Bulls Desperately Need 2016 Earnings Growth

Investor’s first read – Daily edge before the open
DJIA:16,398
S&P 500: 1,923
Nasdaq Comp:4,637
Russell 2000: 1,041
Tuesday: Jan. 12, 2016 9:10 a.m.
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It’s safe to assume this 7-day, 1,400-point plunge in the DJIA is a test of the August/September lows (DJIA 15,370; S&P 500: 1,870; Nasdaq Comp.:4,292) is in the process. The major market averages haven’t gotten there yet, but the IBD Mutual Funds Index of 19 funds “has.”
How bad can it get ? Has a bear market begun ?
Corporate earnings will rise to the surface in 2016 as the “decider”. The flow of Q4 earnings started with Alcoa’s (AA) report yesterday.
S&P 500 earnings for 2015 will drop some 5.5% (ex-energy – flat). The Street is looking for some 7% growth this year. Projections were for growth of 8% last year and ended with zilch for the year, though the market held up well considering.
Stock prices won’t hold up as well if revisions start to plunge again this year. Expect a bear market if they do.
THE FED
Officials from the Federal Reserve are out in force this week. Expect them to attempt to stem the carnage in the stock market. Yesterday the Fed’s Lockhart and Kaplan spoke. Lockhart’s speech started at 12:40 when among other things he said that there was likely not enough new data to justify a Q1 rate hike. The market started to recover shortly thereafter. Speaking in Dallas, Kaplan focused on the plight of the oil industry where the outlook is not good.
Today, Fed’s Lacker will speak at 3:15. Wednesday its’s Rosengren (7:45 a.m.) and Evans at 1:00 p.m. an hour ahead of the Beige Book’s release. Thursday it’s Bullard and Friday, Dudley.
TODAY:
The trend of stock prices in January (January Barometer)* has consistently forecast the general “tone” of the stock market for the year going back to 1972.
But stats can be deceiving. A lot of parallels are now being drawn with 2008’s bear market when the S&P 500 was down 6.1% in January and down 38.5% for the year. But it must be noted, that while January 2009 was down 8.6%, the market was up 23.5% for the year.
Since last December, I have been expecting January to be down and 2016 to be a rough year. But I also see it as a year of opportunity for investors with patience and a reasonable sense of timing.
Hey ! The sky didn’t fall yet. Why not do a little bargain hunting. Not go “all-in” but nibble. That’s an idea that an institution with deep pockets and a long-term horizon can afford to do.
Reportedly, President Obama’s State of the Union address tonight will focus on a host of positives to counter all the campaign negativism getting headlines in recent weeks.
A bounce is indicated by buying in futures prior to the open.
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SUPPORT “today”: The market will open on the upside today. This market is too nervous to cope with a rally failure.
RESISTANCE ‘today”: DJIA: 16,576; S&P 500:1,947; Nasdaq Comp.:4,676.
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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.
*Stock Trader’s Almanac (Get it !)
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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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