract media attention and trigger buying, which could give institutions a chance to unload large positions.
BOTTOM LINE:
I think we are in the eye of the storm where hopes of a recovery are stroked by improving reports on the economy, optimistic projections from the Street and rising stock prices.
Economic reports should look better, since current data is compared with severely depressed data.   COVID-19 may be peaking in some states, rising in others, but the damage has been done and will continue to be done as dominos endlessly tumble into the future causing the Street to lower estimates for earnings and the economy, which means an “L” recovery, not a “V”.
     I expect a major correction to develop at any time. I have expected it to start at lower levels and well before this, but am wrong – hasn’t happened.
After 11 years of a good market, the robotic buy mode by institutions is hard to shut off, kind of a self-fulfilling prophesy.
The 35% plunge in February/March was over so quickly it served as a mere pinprick for investors.
     The stock market is more overvalued now than it was before COVID ravaged the economy, and it was historically more overvalued then than at any time in history except for the dot-com bubble in 2000.
At some point, reality will set in, buyers will be a no-show, the market will drop 12% -18%, then come the selling and you have the second flash crash in one year.
If this one happens, it will be for fundamental reasons, which means the Street has accepted reality, that it realizes the impact of COVID has a greater reach than originally naively thought and overvalued become more reasonable valued, but at much lower levels.
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Friday August 7, 2020 “2020’s Double Bubble Burst”

Thursday’s “SELL – Phony Market, Phony Economy, Phony Administration” was based on the big picture – our quality of life, dismal future expectations and the  tumbling domino effect of a severely damaged economy.
As noted herein so many times, the stock market is so much more overvalued now based on time-tested yardsticks than it was in February before COVID-19 ravaged the economy as well as corporate earnings, save a few tech stocks.
Historically, it is more overvalued than at any time in the past.  That should give money managers pause to think about new commitments, since they have a fiduciary responsibility to protect portfolio values in addition to grow them, which under current circumstances is a crap shoot.
Yesterday, I said a brief run to new highs by the S&P 500 is possible before the market turns down. That high is 3,383, which means it only has to run 1.0% higher, or 34 points.  The tech-heavy Nasdaq Comp. rose 12.9% beyond the February  highs in June.
As you can see the remaining market indexes have a long way to go to hit new highs.
Appreciation needed to hit new highs
DJIA:  8.0%
Russell 2000: 11.1%
New York  Composite Index of 1,900 stocks: 11.4%
Dow Jones Transportation Index: 9.9%%
ValueLine Composite of 1,675 stocks, an “unweighted” index giving equal weight to each stock (-19.5%)
Bottom Line:
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, this 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.
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Leading Tech Stocks  –  Time to Lock In Profits
I began to track the following Tech stocks after projecting the lows they would hit in a decline that started July 21. They rebounded from these projections to close on August 6 at the following prices. At some point, institutions will want to begin locking in profits, since they all can’t sell at the same time…or will they ?
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Projected Lows on Friday, July 24     –  August 6 Close)

Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 265
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,225
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 455
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 509
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,500
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366   Close: 1,489
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Eastman Kodak’s (KODK: 14.90)
Apparently, I was right about Eastman Kodak, originally noting “This one STINKS” and  warning, “something seems very wrong here.”
I am suspending coverage of Eastman Kodak (KODK)  pending an SEC investigation and a number of  investigations by law firms.
I published the following  starting Thursday July 30.
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KODAK
soared to $60 from $1.50 in 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.
Suspicious to me was the jump to $10 from $1.50 Tuesday, July 24.
> After hitting $60 on Wednesday it closed at $33.20
> I started coverage on Thursday morning noting, “This One STINKS” and I said  it  looked like a $21 stock.
> Friday it closed at $21.85
> Monday morning,  August 3,  I warned of a spike down to $12.80, and  it closed at $14.95.
> Tuesday, I stuck to the $12.80 projection where I thought short sellers would cover and run it up to $19-$20. I believe they began to cover at the open yesterday with a high volume jump to $17.88 before slipping to my projected low $12.86, then closed at $14.40. Shorts may buy today bumping the stock up to $15.88.   (Which it did on Aug. 5)
Something seems very wrong here. I am covering it because there appears a need to better understand its market action. Unless there are currently  unknown fundamentals to justify strength, this stock could be headed much lower, perhaps below $7.
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Bottom Line:
In November, I called for a top for the 11-year old bull market to take place in January, but was a month early. It came in February. Without COVID, it may have come later. Throughout 2019, I warned of an inflating bubble, nurtured by the Fed which was in panic mode after the S&P 500 plunged 20% in Q4 2018 and the economy edged into a recession.
I may be early again, but more upside is really not justified, except by the fact investors see no alternative for a e return except stocks.  That’s fine, but poor timing can produce huge losses.
We are in the eye of the recession storm where current economic reports look like they are improving, because they are going up against severely depressed data.
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Thursday August 6, 2020 SELL ! Phony Market, Phony Economy, Phony Administration”

