Bulls Gassed

Investor’s first read – Daily edge before the open
DJIA:16,413
S&P 500: 1,917
Nasdaq Comp.: 4,487
Russell 2000: 1,004
Friday: February 19, 2016 9:02 a.m.
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If a freeze in oil production is the best we can hope for, that may not be enough to power recoup 2016’s losses.
But don’t count out the Federal Reserve. Timely speeches by Governors have a tendency to impact stock prices at key junctures. Wednesday the Fed dispatched St. Louis Fed president James Bullard to assure the Street an interest rate hike at this time was not his preference. Last year he was a big advocate for hikes. Expect the Fed to be hyping the market in coming weeks, especially if it looks like the Jan./Feb. double bottom is in jeopardy.
The Fed’s credibility is hurting. We would like to know they have a handle on events and prospective events. This is what happens when an organization gets cute with stock prices.
Oil ( and the stock market) would get an additional boost if other oil producers fall in line with the Saudi’s and Russia. It would make sense if they did, no one can afford to see the price of oil go lower.
No room for unpleasant surprises here.
If the DJIA and S&P 500 break out above the February highs of 16,485 and 1,947, it would trigger a surge of buying.
If we are in a bear market, that is based on more than oil, that breakout would be a fake out and the market would plunge again.
Be aware this can happen, as well.
This is a dangerous market. I don’t think the Street knows what to make of it. I only know to respect its surliness and unpredictability.
Today will open down. If the bulls have anything left in their tank, they will reverse today’s slide. My feeling is a correction is needed first before any upside is possible.
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SUPPORT “today”: DJIA: 16,273; S&P 500: 1,901; Nasdaq Comp.:4,448
RESISTANCE “today”: DJIA:16,576; S&P 500:1,935: Nasdaq Comp.:4,526
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THE MAKING OF A BEAR
Unless triggered by some horrific event, a bear market isn’t obvious at first. It begins with slippage as if it is just another correction in an up trending bull market. But rallies fail to attract enough buyers to reach new highs. Some begin to sell, others remain on the sidelines. Interest fades and bids weaken in face of one disappointment after another – new negatives surface – stocks start to slide – the Street’s optimism wanes, then sours. Fear mounts, then accelerates, as investors start to raise cash. No longer is it heresy to mention the word “bear.” Doomsters re-surface with talk of DOW 6,000. Fear turns to panic. No one, not anyone, wants to buy a stock. Selling intensifies. “If only I sold at a higher level,” investors lament, “I could be buying here.” The selling drives prices lower until one day when no matter how much selling there is, the market doesn’t go lower (capitulation).
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To qualify as a BEAR MARKET
The DJIA must drop to 14,680, the S&P 500 to 1,707. The 2007 – 2009 bear was down 57%, 2000 – 2002 down 50%. The average decline of a bear market since 1971 is 31%.
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EARNINGS
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. As of Friday’s close, that works out to a P/E of 14.9 vs a 10-year average of 14.2. 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.
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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 February 17, 2016, a reasonable risk is 15,854 a more extreme risk is 15,738. Near-term upside potential is 16,576 The abrupt change here is due to last week’s sharp rebound.
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 STATUS OF MARKET: Bearish – but trying to turn. Expect volatility
 OPPORTUNITY: RISK: Risk high, but opportunity for traders at lower levels.
 CASH RESERVE: 25% – 45%. Consider 75% now
 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 Q1, and 2016 earnings as a whole.
The Street is counting on a big jump in Q3 and Q4.
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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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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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