Speculative Fever Mounting

Investor’s first read Daily edge before the open

DJIA: 18,120
S&P 500: 2,124
Nasdaq  Comp.: 5,163
Russell 2000: 1,272

Friday,  July 17, 2015   8:55 a.m.

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  • STATUS OF MARKET:  Bull Market with overhead supply coming in after a sharp  rally back into the upper end of a trading range that has contained stocks for most of the last five months. Nasdaq leads the pack posting a gain twice DJIA and S&P 500.
  • OPPORTUNITY:  The Street is reaching for greater risk in order to achieve greater potential gain as reflected in strength in Nasdaq stocks. Momentum stocks will get a bigger and bigger play. These seem to move up no matter what, but mostly because they are goosed by big money which has a huge position at lower prices. This is normal for late-stage bull markets and can spill over into small company stocks, then eventually into micro-caps and stocks with a well-hyped story!  There will be an opportunity to make some fast money, but in many cases in stocks with little merit. The fever gets so intense, even experienced investors get caught up in the excitement and eventually get crushed by a crash to reality.
  • RISK: Above average with news sensitive market.
  • CASH RESERVE: 25%
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings.
  • CONCLUSION: The Street does not want this party to end even though valuations are above the “norm,” the economy is iffy, and corporate earnings in Q2 will be down. We need another week or so to get a feel for how the Street  will react to Q2 earnings.  So far, the prospect of soft results is not spooking them. 

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TODAY:
     Stocks powered through resistance yesterday to post  impressive gains in spite of the fact they had entered deep into the upper end of the trading range that contained stocks for five months.  1n six days the S&P 500 is up 3.6% and the Nasdaq Comp, up 5.3%.  Stocks will open higher, but may slow to a walk later in the day prior to the weekend

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RESISTANCE today:  DJIA:18,187; S&P 500:2,137; Nasdaq Comp.:5,186 .

SUPPORT today:   DJIA:18,067; S&P 500:2,119; Nasdaq Comp.5,143:
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NOTE: Support and resistance levels are where I expect the intraday prices of the DJIA, S&P 500 and Nasdaq Comp. to turn back or close. Buyers should be cautious when a resistance level is reached but consider buying when support levels are reached. Sellers should consider taking action when resistance levels are reached and defer selling when support levels are reached. These levels are picked daily.
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SUMMARY 

     The biggest factor here is the U.S. economy.  Will it rebound from its reported Q1 slump, which most likely  was distorted by weather, oil prices, the impact of a strong US dollar, even seasonality ?

     Recession does not look like a real risk, so much as a “pause” in the economy.

      Q2 earnings will begin to flow in coming weeks.  FactSet Research sees year-over-year  for Q2  coming in as a decline of 4.5% with a return to growth developing in Q4 of close to +4.2%.

       Q2 EARNINGS

       BEWARE of crunches in stock prices of companies that “miss” projections, or simply don’t “beat” by enough.  This is an area where I think certain stock prices are manipulated by shorts or institutions that want to accumulate larger positions.

      

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THE FED

      The guessing game continues – Will the Fed bump interest rates up in September, or later ?

      Obviously, their decision will key on the strength of the U.S. economy where housing is taking the lead and now consumer expectations are soaring.

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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 DJIA “divisor” (0.1498588) to get the DJIA for those levels.
     As of  July 16,  a reasonable risk is 17,800; a more extreme risk is 17,950 The upside potential is has dropped with the market’s inability to follow through last week and is now 18,329.

   

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KEY EXTERNAL FACTORS: 

-Stock market bubble – China
Q2 earnings for some companies will suffer from U.S. dollar’s strength and plunge in oil prices.
-Market still keyed on the Fed and it’s first bump up in interest rates, which with a slight softening in recent economic reports looks like it may happen later rather than sooner.
Recent strength in employment and housing industry shifting concern from a weakening in the U.S. economy to enough strength to prompt an early bump up in interest rates.

-Greece

Note: Source of economic data

For a weekly economic calendar and good recap of  indicators, go to mam.econoday.com.

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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication

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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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