April Q1 Earnings – Crucial

Investor’s first read – Daily edge before the open
DJIA:17,792
S&P 500:2,072
Nasdaq Comp4,914.:
Russell 2000: 1,117
Monday: April 4, 2016 9:04 a.m.
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OIL
The hedge funds are shorting oil for the first time in two months, according to Bloomber.com. Seems there is doubt the price freeze agreed to by Saudi Arabia, Russia, Venezuela and Qatar is in ineffective if Iran does not go along. A meeting held in Doha, Qatar on April 17 will shed more light on the future of a global surplus.
The stock market has been getting its marching orders from both the direction of the price of oil and the U.S. dollar.
See what I mean when I say there always several balls up in the air with the outlook for stock prices ? At any time one or more can come down to change or sustain the market’s direction. Toss in the Fed, economies here and abroad, mid-east tensions, the elections, and the next global problem to surface and you have a challenge second to none.
That’s what always has attracted me to this business. Blink and you’re toast.
ECONOMY:
Last week, I alerted you to the possibility of a rebound in U.S. manufacturing, which has been in a recession for many months. Worth noting was last week’s report of a 2.3% surge in March ISM New Orders. This may impact the Factory Orders report at 10 o’clock today. The ISM report covers new orders, inventories, production, supplier deliveries, employment and production.
Employment is strong and the labor participation rate is soaring as people return to the workforce.
The FOMC meets this week with its minutes released at 2:00 a.m., but no press conference.
EARNINGS (Nothing new – re-read anyhow – important)
In one week, Q1 earnings will begin to flow and are projected to be down, as are Q2 earnings. It doesn’t get more fundamental than earnings, yet other issues have dominated the attention of the Street so far this year.
April could be the “decider” on whether 2016 is a bear market year, or just a volatile one with big swings up and down as we near the November election.
FactSet Research’s April 1 forecast revised Q1 earnings down to minus 8.5% (-3.7% ex energy) from a plus 0.8% projected in December. Of 121 company’s Q1 guidance, 94 have issued lower estimates. Currently, estimates for 2016 as a whole vary by source, but the trend appears to be downward revision.
ELECTION YEAR PATTERN BEARISH AFTER MARCH
(I will repeat this regularly to keep readers aware of the potential for an April correction)
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.
This supports my December forecast of an ugly January, a rough year as a whole, but with several buying opportunities.
TODAY
I am still expecting volatility as the market heads into the Q1 earnings season. Q1 is expected to be ugly. Anything better than that bumps stocks up, however as noted above, April is shaping up as a month a sharp correction begins in keeping with the pattern for the eighth year of a presidency (see above).
The Fed has clout but little credibility, having flip-flopped on policy three times in three months.
The S&P 500 is up 14.4% in 8 weeks. That’s a lot in a short period of time. The move has been driven by a rebound in oil and drop in the U.S. dollar, quarter-end buying by funds, and comments by the Fed not to expect another bump in rates in the near future.
Memories of the worst January performance in 75 years have given way to thoughts of a bull market that will not be denied.
At this point, so much depends on earnings, which have been given little attention in recent months.
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SUPPORT “today”: DJIA: 17,701; S&P 500:2,061; Nasdaq Comp.:4,871.
RESISTANCE “today”: DJIA:17,901; S&P 500:2,086; Nasdaq Comp.:4,953.
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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 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 March 31, 2016, a reasonable risk is 17,664 a more extreme risk is 16,560. Near-term upside potential is 18,102
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 STATUS OF MARKET: Neutral – but vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 25% – 45%. Consider 75% now
 KEY FACTORS: Outlook for Q1, and 2016 earnings questionable.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Briefing.com
**Stock Trader’s Almanac
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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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