Play Hard – Sit Close to the Exit

Investor’s first read – Daily edge before the open
DJIA: 19,881
S&P 500: 2,257
Nasdaq Com.: 5,429
Russell 2000:1,365
Wednesday, January 4, 2017 9:06 a.m.
I wrote the following in 2007 as I became increasingly aware of “risk.” I was not aware of how disastrous the subprime mortgage/housing bubble situation had gotten, just appalled how extreme the use of derivatives had become. As most of you know the bear market/recession that followed took us to the brink of a total meltdown.

Perfect Storm Looms
The perfect storm in our financial markets is looming.
….It will take a heroic international effort to avert a meltdown of huge magnitude…
….Trading in everything may have to be stopped until some sort of sanity is restored
….This can get real ugly. No one has a handle on the leverage amassed in derivatives
….No one has a true handle on how precarious the situation out there is, and that uncertainty feeds on itself, prompting increased selling…With few buyers, stocks tank.
…Only when a cauldron of fear begins to boil, do you have a market that is reasonably safe to invest in.

George Brooks
August 19, 2007

I am again concerned, not so much about derivatives but the rash, unprecedented behavior of President-elect Donald Trump.
The price of stocks is a matter of opinion as evidenced the wild swings up and down over the years. It would be easy with so much pie in the sky (tax cuts, deregulation, big spend) to go all-in, even borrow heavily to leverage a big score.
With so much to fantasize about, that can easily happen, it has happened in the later stages of bull markets in the past.
This market is capable of going much higher, as institutions and individuals scramble to get on board of a sure thing without a thought of anything going wrong.
A lot of money can be made in euphoric markets like this, but an exit strategy MUST be in place at all times. It’s not that investors get blindsided by buying at the top, it’s that first time down where they think they have been gifted by lower prices that bags them.
I can only urge readers to play hard but sit very close to the exit. Unless the BIG money pulls the plug in coming days, it looks higher.
1- That the pie in the sky doesn’t happen soon enough, or at all.
2- That the Trump presidency implodes. There are so many investigative reporters digging, digging, digging for dirt on a person who refused to release his income tax returns, may not be as wealthy as he claims, and was in the casino business with questionable results. I don’t think he expected to win. This was all about his “brand.” IMHO

I think it is possible, he will resign or be impeached. As unpalatable, caustic, and unbelievable as that may seem, it can happen, and must be given credibility.
What if that happened ? The market would stabilize after a brief hit, the world would breathe a sigh of relief, and we’d all get up in the morning, get dressed, brush our teeth, eat breakfast and go to work in a less divisive environment.
Higher at the open. The DJIA should top 20,000 today, or get close. That really means nothing, but the press will make a big deal of it, sucking more investors into the market, driving it higher.
The market did what was expected yesterday. It rose in face of some 2017 profit taking, pulled back, then continued to rise going into the close.
The FOMC releases minutes from last month’s meeting. Fed Chief Janet Yellen is not scheduled to speak, so I don’t expect any major Fed news.
SUPPORT “today”: DJIA:19,846;S&P 500:2,254; Nasdaq Comp.:5,418
RESISTANCE “today”:DJIA:19,998;S&P 500:2,271; Nasdaq Comp.:5,468.
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.
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
 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:
*The Fiscal Times – 12/22/16 – Eric Pianin
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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