Be Prepared For Extreme Volatility

Investor’s first read – Daily edge before the open
DJIA:17,492
S&P 500: 2,042
Nasdaq Comp:5,022
Russell 2000: 1,145
Thursday: Dec. 10, 2015 8:59 a.m.
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Classic December trading, exaggerated moves both ways with a negative bent. Abnormal declines, restrained advances.
This December is different since the Fed is expected to bump interest rates on the 16th.
While the Street seems to accept this, some nervous trading is becoming evident as reality sets in.
At this point, the last thing anyone expects is for no action on rates. That would spark a sharp, but brief rally followed by a sharp decline because the Street would then wonder just when will the Fed act.
TODAY
Yesterday, the market briefly penetrated last week’s lows of DJIA: 17,425 (S&P 500:2,042), but closed slightly higher.
A break below those levels sets the stage for a test of the November lows of DJIA: 17,210 (S&P 500:2,019).
Strange things happen in December. Trends are limited to several days before a reversal.
But, in the spirit of the season, why not briefly break the November lows with the DJIA dropping to 17,096 (S&P 500: 2,001, Nasdaq Comp.:4,881). That would be followed by a huge rally into January.
Anything can happen in “this” December.
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SUPPORT “today”: DJIA:17,351; S&P 500:2,030 ; Nasdaq Comp.:4,981
RESISTANCE ‘today”:DJIA:17,587; S&P 500:2,061; Nasdaq Comp.:5,046
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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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OIL
The energy sector is down 20% year-to-date, forecasts are for lower prices and no rebound. I can see a selling climax in this sector at lower levels, but the ingredients are there. The sector will bottom out well before any news of stabilization. Beware of false rallies, one-day affairs that look like the turn, but yield to another leg down.
Right now some traders may be tempted to catch the falling knife. There will come a point when no one in hell would even think of buying anything to do with oil, that’s when they are a buy.
We are seeing a lot of bad press on oil – $30, low $20s. The big names are probing levels not seen in 5 years, and before that 2005. An institution with a 5 – 10 – 15 year horizon has no reason not to be buying, so they will be in there ahead of the ultimate low.
I can’t understand why an institution with huge resources and money flowing in quarterly cannot make serious money. NFE ! I think the problem is they don’t see “cash” as an investment. Cash cushions you against losses, more importantly it enables you to capitalize on corrections and depressed situations. The question becomes how low is low ? That’s where averaging a position comes in.

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ELECTION YEAR MARKETS
Pre-presidential election years have a record of being the best of the four-year election cycle with presidential election years running a close second. But the eighth year of a two-term presidency is the exception with the S&P 500 losing an average of 10.9% going back to 1901.*
This supports my expectation of a correction in January setting the precedent of a volatile year for stocks in 2016.
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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 November 19, 2015, a reasonable risk is 17,580 a more extreme risk is 17,436. Near-term upside potential is 17,967
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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: Suddenly, odds of a December bump up in interest rates has increased dramatically. Over the years, the market has sold off when it appeared that an increase was imminent. It did not do so after the announcement Friday, but did on Monday as the Street began projecting the timing of subsequent rate increases in 2016 – 2017.
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
*Stock Trader’s Almanac
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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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