Speculative Fever Festering (so far)

Investor’s first read – Daily edge before the open
DJIA: 19,796
S&P 500: 2,256
Nasdaq Com.:5,412
Russell 2000:1,373
Tuesday, December 13, 2016 9:06 a.m.
At some point the market will begin to churn, as institutional portfolios are dressed up for year-end reports. Where possible, profit taking will be delayed until 2017 when it is hoped taxes will be lower.
Additionally, it is hoped certain regs. will be lifted and big bucks spent to hype the economy which seems to be doing well all by itself.
This post-election up-move of DJIA +8.0%, S&P 500: +5.7%, Nasdaq Comp.: +4.2%, and Russell 2000: +10.6%, 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.
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.
Expect a bump in rates Wednesday. The market may drop briefly, but expectations of tax cuts, the lifting of regs. and big spend by Congress should bring buyers back in a day or two.
The market will start off on the upside today. A rotation from one industry group to another stands to generate good trading opportunities
As a rule, year-end activity tends to be choppy. Speculative fever is festering, and that is tough to shut down.
But things happen, this is no time for tunnel vision. The market has hung on every word and whisper from the Fed for seven years. It is expected to bump rates up tomorrow, so we’ll see how much clout it still has.

It won’t be the bump in rates that has impact so much as commentary from Fed Chief Janet Yellen at 2:30 tomorrow afternoon. The Fed still may have impact if Yellen alludes to multiple rate increases in 2017.
That may bring president-elect Trump out of his corner swinging, I do not think he is on the same page as Yellen.
The next Fed meeting after tomorrow will be January 31 and February1, but no press conference is scheduled until the March 14 – 15 meeting. The Fed may feel it must make this press conference count !
SUPPORT “today”: DJIA:19,772; S&P 500:2,253; Nasdaq Comp.:5,407
RESISTANCE “today”:DJIA:19,897;S&P 500:2,263;Nasdaq Comp.:5,426
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 than 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 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.
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: 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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