Street Salivating Over Potential Handout

Street Salivating Over Possible Handout !
Investor’s first read – Daily edge before the open
DJIA: 19,891
S&P 500: 2,270
Nasdaq Comp.:5,547
Russell 2000:1,361
Friday, January 13, 2017 8:46 a.m.
Volatility is back. The Street wants to play, but is hearing footsteps, unsure what to expect on the tweet front. Yep, the Street is still salivating over the prospect of corporate tax cuts, deregulation and the BIG spend after eight years of Congressional obstruction.
Since no one knows the outcome of all these corporate perks touted by the Trump administration, odds favor the upside with mini flash crashes in the interim when doubts set in, or reality that God forbid, it was all bluster to get the prize.
What’s important about yesterday’s market action is, the market regained most of what it lost in early trading. Quick bounce-backs from sharp sell offs are a sign of a market that still has upside. It doesn’t work in a whipsaw market where the market gets blindsided, first by one piece of news, then by another. But the whipsaw has not sunk its talons into this market – yet.
As long as the Street expects a handout, the market will hum, possibly to ridiculous heights. This is final stage bull market behavior. Tops are more difficult to call. Unless triggered by an event, they come like a thief in the night to rob investors of a sure thing – bigger and easier to garner profits. Kind of like dart-throwing time, when investors can’t miss….until of course, they do, and the plug is pulled
I don’t see that yet, but want to paint a picture, hoping to plant a seed, so it will be easier for you to leave before the top and the pain that follows.
A failure to follow through today would raise a yellow flag. The blue chip DJIA and S&P 500have been range-bound for 22 days. That may continue until January 20 when we get a brief breakout to new highs. The Nasdaq has been in a buoyant market of its own.
SUPPORT “today”: DJIA: 19,861;S&P:2,267; Nasdaq Comp.:5,537
RESISTANCE “today”:DJIA:19,976;S&P 500:2,281; Nasdaq Comp.:5,561
We are heading into the ugliest domestic and international era of the past 70 years, the Republican Controlled Congress’ rape and pillage of efforts during the last 8 years to define that we are a people of decency, compassion, mutual respect, and optimism. So much of the market’s stability depends on confidence, he does not breed it, he undermines it, and that can hurt investors.
There is a chance, not huge, but enough to take seriously, that our nation is coming apart at the seams, that divisiveness will trump cooperation, civility will yield to incivility, progress will yield to more gridlock, and demonstrations will cross the line to bloody violence..
Until last week, I steered clear of politics in my posts. I strongly think President-elect Trump is a major “risk” factor and that has to be addressed.
He is both predictable and unpredictable. Predictable in the fact he cannot tolerate criticism or opposition without rejection and retaliation . Unpredictable in that no one (including himself) knows what he will do under the kind of serious situations that confront a president every day.
The President-elect should busy himself with more important things than tweeting a counter attack on anyone who confronts him.
This behavior has persisted since he began his campaign and is truly scary. As President, such inability to ignore criticism suggests a skin too thin for this job.
As I have said before, I think Donald Trump is a big mistake, and when you make big mistakes, you pay a price, and that could be injurious to investors.
It’s one thing to run a company where you have employees who will do as they are told, or get fired. That is not how the office of the Presidency works.
It is possible that given an opportunity the Republican Party will dump him. I think they really want Pence. The Republican establishment has no future with Trump. He will soon be fighting with them, as well. Hell, he started today – : “Blames both Democrats and Republicans for Allegations.”
Geemanteezie, am I watching this ?
Corporate earnings (update)
Factset now sees Q4 earnings for the S&P 500 up 3.0%. On Sept. 30, its projection was for a decline of 5.2%. Growth rates in 10 of 11 sectors have been reduced since Sept. 30. The growth rate for all of 2016 is est. at +2.2%. Earnings for 2017 are expected to increase 11.5%. Currently, the P/E based on 12 months out is 17.1x, which compares with a 10-year average P/E of 14.4 and a 5-year P/E of 15.1.
FYI: There was some missed estimates in 2016, Q3 in particular where earnings growth surprised the Street. Along with a firming economy, this was a contributor to the year year-end rally in addition to promises of tax cuts, dereg., and a big spend..
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 January 6, 2017, a reasonable risk is 19,926 a more extreme risk is 19,879 Near-term upside potential is 20,288.
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. I am again concerned for the market, not so much about derivatives but the Trump presidency.

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
 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:
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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