One of these days soon, the Stock market is going to reflect the misery and uncertainty millions and millions of Americans are forced to endure every  day.
The stock market has always been the great discounter of  looming trouble and opportunity, it is overdue for its verdict on this one.
Our economy is crumbling as  the tumbling domino effect  raises its ugly head, taking down, first businesses, then those who serve them, support them, benefit from their existence.
Look around you, walk around the block, step back and honestly acknowledge whether you feel good about your life in the paths of a killer pandemic and the incredible, partisan incompetence in the White House and Senate.

Then, ask the question that no investor, no executive on Wall Street, no one lounging on their deck in the Hamptons, or no politician dares to ask.

Why should the value of the companies comprising the major market averages sell at higher multiples than at any time in history ? Why should the stock market be the only place untouched by so much adversity ?

Does this not highlight the huge divide between  a small percent of Americans who are untouched, sheltered by layers of safety and isolation and the great majority of Americans who are living on the edge.
Reality dictates that it is the latter that give value to corporation’s stock. Undercut that support and corporation suffer from the unthinkable – slow, or no growth, or plunging earnings.
      What happens when that reality strikes ?
The Street panics   First, buyers vanish. Stocks drop just like they did in February and March.  Then come the sellers.  – The result is flash crash # 2  AND no rebound this time for many months, years.
BOTTOM LINE:
      A brief  run to new highs by the S&P 500 (3,392) is possible.
Yes data on the economy is coming in much improved, BUT THAT IS BECAUSE WE ARE IN THE “EYE” OF THE GREATEST STORM SINCE THE Great DEPRESSION , WHERE CURRENT DATA COMPARES WELL WITH RECENTLY DEPRESSED DATA.
      But the blinders have to come off, denial must yield to reality, and portfolio values  must be protected from the greatest double bubble burst of all time.
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Leading TECH Stocks  _- Time to lock in profits.
I will use the following reference point to track leading tech stocks. These are the prices which I projected these stocks would spike down to in my Friday, July 24 post. They rebounded the following Monday marking a key turning point.
HOWEVER, as leaders, they could signal a downturn in a market that is by time-tested benchmarks, very over valued.  That’s why they must be watched with a reference point – the July 24 correction low.
I think they are beginning to stall – Time to lock in profits
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Projected Lows (Friday, July 24 and August 3 Close)

Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 249
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,205
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 440
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 502
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,473
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366   Close: 1,485
I replaced Microsoft (MSFT) with Tesla (TSLA)
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Wednesday  August 5, 2020 “Is Stock Market Up ?  Or Just a Few Tech Stocks ?
It’s all about how the market averages/Indexes are constructed, and especially what weightings are given in that construction.
The DJIA is “price weighted” where percentage changes in higher prices stocks like Apple (AAPL: 438)  nine times (9x) more weight than Cisco (CSCO:48).
This will change at the end of the month when Apple splits four-for-one, cutting its price down to generally to 109. United Healthcare (UNH: 304) will then be the highest priced stock in the DJIA.
The rest of the indexes are market value weighted (shares x price) giving the biggest companies more clout.
That leaves the ValueLine Composite which gives equal weight to each stock since it is an average of the percentage change in each of 1,675 stocks.  This is what is really happening to each stock.
The Nasdaq Comp. has mostly been driven by a handful of stocks (see below), which have powered the index 11.2% above the February highs.
The other indexes have yet to top the February  bull market highs prior to the 21-day, 35% plunge.
Why does it matter ?  Nasdaq’s surge past the February highs while all the other indexes are still below those highs gives a false impression of the market’s strength, gives a green light for investors to load up when, in the current case, that is a very dangerous thing to do.
Market Indexes Still Below February Highs
DJIA is down(- 9.3%)
S&P 500 (-2.3%)
Russell 2000 (-11.5%)
New York  Composite of 1,900 stocks (-11.1%)
Dow Jones Transportation Index (-11.2%)
ValueLine Composite of 1,675 stocks, an “unweighted” index giving equal weight to each stock (-17.2%)

