Speculative Fever Mounting

Investor’s first read – Daily edge before the open
S&P 500: 2,182
Nasdaq Comp.: 5,221:
Russell 2000: 1,231
Monday, August 8, 2016 9:14 a.m. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Has something changed ? Is good news finally good news, and not a reason to fear the Fed will raise interest rates sooner rather than later ?
A sharp rally was triggered by Friday’s job report for July with 255,000 jobs added, well ahead of economist projections fro 179,000.
Reportedly, the Street saw it as enough jobs added to assure it the U.S. economy is still expanding, but NOT enough to prompt the Fed to raise rates.
O.K., maybe things haven’t changed.
However, don’t be surprised if the Fed doesn’t tap its bullpen for someone to hint at a September rate increase.
This is classic bull market momentum. It feeds on itself. Investors who have taken profits, are drawn right back into the market at higher levels.
New investors, are drawn in absolutely convinced the market is going much higher.
It is hard to shut off momentum in either bull or bear markets. This bull market doesn’t look like it can stop going up, just like the 2007 – 2009 bear market didn’t look like it could stop going down.
As noted Friday before the 191-point surge in the DJIA and new high breakouts in the S&P 500 and Nasdaq Composite, “As long as institutions buy on dips, the bull lives to keep “snorting.” Bull markets characteristically run a high fever before they end. I don’t see rank speculation yet.”
If you are overwhelmed to go all-in, even take a shot at a real spec, you are beginning to run a fever. It’s the human side of this business – greed and fear.
If this weren’t about making or losing money, it would simply fascinating to watch. Who needs the Olympic games ?
What I am doing here is preparing readers for a market top. So far, it looks like I started too early. However, as one approaches the peak, it gets too foggy to see clearly. That’s when most investors get blindsided, first by all the new era mentality about no more bear markets, then by the first correction, which they think is a gift, a rare opportunity to buy at a discount, that is, until the rally fails en route to a plunge.
Friday’s breakout in the S&P 500 and Nasdaq Comp. was impressive. The DJIA jumped sharply, as well, but not to an all-time high. Only five of the 30 Dow stocks posted greater than average volume, a negative for such a dramatic move.
For this to be a classic top, we really need to see fewer bears. We need to see some of those books about how an amateur made a billion dollars starting from scratch – that kind of stuff. Easy money – fever.
SUPPORT “today”: DJIA:18,496 ; S&P 500:2,174 ; Nasdaq Comp.:5,206 .
RESISTANCE “today”: DJIA:18,647; S&P 500:2,194; Nasdaq Comp.:5,251.
This market has defied anything I have ever seen EXCEPT that is, near market tops.
News headlines of new all-time highs attracts interest especially from investors who have not participated in this bull market. Likewise, it is forcing investment professionals (brokers, money managers, hedge funds and newsletter writers) to become more fully invested.
It is characteristic of late bull market behavior to prompt talk of a “New Era.”
I have heard the New Era talk before. It comes on stream when the market hits new highs after a long bull run at a time just about everyone concludes the market simply has to go higher and they better jump on board.
I see fundamental and technical signs that warn of a top, but then I started seeing those three weeks ago. It is a matter of how high is high, and a momentum that is self fulfilling.
Bull markets can reach unthinkable extremes when investors stampede into stocks fearing being left behind.
Then too, fear of total ruin at bear market bottoms can trigger panicky selling as investors scramble to salvage what’s left of a portfolio after a 30% -45% plunge.
Major tops and bottoms are marked by extremes. Savvy investors know this. Even so, it is a challenge for any human to resist the urge to chase running stock prices at unreasonable heights, or get chased out after a harrowing plunge in stock prices.
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 August 5, 2016, a reasonable risk is 18,435 a more extreme risk is 18,333. Near-term upside potential is 18,959.
(So far this is not holding up)
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.
*Bloomberg.com (Excellent pre-market read)
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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