A “Single-Issue” Stock Market – The Fed

Investor’s first readDaily edge before the open

DJIA:  17,755
S&P 500: 2,089
Nasdaq  Comp:5,074
Russell 2000: 1,165

Friday:  Oct. 30, 2015   9:04 a.m.

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 Expect the market to keep probing into increased overhead supply, investors selling now that prices have returned to levels from which they plunged in August, as well as profit takers who bought in after the August 24 flash crash.

      Fed policy on interest rates is off the table for now. With no FOMC meeting in November, the Street won’t be worrying about a bump in rates until December.

      That paves the way for the Street to worry about the prospect for the economy and earnings going forward.

      Bottom line: this is a “single-issue” stock market and the driver is Fed policy on interest rates. It has been for many years.

      At some point that will become a problem, since the Street has not a do-or-die mentality about survival after any increase in interest rates, even a tiny one. As you would suspect, once the first rate increase is implemented, the Street will worry about the next increase and so on.  That’s the kind of stuff that  triggers, and sustains a bear market.

       For some time, I felt the Street could shake off a bump in rates. After all, economies and stock markets in the past were able to co-exist with higher rates, at least up to a point.

      But the Fed had stretched  its zero-based policy out for so long as to condition the Street to believe this bull market couldn’t continue without it. The market notches higher every time the Street’s fears are relieved by assurance a rate increase is not imminent.

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SUPPORT “today”: DJIA:17,706; S&P 500:2,083; Nasdaq Comp.:5,060

RESISTANCE “today”: DJIA: 17,884; S&P 500:2,104; Nasdaq Comp.:5,110

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NOTE: Support and resistance levels are where I expect the intraday prices of the DJIA, S&P 500 and Nasdaq Comp. to reverse or close. Buyers should be cautious when a resistance level is reached but consider buying when support levels are reached. Sellers should consider taking action when resistance levels are reached and defer selling when support levels are reached. These levels are picked daily and based on my application of technical analysis.

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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 DJIA “divisor” (0.149677) 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  October 14, 2015,  a reasonable risk is 17,510 a more extreme risk is 17,430. Near-term upside potential is 18,045.
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  • STATUS OF MARKET: Bullish but “at risk” of  a correction, especially Fed-based
  • OPPORTUNITY: RISK: Risk increases with higher market, but light on the Street is GREEN in spite of negatives.
  • CASH RESERVE: 25% – 45% depends on tolerance for risk.
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
  • CONCLUSION:  Encouraged by the prospect the Fed won’t raise interest rates this year due to softness in the economy, the stock market has exploded from a consolidation area established after the August 24 “flash crash” and has penetrated deep into a resistance area developed when the market broke down  in August.

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Note: Source of economic data

For a weekly economic calendar and good recap of  indicators, go to mam.econoday.com.

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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication

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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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