Breakout and Run…or Rally Failure ?

Investor’s first read Daily edge before the open

DJIA:  16,492
S&P 500:  1,969
Nasdaq  Comp. ; 4,811
Russell 2000:   1,161

Wednesday:  Sept 9,  2015   9:09 a.m.

///////////////////////////////////////////////////////////////////////////////////////////////////////////

TODAY:

      Look for a breakout above the Aug. 28 rally highs ( DJIA 16,669; S&P 500: 1,993; Nasdaq Comp.: 4,836) , which will be taken as a BUY signal in some technical quarters, triggering additional buying.

     Bears will use this buying to sell resulting in a correction during the day. That correction must be studied closely. If buyers are quick to step in aggressively the rally that started Monday will close the market on a strong note with higher prices to come.

      BUT, the Bulls must be persistent in their buying, no room for rally failures.

      The fall to spring period is traditionally the year’s strongest* so this could be the beginning of a major up move.

      What are odds of a test of the Aug. 24 flash crash lows ?

       I’d say one-in-three and fading.

SUMMARY:

      Big hitters returned yesterday to buy aggressively at the open.  Short sellers did likewise, as they realized last week’s weak showing was not continuing into this week.

      Stock-index futures are ahead  prior to today’s  open indicating a strong beginning for the  trading day.

      It would have defied human nature, and common sense, to buy late Friday ahead of a three-day holiday and Tuesday’s “gap” open.

      Suddenly, the train appears to be leaving the station without so much as an “All Aboard.”

      Enter “angst” at its worst.  This could be a move to new highs, one thinks, not giving thought it could be one of many head fakes prior to another leg down in a declining market (bear market rally)

      No one likes to buy at the open, too much risk you’ll get skewered by the high for the day.

      The impact of big money acting on news or in concert is responsible for sudden surges like these.

       The only way I can see to deal with them  is to be ready with a list of stocks you want to own, a limit of what you will pay for them, then to take a partial position. If you plan to buy 500 shares, buy 100 – 200 and wait for the dust to settle. If the stock runs away from you, you at least have a position,  If it drops your loss isn’t as great as it would have been had you bought all 500 shares.  Assuming nothing has changed fundamentally, you can average down on your cost.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 

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.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

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” (0.1498588) 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 8, 2015,  a reasonable risk is 15,827; a more extreme risk is 15,713. Near-term upside potential is 16,930.  Note: A drop below DJIA 15,713  would be very bearish.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
NEWS ENVIRONMENT    

        The following news has been  a contributor to recent market weakness, though most of these issues have been with us for weeks/months. 

-a flawed trading system allowed another flash crash with the DJIA dropping more than 1,000 points at the open Aug. 24. July business investment is picking up.

-Chinese stock markets worst drop since 2007,  currently rebounding

-European stocks on verge of bear market (Germany’s DAX off 20%)

-U.S. stocks recovering from ugly crunch

-Commodities at 16-year low, but oil stabilizing.

-currency meltdown

-No one has a clue when the Fed will bump interest rates, including the Fed. The latest comment was by N.Y. Fed’s Dudley who said an increase in Sept. is “Less compelling”.

-Brent oil and WTI oil rebounding from lows

      NOTE: Some of the Street’s pundits are arguing that this market behavior is unreasonable since the U.S. economy is doing well, if not great. Bear in mind, the stock market has historically been an early warning signal for the beginning of a recession, leading by as little as two months and as much as  13 months.

………………………………………………………………………………

  • STATUS OF MARKET: Bullish but in a correction  into the fall.
  • OPPORTUNITY: Volatility has set in, market has rebounded from August’s “flash crash”  and is approaching an area of resistance.
  • RISK: Above average with news sensitive market.
  • CASH RESERVE: 25%
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; technical underpinnings weakening
  • CONCLUSION:  Having broken major support levels, the market is probing for a level that discounts uncertainties and negatives.
  •  

SUMMARY 

     The biggest factor here is the U.S. economy.  Will it rebound from its reported Q1 slump, which most likely  was distorted by weather, oil prices, the impact of a strong US dollar, even seasonality ?   An updated Q2 GDP reported came in at plus  3.7% (ann. rate) up from 2.3% initially reported.   Recession does not look like a real risk, so much as a “pause” in the economy.     

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>.c

Note: Source of economic data

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

…………………………………………………………………………………

*Stock Trader’s Almanac

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *