Will the Bulls Step In or Yield to the Bears ?

Investor’s first read – Daily edge before the open
DJIA: 18,448
S&P 500:2,172
Nasdaq Comp.:5,212
Russell 2000: 1,240
Friday, August 26, 2016 9:03 a.m.
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THE BULL
This is the second longest bull market in history (90 months) and the economic expansion accompanying it is the third longest (86 months) on record.
The S&P 500 Index is misleading, dominated by big-name stocks. Over the last 12 months, more than half of the 500 stocks have had declines of 20%, the benchmark that comprises a bear market. The mathematical weighting enabled the largest market cap stocks to offset the decline in those stocks.
TODAY
Fed Chief Janet Yellen speaks at 10 o’clock today at the Monetary Policy Symposium in Jackson Hole Wyoming.
Once again, the Street will parse every word of her statement in an attempt to get a feel for Fed policy going forward.
During the past week, several Fed bank presidents have warned that one, possibly two, bumps in rates are possible before year-end.
The market has been a bit soft in recent days, nervous that Yellen will confirm a rate increase before year-end.
If we get a sharp spike down this morning we will get a good read on just how aggressive the bulls are. That could only come as a result of what Fed’s Yellen implies in her speech.
While the second estimate of the annualized growth in Q2 GDP came in this morning at a positive 1.1% versus the first estimate a month ago of 1.2% suggests the economy is buoyant, expect Yellen to project a stronger second half, ergo the possibility of one or more rate increases.
That could be what drops the market sharply this morning. The bulls should jump on the lower prices, generating a one-day reversal until the last hour of trading.
If the bulls can hold the line after a bounce, we will continue to see a range bound stock market for another month. If that rally fails, a further correction is in the making.
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SUPPORT “today”: DJIA:18,366; S&P 500:2,163; Nasdaq Comp.:5,164
RESISTANCE “today”: DJIA:18,547; S&P 500:2,183; Nasdaq Comp.:5,245
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FED BUBBLE
The risk for over-reliance on Fed policy and low interest rates is that it forces investors to seek riskier and riskier stock and bond investments, which will ultimately result in a bubble burst.
We had bubble bursts in January 2000 with dot-coms, and again in 2008 with housing/derivatives. The next one could be the Fed bubble burst when investors get over extended in speculative issues only to find nothing the Fed can do, not even negative rates, can avert and soften the impact of an ugly recession.
That event can be months or a year out. Just be aware it can happen, because there will be little warning ahead of time. Prior to that, some nice money can be made, so long as investors watch their back.

NEW PROJECTION:
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 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 12, 2016, a reasonable risk is 18,501 a more extreme risk is 18,404. Near-term upside potential is 18,808.
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LATE STAGE BULL MARKET BEHAVIOR
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.
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ELECTION YEAR PATTERN BEARISH AFTER MARCH
(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.
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 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.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Bloomberg.com (Excellent pre-market read)
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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Brooks007read@aol.com
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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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