Bear-Speak Dominates

Investor’s first read – Daily edge before the open
DJIA:16,516
S&P 500: 1,938
Nasdaq Comp:4,685
Russell 2000: 1,044
Wednesday: Jan. 13, 2016 8:55 a.m.
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Corporate earnings will rise to the surface in 2016 as the “decider”. The flow of Q4 earnings started with Alcoa’s (AA) report yesterday.
S&P 500 earnings for 2015 will drop some 5.5% (ex-energy – flat). The Street is looking for some 7% growth this year. Projections were for growth of 8% last year and ended with zilch for the year, though the market held up well considering.
Stock prices won’t hold up as well if revisions start to plunge again this year. Expect a bear market if they do.
THE FED
Officials from the Federal Reserve are out in force this week. Expect them to attempt to stem the carnage in the stock market. We saw it Monday with the Fed’s Lockhart and Kaplan, again with Lacker. Today its’s Rosengren (7:45 a.m.) and Evans at 1:00 p.m. an hour ahead of the Beige Book’s release. Thursday it’s Bullard and Friday, Dudley.
TODAY:
As expected, President Obama focused on the positive in his State of the Union speech last night. The stock market will open up today, but I think the Street is still nervous, especially about corporate earnings this year.
While I have been expecting January to be a downer and the year to be rough, I expect several buying junctures during the year, but at lower prices. More than likely, investors will be too scared to buy at those junctures. Again, human nature gets in the way of advice to, “Buy low, sell high”.
Bear-speak is grabbing headlines. JP Morgan advises selling on a bounce. The Royal Bank of Scotland advises selling everything except high grade bonds. Harry Dent (Economy & Markets) sees a crash, noting the Value Line un-weighted Index has already dropped more than 20%.
Un-weighted weights all stocks equally with changes in prices based on an average of percent changes versus changes based on market cap or price, which give a higher weighting to the big companies.
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SUPPORT “today”: Failure to hold above yesterday’s close would be bearish
RESISTANCE ‘today”: DJIA: 16,687; S&P 500:1,956; Nasdaq Comp.:4,737.
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OIL : Watch for huge Selling Climax (SOON !)
I have been writing that 2016 is the year to buy oils.
For weeks, I have alerted readers to expect oil stocks to make a bottom in 2016, but have not seen the panic conditions that would signal capitulation. I am looking for a selling climax that depresses this group enough to attract the BIG money. With some help from the weakness in the stock market, and continued outpouring of gloom, a panic may occur, a high-volume, one-day spike down that closes on the upside.
However, just one word about production cuts by a well-placed official and the bottom “is in.”
The Saudi’s are playing a dangerous game. Too many big hitters getting hurt. Pressure from within or the outside will force them to trigger a price rebound, just like they triggered a plunge.
Talk of $20 oil has been around for weeks pumped by the likes of Goldman Sachs, RBS and Morgan Stanley. International Monetary Fund’s chief, Christine Lagarde expects oil to stay low for a “sustained period.”
Now investment bank, Standard Chartered, is talking $10 oil, not seen since the big global crunch – 2009.
Keep it up, guys and girls, and you’ll create a full-scale PANIC !

Panic prices selected oil stocks: Exxon (XOM): 67; Chevron (CVX): 74: Market sector oil service ETF (OIH): 21; SPDR S&P O&G ETF (XOP): 24; Vanguard energy ETF (VDE): 69; Energy select SPDR ETF (XLE): 50. These are “technical” projections only and subject to change as conditions in the oil industry and stock market unfold. These prices are 12% – 16% below the current market and may never be hit. Under panic conditions, the prices at a turn are only hit momentarily. Orders must be placed below the market in advance to catch the lows. Obviously, this is only for investors who can afford the risk.
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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 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 January 7, 2016, a reasonable risk is 15,901 a more extreme risk is 15,621. Near-term upside potential is 16,698
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 STATUS OF MARKET: Bearish – buying opportunity in mini-crash scenario
 OPPORTUNITY: RISK: Risk high, but opportunity for traders at lower levels.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: Fear taking hold. Concern for the number and extent of additional bumps in interest rates by the Fed; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Bear market (20% drop S&P 500) likely
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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 (Get it !)
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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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