Big Jobs Report – Don’t Buy the Rally

Investor’s first read – Daily edge before the open
DJIA: 16,514
S&P 500: 1,943
Nasdaq Comp:4,689
Russell 2000: 1,064
Friday: Jan. 8, 2016 8:58 a.m.
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As expected, a technical rally intervened yesterday – as expected, it failed. This is normal behavior in markets under severe downside pressure. Thinking the market is turning up, investors jump in, only to find the market quickly turns back down adding yet another loss to a losing portfolio.
A test of the August/September lows (DJIA 15,370; S&P 500: 1,870; Nasdaq Comp.:4,292) is in the process.
We have passed the “ouch” point and are en route to capitulation where investors panic and dump stocks indiscriminately.
This is all about mounting fear, everything else is off the table. No one cares about P/Es, dividends discounted into the future, 2016 forecasts, and other meaningless crap. What is gripping investors now is, what if this is “the BIG One” ?
It “is” the down January and the beginning of the rough year I have expected for six weeks. But, take heart, I also see one or more buying opportunities shaping up, and more opportunities for the mimble trader.
How bad can it get ?
There will be plunges and rallies that are within reason – readable.
What cannot be anticipated is what new negatives will hit the market when it has been hammered beyond reason and is on the verge of rebounding. That’s the difference between an 8% – 12% correction and a 20% to 30% crunch.
CASH is an investment ! With Cds, money markets, etc. still yielding zilch, it is hard to justify not “working” every cent. The obvious benefit with the market down 10%, is an investors loss is less. But having a cash reserve of 25% to 45% as I have suggested gives an investor the potential to not just to take advantage of newly attractive opportunities, but to average down on stocks bought at higher prices.
TODAY:
The futures are trading up prior to the open indicating nibbling by institutions and a positive reaction to a big jobs report.
That’s not enough to turn this market. This plunge is about uncertainties such as corporate earnings, the Fed and an election. It is also “technical,” a sudden imbalance between buyers and sellers meaning the market must find a level where enough buyers surface to stabilize prices. The market must probe for that level, which means a bunch of false starts.
Today’s rally is suspect.
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SUPPORT “today”: DJIA:16,228; S&P 500:1,909; Nasdaq Comp:4,607.
These levels take into consideration the possibility of renewed selling after the early morning rally.
RESISTANCE ‘today”: DJIA:16,747 ; S&P 500:1,971; Nasdaq Comp.:4,754.
Today’s rally should run into resistance at these levels. If the Fed steps in with rhetoric designed to stabilize the markets, the rally will extend further.
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THE FED !!!!!!!!!!!!!!!!!!!!!!!!
Expect the Fed to trot out a few of its “spokes-persons” to stem the carnage. Expect these Fed messengers to say, “In light of the market turmoil, we plan to delay any further increase in interest rates until conditions stabilize.” Re-assuring commentary would trigger a sharp, but temporary rally, which would trigger a surge of buying only to be followed by another leg down. Sound sleeping traders with deep pockets can play this kind of rally, but the rally would be a bear trap, unless it comes out of an incredibly deep selling climax well below current levels.

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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.

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.
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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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