For the second straight week, we provided a number of reasons why the market was going to have a good week, and as if on cue, it certainly did, with NASDAQ reaching a 14 year high.  Interestingly, some of the drivers (which we highlighted) could be the market’s downfall sooner than you think, so don’t follow the herd.

With the start of the college football season officially underway and the end of summer a week away, the market’s current four-down drive to the end zone looks like it will end on a turnover, come September.

1st and 10: Yes, stocks had a great time last week but do not believe the hype. We predicted that the lower the volume the greater the gain and that is what happened. Volume was down 23% for the week and is down 40% from just 3 weeks ago. In fact, volume reached its lowest point since the 2013 winter holiday season. Once the rest of the major market participants return, things will likely begin to turn lower.

2nd and 10: According to the latest AAII Investment Sentiment Survey, the percentage of investors surveyed that were bullish leaped to 46% while those bearish dropped to 23%, versus the 39% and 30% historical averages. When the mass market is this bullish it is a negative.

3rd and 10: IPOs have been postponed recently and have not had broad success, indicating that the market is actually tired and no new money is being allocated.

4th and 10: Individual investors are throwing caution to the wind, which is dangerous. The $9.9B worth of inflows into stock funds last week was the biggest since June and the $2.2B allocated to junk bonds was the largest since September 2013.  Where will the new money come from?

Playing Events As They Happen

 It is a morbid concept. Buying stocks in anticipation of or in direct response to, tragedies. Twenty-two years ago today, the worst hurricane to hit South Florida, Hurricane Andrew, left 5000 homeless and caused billions in damage. Although it has been many years since a major hurricane hit South Florida, we are in the throes of hurricane season. Just like residents need to prepare for the worst you should prepare your portfolio ahead of time. For example, big winners in these tragedies tend to be regional and national home improvement, construction and other related chains, while losers tend to be property and casualty and electric utility stocks.
Last week, we noted that Taser International (NASDAQ—TASR) was primed to take advantage of the Ferguson, MO incident and sure enough the stock reached a peak gain of 18% last week.  Investors now know that when these events occur, TASR could be a beneficiary and thus the stock could be ripe for another quick trade.

Obviously, any military actions or terrorist acts abroad that involve the U.S. as victims or respondents usually results in jumps in security and defense stocks, especially bomb, aviation and intrusion security.

On the plus side, if the Argentina economic and monetary situation turns, those stocks, some of which trade as ADRs here, could see a quick spike higher.  Even the ETF Global X MSCI Argentina ETF (NYSE—ARGT—$20.92) could make a modest move.

The bottom line remains that if you are armed with event-driven knowledge and concepts they can prove to be surprisingly lucrative, regardless of the market’s direction.

Have a great week!