Bull – Bear Crossroads

Investor’s first read Daily edge before the open

DJIA:  16,314
S&P 500:  1931
Nasdaq  Comp.4,686;
Russell 2000:  1,124

Monday:  Sept. 28,  2015   9:13 a.m.

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      Big week ahead for reports on the economy, starting today with  Pending Home Sales (10 a.m.) and the Dallas Fed Mfg. survey (10:30 a.m.).  The most watched report will be the ADP Employment report at 8:15 a.m. Wednesday and the Employment Situation report 8:30 a.m. Friday, since they will have a bearing on a Fed decision to raise interest rates. 

TODAY:

      Friday’s rally failure came after the S&P 500 and Nasdaq Comp hit targeted resistance, then gave it all back by the close. While the DJIA closed ahead 113 points, 68 of that gain was due to a 10 point gain in Nike (NKE).

      While the market reversed a six-day sell off last Thursday, it closed on a soft note Friday.

       IMPORTANT:  This  17-day consolidation phase following the Aug. 24 flash crash can serve as a base for a rebound in stock prices   That suggests a chance of a surge into 2016.  That possibility cannot be dismissed even in face of a lot of bearish news and deflationary activity in commodities, especially copper.

      A lot of damage has already been done.  FactSet.com  notes that 21.6% of the S&P 500 are already down 20% (a bear market benchmark) and 9 out of 10 S&P 500 sectors are down for the year.

      It is not easy to be bullish at this time, but these are the conditions that spawn a surprise rebound.

        Most likely that rebound would arise from a scary spike down and a high volume, one-day reversal where a 300 – 400 point plunge in the DJIA is reversed with the market closing in the black.

         HOWEVER, we cannot afford to ignore cracks in the fundamental foundation  and a greenstick fracture in the market averages. It wouldn’t take more than a nudge to trigger a breakdown in prices to new 2015 lows.

        Q3 earnings will start to hit the Street next month along with adjustments in future estimates/guidance. I can’t see how they will make good reading.

CONCLUSION:

       Odds favor a rebound, but odds also suggest a strong  possibility of a harrowing shakeout first below DJIA 15,000 (S&P 500: 1,780). The extent of that shakeout will depend on what new news hits the market when it is trying to rebound.

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SUPPORT today:  DJIA:16,130  S&P 500: 1,909; Nasdaq Comp.:4,634

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NOTE:  There is no FOMC meeting scheduled for November, and no press conference scheduled for October. If a press conference is suddenly scheduled for October, it will be a tip off to an announcement of a rate increase, likewise  for a meeting/press conference is scheduled for November.

      

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THE FED – Why they blew it !

      The Fed’s decision not to initiate a rate increase at its September FOMC meeting now gives the Street the impression that when it does the economy is really heating up and additional rate increases are not far behind.  That will jolt the Street into heading for the exits.

      The Fed  wanted to ease the economy and markets into the rate increase process, but overstayed its zero-rate policy.

     There always will be reasons for caution, there will never be a “best” time.  If the economy cannot handle a minor increase in rates, we have bigger problems than anyone realizes.

      I do not believe that is the case, but the Street may see it differently when the Fed acts.

      Until now, I expected a rate increase to be accompanied by a brief but sharp sell off, followed by a BIG rally.  Odds of that are fading.

      The Street has  shuffled along behind the Fed on its decisions starting with “taper, or no taper” now with “Will it, or won’t it” on interest rates.

      The Street needs new benchmarks.  Going into a Presidential Election Year, the likelihood of an increase in interest rates lessens. The sooner the Street begins to focus on other factors, such as earnings ( a year out)  and valuations, the better everyone will be served itself included.

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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.

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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 DJIA “divisor” (0.149677) 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 25, 2015,  a reasonable risk is 16,168 a more extreme risk is 15,980. Near-term upside potential is 16,622.  Note: A drop below DJIA 15,713  would be very bearish.
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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. 

-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

      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.

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  • 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.
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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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*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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