PANIC ! Speculative Fever Heating UP

PANIC ! Speculative Fever Heating UP
Trump Rally Over by Inauguration Day ?
Investor’s first read – Daily edge before the open
DJIA: 19,549
S&P 500: 2,241
Nasdaq Com.:5,393
Russell 2000:1,364
Thursday, December 8, 2016 8:13 a.m.
This is what happens when the Street panics, when earnings, debt, the Fed ,and how much the market has already appreciated mean zilch, when investors are overwhelmed with a compulsion to “buy,” buy anything so long as it moves up.
The saving grace here is the market is rising from a solid economic base which has formed over seven years. Oft criticized for growing too slowly, the economy corrected excesses along the way.
While the S&P 500 has been overpriced relative to earnings for most of 2016, earnings can grow from here, assuming the U.S. dollar does not rise further penalizing many of the larger S&P company’s earnings. Obviously, the lifting of certain regulations, lower taxes and big spending would increase earnings further.
The Street is not taking any chances, it is betting that corporate America will be rewarded. The obvious question will be how much further can the market run ?

Corporate earnings.
Factset now sees Q3 earnings for the S&P 500 up 3.2%. On Sept. 30, its projection was for a decline of 2.2%. Q4 is projected at a gain of 3.3%, 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 16.8x, which compares with a 10-year average P/E of 14.3x.
The Fed will meet next week to announce a decision to bump, or not bump, interest rates higher. Currently, the Street could care less.
The economy has been accelerating in recent weeks, without government stimulus. Both the PMI and ISM Non-Mfg. indices rose smartly Monday. Tuesday, Factory Orders followed October’s strong month with yet another solid performance. The Gallop U.S. Job Creation index for Nov. was solid, though job openings in the JOLTS Index were off slightly. Consumer Credit rose again.
This confirms my belief that a solid economic base exists for all the extra stimulus that the Trump administration plans to employ.
You know speculative fever is running high when the major market averages soar, the blue chip DJIA gaining close to 300 points.
Are people talking stocks at Starbucks yet, hair salon, gym, office, ball park, the Rotary Club ? The most hated bull market is fast becoming the most loved, and all with a 7% surge after the election..
Any talk of Dow 25,000 ? C’mon Brooksie – save that for another blog.
At this rate the Trump bull market may be over by Inauguration Day.
At this rate, the BIG money may be thinking of postponing gains into 2017 when tax rates are expected to be lower
SUPPORT “today”: DJIA:19,467 S&P 500:2,233; Nasdaq Comp.:5,328
RESISTANCE “today”:DJIA:19,536;S&P 500:2,241;Nasdaq Comp.:5,417
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.
What could be better, promises of lower corporate taxes, less oversight, and BIG government spend on top of a sneaky strong economy ?
That’s what it looks like at this point in time. One thing about the stock market, it loves pie in the sky.
How so ?
Because it defies quantification, or at least until the truth is known. You see, this is more about human nature (greed, fear) and less about reality.
Really, a stock’s price is merely a matter of opinion, which is based on confidence or lack thereof.
This could be the grandest of all bull markets. It has a good start, up 231% in 7-1/2 years. It probably has a lot further to go, so long as the Street salivates over the prospects of a corporate windfall in coming years, and nothing gets in the way to prevent it.
When the end comes, no one will believe the few who warn of it, in fact, they will despise such seers for raining on their parade, despise them even more when the market crashes.
Like I said, it is all about human nature.
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 16.1% 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.
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 November 27, 2016, a reasonable risk is 18,556 a more extreme risk is 18,837 Near-term upside potential is 19,556
 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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