Blomberg’s Barry Ritholtz’s  August 4, “Why Markets Don’t Seem to Care If the Economy Stinks” emphasizes why it matters.
He writes, “Most visible and economically vulnerable industries are also the smallest, based on market capitalization weight in major market indexes, such as the S&P 500.”  For added emphasis, he notes, the 30 most economically damaged industry categories could be de-listed…and it would hardly shave more than a few percentage points off the S&P 500.
Yet, look at the damage done to the stocks of these industries:
department stores (-62.6%), airlines (-55%), travel services (-51%), oil & gas equipment and services (-50%), resorts/casinos (-45%)hotel, real estate investment trusts (-42%).
Ritholtz says, these industries just don’t matter very  much to the stock market performance…the sectors that do matter are internet content, software infrastructure, consumer electronics and internet retailers account for $8 trillion in market value, close to 25% of the total U.S. stock market value of $35 trillion.
Take the 10 biggest technology companies in the S&P 500 and weight them equally and they would be up more than 37% for the year. Do the same for the other 490 companies in the index and they would be down 7.7%.
Leading TECH Stocks
I will use the following reference point to track leading tech stocks. These are the prices which I projected these stocks would spike down to in my Friday, July 24 post. They rebounded the following Monday marking a key turning point.
HOWEVER, as leaders, they could signal a downturn in a market that is by time-tested benchmarks, very over valued.  That’s why they must be watched with a reference point – the July 24 correction low.
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Projected Lows (Friday, July 24 and August 3 Close)

Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 249
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,138
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 438
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 509
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,464
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366   Close: 1,464
I replaced Microsoft (MSFT) with Tesla (TSLA)
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Selected Technical observations:
(These are just chart reads (no fundamental input) -an observation that can change abruptly)
Apple
(AAPL:435) Acts well  – my “400 possible” up from a 384 close Thursday
was  an understatement. Chart looked really good, should have been more aggressive.  Slip to 427 possible. No Change.
Google (GOOG: 1,474 ) Still digesting Friday’s flash crash. Spike to 1,499 possible. Beware one-day reversal.   As warned, GOOG spiked to 1,490, sold down to 1,465.
Break below 1,460 raises possibility of further drop to 1,421. Resistance 1,486.
Tesla (TSLA:1,485) Struggling after Friday crunch.  As I warned, it spiked to 1,509 then consolidated with Support 1,469, Resistance 1,497 Risk: 1,412.
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Eastman Kodak’s (KODK: 14.40) stock soared to $60 from $1.50 in 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.
Suspicious to me was the jump to $10 from $1.50 Tuesday, July 24.
> After hitting $60 on Wednesday it closed at $33.20
> I started coverage on Thursday morning noting, “This One STINKS” and I said  it  looked like a $21 stock.
> Friday it closed at $21.85
> Monday morning,  August 3,  I warned of a spike down to $12.80, and  it closed at $14.95.
> Tuesday, I stuck to the $12.80 projection where I thought short sellers would cover and run it up to $19-$20. I believe they began to cover at the open yesterday with a high volume jump to $17.88 before slipping to my projected low $12.86, then closed at $14.40. Shorts may buy today bumping the stock up to $15.88.
Something seems very wrong here. I am covering it because there appears a need to better understand its market action. Unless there are currently  unknown fundamentals to justify strength, this stock could be headed much lower, perhaps below $7.

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Tuesday  August 4, 2020 (DJIA: 26,664) “Bubbles Burst !”

