Blow Out …. or Blow Off ?

Investor’s first readDaily edge before the open

DJIA: 18,252
S&P 500: 2,121
Nasdaq  Comp.: 5,050
Russell 2000: 1,245

Friday, May 15, 2015   8:52 a.m.

TODAY:
Yesterday was a very positive day in line with projections and the potential for new all-time highs for the DJIA (18,288) and S&P 500: 2,125 today. As you can see, these two blue chip averages(indexes) are at the upper end of a three month trading range outlined below.

      Two things:

  1. New highs would get headlines in the press and  attract emotional buying.
  2. Expect institutions to do some selling resulting in the possibility of a  rally failure to follow the new highs. Currently, the DJIA is up 5.3% and S&P and Nasdaq Comp. up 2.4% in 7 days.
  3. If the selling is massive, expect a major correction, i.e. the BIG money has been waiting to pull the plug and new highs is their chance to do it at the best price.
  4. If  massive selling c does not show up, a rally failure and sharp technical correction will be reversed in a day or two and a full scale breakout develop.

Support today is DJIA: 18,288; S&P 500: 2,114; Nasdaq Comp.: 5,026.   

     Two weeks ago, I  headlined  that the month of May will be a crossroads where the market will move decidedly up or down, breaking out of the  three month trading range, roughly (DJIA 17,600 – 18,200; S&P 500: 2,040 – 2,120; Nasdaq Comp.: 4,850 – 5,100).

ALERTALERTALERT

     The six months period between Nov. 1 and May 1 has historically been the best six months for the stock market.* The six months between May 1 and Nov. 1 has underperformed. Consistent as this seasonal pattern has been, it must be noted that opportunities to trade against these trends have occurred often.  Analysts and the press will make a lot of noise about this phenom in coming months –  be careful.
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My Technical Analysis of the 30 DJIA Companies:  

On occasion, I technically analyze each of the 30 DJIA stocks  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” (0.1498588) to get the DJIA for those levels.
     As of  May 14, a reasonable risk is 18,760. The upside potential is19,225 up from 18,334 ! That would be a 5.3% move from yesterday’s close.  This would have to be the breakout from the 3-month trading range !!!
       Based on what we have seen in Q1 earnings, the current economic reports and timing of a Fed increase in interest rates, that’s hard to believe  – BUT the potential is there now. It needs a spark.

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COMMENTS:

     The quarterly earnings reporting period is being its usual pain in the butt. The biggest detriment to consistent valuations is the Street’s over emphasis on whether a company hits the projections the Street sets which are mostly based on company guidance.  It really shouldn’t matter is a company “misses” or fails to “beat” by enough to pass muster.  Company management shouldn’t be so short-term focused.

   And by the way,  who is wrong with a “miss” – the company or the Street ?
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KEY EXTERNAL FACTORS:

-Stock market bubble – China
-Q1 earnings for some companies will suffer from U.S. dollar’s strength and plunge in oil prices.
-Market still keyed on the Fed and it’s first bump up in interest rates, which with a slight softening in recent economic reports looks like it may happen later rather than sooner.
Concern that the U.S. economy is beginning to slump. This week is mixed.

Note: Source of economic data
For a weekly economic calendar and good recap of  indicators, go to mam.econoday.com.

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*Stock Trader’s Almanac

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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