Watching and Waiting….for a Signal

INVESTOR’S first read.com – Daily edge before the open
DJIA:26,833
S&P 500: 3,004
Nasdaq: 8,119
Russell: 1,552
Thursday,  October  24, 2019
 9:03 a.m. 
………………………..
gbifr79@gmail.com
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

TODAY:
Street is watching and waiting for a signal on trade and earnings, not just Q3 but guidance and projections for 2020, which has so far been projected to be better than this year.
If the Fed cannot head off a recession, the Street will be slashing 2020 earnings projections which would  adversely impact an overvalued market.
Odds are good we already are in a recession, so the Fed has its work cut out for it.  The Fed is cutting rates and employing a variation of QE, so I don’t know what it can do if we get into a severe recession.
These are strange times.
But a Fed rate cut is built into current pricing and much of expected progress on trade.
Failure to cut rates and/or failure to make progress on trade would hammer prices.
I think the market has a shot at new highs, which would be accompanied by a lot of press, Administration and Street hoopla, driving the market up temporarily and maybe into early January before a major correction develops.
Playing that move by buying the breakout would be a challenge for all but the nimble and quick.    

TECHNICAL
So far corporate earnings don’t look as bad as forecast but let’s wait to see more reports. Often, the bad ones are held off until later.
Expect another attempt to rally.  It would need big news  on trade to attack new all-time highs, but odds are improving that will happen, though be temporary..
…………………………………………………………
Minor Support: DJIA:26,776; S&P 500:3,001; Nasdaq Comp.:8,111
Minor Resistance: DJIA:26,887; S&P 500:3,011; Nasdaq Comp.:8,147
………………………………………………………….

Wednesday Oct. 23 “Buying a Breakout to New Highs Would Be Riusky”
A ho-hummer yesterday, today stands to follow suit, unless we get hit with negative surprises on earnings.
Over the last four days, the major market averages have tried to break out to new highs for the fourth time since August.
It still can happen if progress on trade is announced, and actually happened.
The question is, how much is progress on trade and Fed rate cuts built into current prices ?
I think – a lot with the S&P 500 significantly overvalued.
Q3 earnings
are hitting the Street. While better than expected, expectations had been lowered significantly before the report period.
Even so, Disappointing results from Caterpillar (CAT) and Texas Instruments (TXN) yesterday reminded the Street not all is well.
Progress on trade seems to be announced only after a couple bad days in the market, the Fed is expected to cut its fed funds ratye on the 30th.
Retail sales remain soft, but existing homes sales are firm on a year/year basis.
………………………………………………………………………
Tuesday Oct 22  “OCTOBER  – A pivot month”
October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”[2]
      October hosted bear market bottoms in1957. 1960, 1966, 1987. 1990,, 1nd 2002, but AFTER bear market declines, which we have not had yet.

October market one bull market top – 2007, the beginning of the Great Recession/Bull Market.
President Trumps saying trade talks with China are coming along very well. More importantly, China’s chief trade negotiator, Vice Premier Liu He, indicates trade negotiations are progressing well for phase one with a potential for signing in mid-November.
We have been down this road before, and the stock market appears to agree, though talks can hit a snag at any time.
The question is, how much of an agreement in phase one as well as a Fed rate cut, are already priced in the market at these levels ?
We are so close to new all-time highs, I think we can hit them with or without an agreement, but only temporarily.

The all-time high for the DJIA is 27,398 (now 26,827); the all-time high for the S&P 500  is 3028 (now 3,006).
Anticipation of progress in the trade talks and or a Fed rate cut on the 30th could push the market averages to new highs.
Buying the news would be HIGHLY RISKY in light of looming negatives and a very pricey market.
………………………………………..
Monday  Oct. 21  “Market Locked in Limbo  By News Whipsaw”
The market is in a consolidation phase as investors wait for more info on trade, the economy, the Fed on interest rates and impeachment proceedings.
Trade is obviously the big one, but we only get bits & pieces to the puzzle as two huge egos joust for an edge.
The economy is slipping with little to suggest we aren’t in the early stages of recession; the Fed is expected to cut  its fed funds rate again on the 30th, but that is already priced in the market.
As for impeachment proceedings, daily disclosures of news negative to the Trump administration chip away at investor confidence.
Bottom line: a market locked in limbo, with swings in both directions but unable to trend meaningfully in one direction or the other.
Odds favor a rally attempt today.
The Street wants to be bullish, and will seize on any news that reinforce its optimism.
Bears see a high risk of a big move down.
This spells news whipsaw with unplayable swings in both directions.
………………………………………………………………………………….
Friday Oct., 18   What the Stock Market Needs is a Good Dose of the TRUTH”
 If investors are confused, frustrated and uneasy, they are simply normal human beings.
       The Fed keeps saying the market is in a good place, yet it is scurrying to cut interest rates and pump money into the economy.
This is not what the Fed does when the stock market is overvalued probing all-time highs.
What this market needs is the TRUTH.  It would trade lower, but won’t be teetering on the verge of a wrenching flash crash that takes the major averages down 12% -18% in the matter of days.
While flash crashes (the new normal) have  happened frequently since mid-2011, the market has always snapped back quickly.
With a lot of major negatives looming, recession, a dysfunctional government in Washington constantly under fire with one self-imposed crisis after another, an immediate rebound  is unlikely to  happen this time.
That means another leg down, ergo a bear market.
How deep ?
Depends on what new negatives hit it when it is trying to rebound.
That is what determines the depth of bear markets whether it is  a 55% bear (2007-2009), 51% bear (2000-2002), 50% bear (1973-1974), or smaller ones in the low to mid 20s.  It is all about new negatives that pound prices down to unreasonable levels.

