Panic ! Investors Opting to Go All-In ??

Investor’s first read – Daily edge before the open
DJIA: 19,974
S&P 500: 2,270
Nasdaq Com.: 5,483
Russell 2000:1,383
Wednesday, December 21, 2016 9:06 a.m.
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And, so the scramble continues as institutions put cash to work, and make strategic portfolio changes. This is a particularly challenging year-end, since so much has been promised after a seven year, nine month, 241% rise in the S&P 500.
Most year-ends are muddled, this one is on fire. Is this the kind of extreme that marks a top ? Everyone is bullish, desperately buying anything that is moving. There’s a BIG spend out there, lower taxes, and those hated regs that cramp creativity will vanish.
More than taking a loss, investors hate to miss a major upmove. We are bordering on panic. The Street seems to think nothing can go wrong, not with so much pie in the sky !
Aside from the market aping the dot-com insanity back in 1998-2000, it will have to be perceived, or definitely known, that taxes won’t be coming down much, if at all, and that Congress won’t authorize a big spend on the infrastructure and military, and that seems unlikely near-term, intermediate-term.
So yes, the Street and individual investors are acting like they do at market tops. They are approaching the “I can’t stand it anymore mode,” opting to go all-in, but until their cookie in the cupboard is taken away from them, their appetite for stocks, any stock so long as it goes up, is ravenous
Once again, human nature is beginning to play out. For those of you with a decent memory, this is becoming the reverse of February/March 2009 when no one would think of buying a stock.
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TECHNICAL
There is a lot of financial press hype about Dow 2000. In truth, it’s no different than Dow 19,997, but the press loves this stuff. What’s worth noting is the Dow would then be up 3 X its bear market bottom.
While the market is historically very overpriced, the Street is hoping earnings will rise to close the gap next year.
A lot of money can be made in this kind of market, and at times the less one knows the better if you don’t mind buying stocks after a big rise in hopes of selling it to someone else who doesn’t mind paying up for it and who expects to do the same until someone catches the high.
All the above is designed to give you a feel for what happens when the market begins to extend into the latter stages of a bull market.
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SUPPORT “today”: DJIA:19,919;S&P 500:2,265; Nasdaq Comp.:5,471
RESISTANCE “today”:DJIA:20,017;S&P 500:2,275; Nasdaq Comp.:5,493
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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.
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YEAR-END OPPORTUNITIES
The post-election surge has overrun the classic year-end activity, a usual mishmash of buying and selling that is driven by tax selling, and in this case a scramble by institutions to dress up portfolios that reflect what could be what appeals to investors going forward.
What does that mean ? Probably more bank stocks than money managers would have owned pre-Trump. And maybe select biotech/ biopharma stocks, though the industry is getting mixed signals with talk of deregulation on the one hand and a crackdown on drug price increases on the other hand. Then too, a portfolio may need an infrastructure play.
That’s called window dressing.
But, a lot of these stocks blew out of the gate immediately after news of Trump’s election. So, it’s back to diligent homework, good judgement, emotional control and an instinct for timing.
Quality stocks that are depressed from their high for the year tend to be under selling pressure at year-end due to tax selling decisions. That offers buyers an opportunity to pick up bargains, the following stock stands to be one of them.
Gilead Sciences (GILD: $74.84), a biopharmaceutical company, is a good example. Down 27% from its April high, Gild bounced $1.84 (2.5%) Tuesday after posting a 2016 low four days ago at $70.83. The buying could be investors looking out to a better year in 2017, or it could be short covering, or a combination of both. The stock sports a number of buy recommendations on the Street.
The post-election up-move of DJIA 8.2%, S&P 500: +5.6%, Nasdaq Comp.: +4.7%, and Russell 2000: +14.1%, is pure speculation on Mr. Trump’s and a Republican Congress’s ability to reduce taxes, lift regs. and spend big on infrastructure and the military.
Anything to delay or thwart those plans will trigger an ugly correction.
THE BEST SIX MONTHS
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.
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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.
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MY TECHNICAL ANALYSIS of the 30 DJIA Companies:
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 December 14, a reasonable risk is 19,713 a more extreme risk is 19,657 Near-term upside potential is 20,123
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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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