This is Bubble #2. It will burst on its own, or be pricked like Bubble #1 in February which led to  a 21-day, 35% drop in the stock market.
Currently, the Street is bullish because it is looking beyond the COVID crisis to a full recovery.
      I accept a rebound from depressed lows in Q1 and Q2, but beyond that, why would there be enough economic growth to support an overvaluation  of stocks not ever seen except perhaps the dot-com bubble in 2000 ?
In Q4 of 2018, the S&P 500 was down 20% reflecting a 10-year old economy that was on the threshold of recession.  The Fed stepped in with QE type support and cuts in its benchmark federal funds interest rate and postponed the recession.
Why would  the economy expand now after so much internal damage has been done to the economy and consumer confidence by COVID-19 and measures to contain it ?
The Street is in denial or at least until November 4. The Fed has been an enabler to stock prices for at least 18 months and will continue to be at least until November 4 with its policy of “doing all it takes.”
On a given day, managers of equity portfolios, fully aware of the damage done to our economy, the overvaluation of stocks, the uncertainty of the intermediate-and long-term future, and their fiduciary responsibility to clients will stop buying and even sell – flash crash #2 – and it won’t be pretty, because it will be based on fundamentals.
…………………………………………………………
Bottom Line:
Bubbles can expand more and more as rising prices attract more and more buyers. They can only expand so far until they burst on their own, or are pricked like Bubble #1 in February.
This is Bubble #2, which can burst at any time.  Realistically, that can happen when buyers simply don’t show up, money managers who fearful of legal action for reckless investing with so many known negatives and so many unknowns. Stop buying, even lock in profits.
What to do:  Have enough cash reserve in line with your tolerance for risk. Yes, I know resisting going all-in is difficult, we are just humans with human flaws – greed and fear.  I am not alone here, I read  a lot of analyses, bull and  bear, most of it very impressive for detail and logic.  The bears have it by a long shot.
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Monday August 3, 2020 DJIA (26,428) “Grandest Blow Off Of All-Time”
No one wants to hear reason at market tops ……and bottoms, but here goes anyhow.
Baupost Group’s Seth Klarman is also a critic of the Fed’s nurturing of the stock market, as reported by Market Watch’s Shawn Langlois over the weekend.
In an effort to explain the disconnect between stock prices and reality,   Klarman faulted the Fed with treating  the Street  like foolish children, unable to rationally set security prices without intervening .  When the market has a tantrum, the benevolent Fed has a soothing yet enabling response, he said.
I have criticized the Fed for years but in particular ever since January 2019 when I believe it very subtly manipulated the stock market upward with claims the economy was in a good place (when it wasn’t ?) after it was teetering on the edge of a recession in Q4 with the S&P 500 down 20%.
Politics ?  Over zealous ?  Don’t know, but the Fed  owned Bubble #1 which COVID pricked in February, and yes, the market bounced back, but a 35% crunch hurt a lot of investors.  Now we are dealing with Bubble # 2 and the result will be the same.  I see a 30% – 45% flash crash, but expected it before now.
A healthy market is one where  stocks trade freely without outside manipulation.
I am not alone with my warnings.  A.Gary Shilling’s August 2020 “INSIGHT,”
noting that Treasurys have rallied in the past month, and if the earlier relationship holds, stocks are due for another spill. We foresee the recession extending into 2021, with the S&P 500 falling 30% to 40%.”
I have enormous respect for Gary and his editor  Fred T. Rossi.
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Last Friday I  projected levels where the following tech leaders would find Technology stocks have recouped the leadership role that has powered the recovery from the February/March flash crash lows.
Where to from here ?   After sharp declines, they rebounded from my projected lows. It is from these key lows, that we will get a continuing read on how well this group maintains its leadership.

Projected Lows (Friday, July 24 and July 31 Close)

Facebook (FB): Projected low: 223  – Actual Low: 226    Close: 253
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,164
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 425
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 488
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,482
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366    Close: 1,430
I replaced Microsoft (MSFT) with Tesla (TSLA)
…………………………………………………….
Selected Technical observations:
(These are just chart reads (no fundamental input) -an observation that can change abruptly)
Apple
(AAPL:425) Acts well  – my “400 possible” up from a 384 close Thursday
was  an understatement. Chart looked really good, should have been more aggressive.  Support now: 417, Resistance starts 439.
Google (GOOG: 1,482 ) digesting Friday’s flash crash. Spike to 1,499 possible. Beware one-day reversal.
Tesla (TSLA:1,430) Struggling after Friday crunch. Needs base. Beware of spike followed by reversal. Highly news sensitive
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>.
Eastman Kodak’s (KODK) stock soared to $60 from $1.50 in 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.
I am wary of the price action of this stock, concerned that certain investors may have become aware of the government loan in advance of the huge move in the stock.
I think it is a high risk stock, but will comment on its technical action since there is a lot of interest.
KODK (7/31: 21.85)
Lots of Red Bull fever here. Up 20-fold in three days, this is a story stock with very little story except it got a big loan to manufacture important pharmaceutical ingredients essential to the production of many drugs.
Technical (not fundamental) read. Dropped below my “must hold” level at 27.50 to reach my  “risk projection” of  19.75 – 21.00. No telling what “they” can do with this one.   Spike down to 12.80 possible if panic sets in on break below 20.
It’s hard to tell if this is designed to be pumped up or dumped.
……………………………………………………………..
Bottom Line:
Just be aware that at some point this party will be over with the risk of a 30% – 45% crunch.  Bubble #2 –   Who has a pin ?
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Friday Jul 31, 2020 (DJIA: 36,313) “Fang Stocks Ready to Lead Again ?”