Thursday Oct. 17  “Has the Street Considered  the Possibility of a Trump Resignation”
This is a high-risk market, a lot can go wrong, all that can go right is already priced into the market (progress on trade talks, Fed cut in rates plus a quasi-QE).
In find it hard to believe the Street is ignoring the implications of impeachment proceedings and the possibility that additional wrongdoings will surface at a time the Democratic Party candidates for election next year are  perceived as unfriendly to stock prices, though the stock market has historically done better under Democrats.  It is perception, not reality, that counts in the short run.
Odds are increasing that President Trump will not run in 2020, and may not survive his presidency.  That is something the Street hasn’t even considered.
Not many in this business were analyzing and writing as far back as Watergate, but it got ugly with each disclosure of impropriety by the Nixon administration.  The S&P declined 50% before the carnage ended.
IMHO, the Street feels immune to a bear market, a unjustified sense of security that bad things can no longer happen that  can be attributed to more than 10-years of Fed-driven bull market.
IMHO, we have been in a recession for many months. Whether it can be minimized by Fed action, is the big question. I don’t think so. Individual, corporate and government debt is too elevated to give a green light to borrow and spend more now..
Presently, the Street seems to believe the stock market can ignore a recession and national political crisis and move on to higher prices.
YES ! the Street can push the market higher, but the BIG money will bail out at some point and we will get a flash crash of 12%-18% in days as all the lemmings will follow.
………………………………………………………………………………..
Wednesday Oct 16,  Market Has Discounted the Good News – None of the Bad
This is the  3rd time up here for the  DJIA and S&P 500  since July with two interim corrections of 7% and 5%.
This push could reach new highs.  Currently, the S&P 500 is 2,995 with a new all-time high at 3,027.  The DJIA is 27,024 with the all-time high at 27,398. Neither have far to run to  hit new highs.  That would get press headlines, but would not be  a good reason to jump in since the market is historically overvalued, and we are is such a news sensitive market.
Failure to reach meaningful  progress in the U.S./China trade talks, or a break off would send stocks back down.
The Street gives credit to expectations of better than expected  Q-3 earnings, but the best reports tend to come out early in the reporting period with the worst held until later.
Since late December, this market recovery from a 20% drubbing has been all about Fed policy, pure and simple. I don’t think lower interest rates following low interest rates to begin with will prevent a recession – delay maybe, prevent – no.
Bottom line:  For anyone holding cash, this kind of market action is somewhere between torturous and wrenching. The overwhelming urge is to go all in. No one wants to be left behind.   That’s why the Buy Low-Sell High bromide for successful investing is so frustrating.
Human nature works against that overly simplified logic. Greed rules at market peaks, as does fear at bottoms.  It is just so tough to go against those strong emotions at key junctures.
…………………………………………………………………………………….

Here’s where I have a problem.  The current and prospective negatives are not to be taken lightly, yet the S&P 500 is historically very overvalued.
The Street is betting this recession won’t be accompanied by a bear market. That has never happened. We have had bear markets without  a recession, but never recession without a bear market.
We are back where we were a number of times this year where the Fed has used cuts in interest rates to head off a recession, but recession indicators keep worsening, though at a slow pace.
       As I have written so often. Investors must ascertain their tolerance for risk and adjust cash reserves accordingly
…………………………………………………………………………

What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 122 months, the longest  in history, twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months.  The unemployment rate is 3.5% which was hit in September.  Technically, we won’t know when the start of the current recession is official for months after the fact, since that conclusion is  reached by the Nat’l Bureau of Economic Research (NBER) and they consider  host of economic indicators.
>Bear markets lead the beginning of recessions by 3 to 12 months.  The current bull market at 126 months is 4.2 times the average of the last 15 bulls going back to 1957
 >Nine out of the last 10 recessions have occurred with a Republican in the White House.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
George Brooks
Investor’s first read.com
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.

 

 

 

 

 

 

 

 

 

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.