Big “Technical” Day – Bull/Bear Showdown

Investor’s first read – Daily edge before the open
S&P 500:2,139
Nasdaq Comp.:5,241
Russell 2000: 1,228
Wednesday, September 21, 2016 8:40 a.m.
When will Wall Street’s computers recognize the November elections are important and the outcome uncertain ?
When will Wall Street’s computers recognize the Fed’s policy of ease is limited, that other factors must be considered in arriving market valuation ?
-The uncertainty created by a dead heat in the race for the presidency
-Q3 earnings reports in October, which are expected to mark the sixth straight quarterly decline for the S&P 500.
-a downward revision of 2017’s S&P 500 earnings, currently expected to increase 13.4%.
-further decline in oil prices, which will impede that industry’s recovery.
Week’s Economic Calendar
Today: Jobless Claims and Chicago Fed Activity (8:30); FHFA House Prices (9:00 a.m.); Existing Home Sales, Leading Indicators (10:00 a.m.),
FOMC meeting ends – Press conference !!!
Friday: PMI Mfg. (9:45 a.m.), Atlanta Fed Business (10:00).
Also Friday: Regional Fed Presidents Panel (12:00 p.m.).
FOMC statement at 2:00 p.m. today and a press conference at 2:30.
The market action Monday wasn’t pretty, nor was yesterday’s. Two rally failures in a row.
This is normal, since the Street is awaiting a Fed decision today, but only a few expect the Fed will bump rates, the first time since last December.
The Bank of Japan passed on lower rates (near zero now) last night, and there’s speculation that its action may be setting a tone for the ECB and Bank of England. Lower rates discourage financial institutions from lending (borrow short/lend long).
Crude oil is up ahead of next week’s OPEC meeting and hopes of cut backs in production.
U.S. stock markets have been churning ahead of today’s FOMC meeting. I don’t expect a rate increase, but the tone of the Fed Chair Janet Yellen’s press conference at 2:30.
A major rally failure today where the DJIA is up 110 points, but loses all of the gain by day’s end would be very bearish.
At some point, the uncertainty of the November election has to come into play.
At some point, the Street will crunch numbers for S&P 500 earnings in 2017. Both could be negatives.
A September/October correction would set the stage for a nifty buying opportunity in Q4.
SUPPORT “today”: DJIA:18,077; S&P 500:2,129; Nasdaq Comp.:5,214
RESISTANCE “today”: DJIA:18,265;S&P 500:2,153; Nasdaq Comp.:5,281
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 September 16, 2016, a reasonable risk is 18,011 a more extreme risk is 17,908 Near-term upside potential is 18,435.
(So far this is not holding up)
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.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q3, and 2016 earnings questionable with strong U.S. dollar. Forecasts for 2017 still for a gain in S&P 500 earnings of 13.4%. It has been there for months in spite of deteriorating earnings this year. Any downward revision could impact the market significantly.
Note: Source of weekly economic calendar and good recap of indicators:
* (Excellent pre-market read)
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
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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