Raise Some Cash If You Haven’t Already

Investor’s first read – Daily edge before the open
DJIA: 17,929
S&P 500: 2,098
Nasdaq Comp.4,842:
Russell 2000: 1,151
Monday, July 1, 2016 8:57 a.m.
We get some important reports on the economy today, with PMI Mfg. at 9:45, ISM Mfg. and Construction Spend at 10:00. Motor Vehicle Sales will come early, probably by 8:30. Yesterday the Chicago PMI came in well above estimates with the index jumping to 56.8 from 49.3.
EXPECT RUMORS – Read if you haven’t – re-read if you did.
– that Brexit will be reversed by parliament, or ignored by a new prime minister. The referendum is not legally binding, and reportedly, a lot of Brits regret voting to leave, including Boris Johnson, the biggest proponent of exit.
-that the EU will move to address Britain’s EU gripes like the immigration issue.
-fallout won’t be as bad as feared, since Britain will still be part of the European economy, doing business will be more complicated.
-the EU has survived crises before like the fiscal crisis in 2009 – 2010 when Italy. Greece, Portugal, Spain, and Ireland were on the ropes and needed help.
-a Fed-fix: talk is already circulating that the Fed won’t raise interest rates until 2018.
-Fed jawboning: a army of Fed officials (with credentials) will be dispatched to allay fears of U.S. fallout, the return to QE if necessary – whatever it takes to run the market back up in time for the next crisis.
Brexit upstaged all other issues that comprise market valuation, and will do so for some time. Q3 and Q4 earnings will have to be addressed, as well as the direction of the U.S. economy.
And what about the November election – remember ? That could dwarf Brexit as November closes in.
And what about a rumor that other nations will consider an “exit.” It would only take an unfounded rumor to trash stocks again.
The ongoing pattern has been when markets take a nasty hit, they recover quickly regardless of the reason for the break in the first place. Investors who take that pattern for granted will get hurt when it changes – CAREFUL !
The markets have now recouped most of the Brexit loss, a two-day 5.6% crunch, and are now ready for a test of the June 27 low of DJIA 17,063 (S&P 500: 1,991).
In addition to bargain hunting, and short covering, this week’s buying can be attributed to Q2-end portfolio adjustments, which had to be hurried as June 30, closed in.
This, in spite of the fact that based on all factors, technical, fundamental, international, and economic, this market is overvalued. Both the bull market and economic recovery are historically up in years. A stronger U.S. dollar stands to adversely impact Q3 and Q4 S&P 500 earnings, which the Street was counting on to justify these prices.
St. Louis Fed’s James Bullard spoke yesterday introducing his new forecasting assumption of a 2% annual growth rate through 2018, with 4.7% unemployment and 2% inflation, and only one rate hike needed for now. Obviously, the Street liked it, pushing stocks up one more time at the close. !!!
The brexiting of global markets has created the potential for serious upheaval, which the market has to once again take into account now that it has recouped most of its Brexit losses.
While institutions scrambled to buy stocks it wanted to own before Q2 ended,
It will be buying stocks it wants to own going forward, but didn’t want to show in the month end reports, for a number of reasons. Yes, I know, it is a strange world they live in.
The time is coming soon for investors to avoid purchase of long-term bonds, since the 10 and 30-year Treasuries slid to record lows in face of a global flee to safety. Once, these bonds turn down in face of improving economies, investors will get hammered, just like buying in at the top of a bull market.
I sense this is a perfect storm orchestrated by central banks around the world.
Just about everyone who invests is cocksure that low interest rates are here to stay.
It is my experience that when just about everyone is cocksure of anything, a change is not far off !
SUPPORT “today”: DJIA:17,763; S&P 500:2,076; Nasdaq Comp.:4,789
RESISTANCE “today” DJIA:17,976; S&P 500:2,101; Nasdaq Comp.:4,851.
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 June 24, 2016, a reasonable risk is 17,285 a more extreme risk is 16,778. Near-term upside potential is 17,698.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q2, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
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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