How to Play the Last Burst of the Bull (DIA)

A wise man once said –

There are two types of people in the world…  Those who divide the world into two types of people – And those who don’t.

And while it’s not our intention to get overly simplistic about folk here, there’s often a lesson to be learned through dividing something into two parts.

It struck us that when the final DIA market blowoff arrives and the averages start turning lower, there will be those who will be ready (more or less) to cope with the grueling times that lie ahead. And they’ll be an unfortunate mass of folks unprepared.

And it will be equally the case that those who are not prepared will blame those who are for all the woes.

Because that’s the way the world turns…

Anyone, in fact, who accepts the new reality with any measure of composure will likely be targeted as responsible for it.

This tells us that you, dear readers, should prepare yourselves for the many unhappy and disillusioned people who are headed your way.

Because you’ll be fine. You know what’s coming. We’ve discuss it here in length. You know both in general and specific terms what to do… again, because we discuss it here.

The difficult part, of course, will be managing the venom of those who thought everything would be peachy-keen until the end… that government and medical science and technological know-how and civil goodwill and ‘professionals’ of every stripe and smell would be there when reality finally struck, the lights went out and the neighborhood went up in flames.

Be prepared or be sorry

It doesn’t work that way.

What you prepare will be yours.

The relationships you develop and the scenarios you drill for will be the ones you’re capable of surmounting. And even if you struggle, the very fact that you’ve considered a number of possibilities and taken steps toward accommodating them means you’ll be in a far better state of mind than the blind panicked masses who expect nothing… Well, except that everyone else will take care of them.

Forewarned is –

Forewarned is Forearmed

But enough of that.  Lets make some moolah

Our job now is to gather resources.  That means moolah… cheddar… C.R.E.A.M.

So let’s start with a general (and quick) overview to get our bearings.

First off, the bull is on – there’s no doubt about it. And you can see it in the following:

  1. No one’s jumping for the skies and screaming ‘buy’ (except your dearly beloved here at Normandy), i.e., sentiment is cool.

  2. Continued Quantitative Easing (QE) from central banks the world over is equity-stimulative. And there’s no end in sight to it.

  3. Cheap oil will take its toll on oil company profits, to be sure, but a generally stimulative effect globally will also be had from lower crude prices.

  4. We still anticipate the transfer of hundreds of billions of dollars from a topped out bond market into equities. It just hasn’t happened yet with any conviction.

  5. And until it does, almost 50% of S&P stocks pay a dividend that’s superior to the yield on the 10 year note. I.e., it remains better to buy stocks than bonds.

  6. Earnings multiples on the Dow and S&P have far from peaked on a relative historical basis. The Dow trades at 16.7x earnings and the S&P at 20.2x. That’s not low… but compared with readings at the top of the dot.com bubble, when P/Es climbed to well over 40, today’s figures tell us the mania has a ways to run.

  7. American business is rife with cash. And when the time comes to spend it, we’ll have a takeover phenomenon that gooses prices even higher and faster.

  8. Last but not least, the level of liquidity in the system is absolutely inflationary. Whether that shows up in equities now or later is the only question – but it will show up. Liquidity is the ultimate driver behind the current bull market.

Where will the outperformance lie?

In order to maximize on the bull market’s final burst higher it will be important to be situated in the right stocks – because this won’t be a bull market like all others. In fact, it will look very different than most – precisely because it’s a liquidity- and not an earnings-driven phenomenon.

We believe that the old Wall Street adage of ‘a rising tide lifts all boats’ will not apply to the final liftoff stage of this bull market. That is, NOT ALL stocks will benefit from the apparent juggernaut move that we expect to see in the indexes.

As we’ve stated before, this will be an exclusive affair, with only the most popular and the slickest of tickers moving the tape.

It’ll work like this –

As the money begins funneling in earnest into the market, it will become harder to justify the P/E ratios on most stocks; they’ll simply become bloated beyond any reasonable measure. And even though Wall Street will attempt to justify the prospects of these companies, and will adjust earnings targets higher and expand their multiples, there’s only so far one can strain credulity.

Eventually the game will simply become ‘Watch the Money Run.’

DIA Bull Market Road Map

It will be a pure momentum show – as the best bubbles are. The money will funnel into the biggest names with the best investor relations apparatus’ and Wall Street will continue to feed the elephant until it bursts.

Don’t Confuse a DIA Bull Market with Brains

That’s another of Wall Street’s favorite catch phrases. But whereas it once meant that any broker could make you money while the market was rising, it won’t be the case going forward.

We say that the safest and smartest means of accruing wealth in this final stage of the bull will be by applying leverage to the smallest, most popular basket of stocks on the face of the planet.

We’re of course referring to the Dow Jones Industrial Average, about which fellow scribbler Matt McAbby wrote extensively just last week.

What does this mean for you?  Well, here’s how we’re going to play this bull bubble –

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Your best bet is to buy a deep-in-the-money CALL on the index with the longest date to expiry possible.

Wall Street Elite recommends you consider the purchase of the SPDR Dow Jones Industrial Average ETF (NYSE:DIA) January (2017) 90 CALLs for $90.00.

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Your best bet is to buy a deep-in-the-money CALL on the index with the longest date to expiry possible.

Wall Street Elite recommends you consider the purchase of the SPDR Dow Jones Industrial Average ETF (NYSE:DIA) January (2017) 90 CALLs for $90.00.

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With kind regards,

Hugh L. O’Haynew, Normandy Stocks and Options Research

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