Q2 GDP declined 9.5% y/y or at a 32.9% annual rate, ugly, but not a surprise.  But that’s at an annual rate which assumes that rate will continue through four quarters, which it won’t.
Another 1.43 million Americans filed for unemployment benefits.
But in this environment, does anyone making big investment decisions know what to expect going forward ?   If not, how can they justify investment decisions for clients at levels of valuation  that have consistently turned the stock market down over 50 years  ?su               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: 253
Amazon (AMZN): Projected low:2,887 – Actual Low:2,888   Close : 3,164
Apple (AAPL): Projected low: 363 – Actual Low: 356     Close: 425
Netflix (NFLX): Projected low: 466  – Actual Low: 467    Close: 488
Google (GOOG): Projected low: 1,486 -Actual Low: 1,488   Close: 1,482
Tesla (TSLA): Projected low 1,407  – Actual Low 1,366    Close: 1,430
I replaced Microsoft (MSFT) with Tesla (TSLA)
…………………………………………………….
Technical observations:
Apple
(AAPL:425) Acts well, technically – my “400 possible” up from a 384 close
was  an understatement. Chart looked really good, should have been more aggressive.  Support now: 417, Resistance starts 439.
Google (GOOG: 1,482)New  support is 1,467
Netflix (NFLX: 488) Struggling between 479 and 493.
Tesla (TSLA:1,430) Backed off my resistance at 1519, broke my support
Downside is 1,397.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>.
Eastman Kodak’s (KODK) stock soared to $60 from $1.50 in 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.
I am wary of the price action of this stock, concerned that certain investors may have become aware of the government loan in advance of the huge move in the stock.
I think it is a high risk stock, but will comment on its technical action since there is a lot of interest.
KODK (7/31: 21.85)
Lots of Red Bull fever here. Up 20-fold in three days, this is a story stock with very little story except it got a big loan to manufacture important pharmaceutical ingredients essential to the production of many drugs.
Technical (not fundamental) read. Dropped below my “must hold” level at 27.50 to reach my  risk of  19.75 – 21.00.  I can see a spike down to 12.80.

No where else to put money ?   Try telling a client that after a 30% -50% plunge in their portfolio.
Can’t happen – the Fed won’t let it, Congress won’t let it, or at least until after the November 3 elections.
The stock market has been  a discounter of present and perceived economic and investment conditions forever until now.
Typically the stock market runs to extremes of overvaluation and undervaluation depending on a host of variables,  including– domestic, international, monetary, fundamental, and economic conditions, none the least being psychology – fear/greed.
Current valuation of stocks defies all the rules. Worse yet, it does so at historically high valuations, which leaves little room for upside and a ton of risk on the downside.
        I have focused on the popular tech stocks, aka FAANG stocks, this week primarily because they are down from their  July 14 highs and are struggling to regain their role as leaders.
Bottom Line:
     With the ugly GDP and unemployment report out of the way, the Street feels comfortable with buying aggressively.  The Congressional hearings of tech companies was a ho-hummer, and they are ready to assume leadership again.
The Street is looking beyond the massive hit  our economy is taking to a continuation of the economic recovery.
       If that doesn’t happen, the market will plunge to levels that discount new  projections.
I see extreme vulnerability here, don’t think the Street is aware of the tumbling domino effect that lies ahead.   Just one industry’s woes can affect multiple industries and small businesses that are tied to it.
What to do:

Sit close to the exits and maintain a cash reserve in line with one’s tolerance for risk. As humans, that is tough to do when others are going all-in, even leveraging their investments.
When this sucker cracks, it will be straight down, another flash c rash – the new normal for corrections.
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Thursday, July 30, 2020  DJIA: 26,539) “Kodak: Can it Pass the Smell Test ?”
      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 !
>>>>>>>>>>>>>>>>>>>>>>>>>>>>
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.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
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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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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