Bulls Must Bring It

Investor’s first read – Daily edge before the open
DJIA: 18,325
S&P 500:2,159
Nasdaq Comp.:5,211
Russell 2000: 1,235
Tuesday, September 13, 2016 9:05 a.m.
Last week, three central banks opted out of further stimulus (Australia, Canada, and the ECB) – a disappointment.
ECB President Mario Draghi was unenthusiastic about extending QE beyond March 2017, the Fed’s Eric Rosengren and Daniel Tarullo implied support for a Fed rate hike in September. Bond guru, Jeffrey Gundlach (DoubleLine Capital’s CIO) said it is time for higher interest rates.
Long-term bonds and yield stocks plunged taking all market averages below major support levels.
Yesterday, Fed’s Dennis Lockhart spoke at 8:00 a.m., implying he leaned more toward raising rates, Neel Kaskari and Lael Brainard followed at 1:00 p.m. with a more dovish tone just in time to add extend a solid rally higher.
Not sure what the good news and bad news is here, but there will be no more comments out of the Fed until Wednesday the 21st. There is a blackout period which starts the Tuesday of the week preceding a FOMC meeting and ends the Thursday after the meeting.
Just a reminder there is NO PRESS CONFERENCE scheduled following Next week’s meeting. IF one is suddenly scheduled, expect a rate increase. I doubt they would bump rates without a press conference.
-Bank of England Sept. 15
-FOMC releases decision on rates at 2:00 p.m. Sept. 21 followed by a press conference at 2:30.
-First presidential debate Sept. 26
-OPEC meets on Sept. 26-28

There is a chance the presidential polls will show a dead heat this month between Clinton and Trump with the possibility that the Libertarian ticket (Johnson/Weld) could act as a the swing factor in several key states, Ohio for one.
If this happens it would inject major uncertainty into the market with the potential of a plunge in prices, and there would be little the Fed can do to stop it.
Not yet considered by the Street is how good is the estimate for a 13% increase in S&P 500 earnings in 2017 ?
Q2 earnings were down 3.2%, the fifth straight quarterly decline, much of it due to the crunch in energy industry earnings. Q3 is projected to mark the sixth straight decline in quarterly earnings with a drop of 2.1%, but Q5 is projected to increase 5.5%.
Oil prices have been falling, which stands to impact earnings of oil and related stocks. The U.S. dollar is strong and can get stronger if the Fed raises interest rates, which will impact multinational stock earnings. The reverse is true if oil prices rebound as a result of OPEC’s meeting, and the dollar weakens if the Fed opts out of a rate increase – stay tuned.
August manufacturing took another hit with the ISM Index slipping to 49.4 from 52 (50 is the growth/no growth threshold).
Labor costs are up while worker productivity is in its longest slide since the 1970s, crunching margins.
Should the contest for the presidency become a toss up, uncertainty on the Street will mount and the stock market will have to find a comfort level at lower prices.
Sharp declines in the ISM Non-Manufacturing Index, U.S. Services PMI, and Labor Market Conditions Index reports last week combine to give a determined Fed something to think about next week when it decides on a hike in rates.
Again, there is no press conference scheduled following next week’s FOMC meeting, Wednesday the 21st. If the Fed suddenly schedules a press conference, expect it to announce a rate increase. Then too, the minutes of the meeting it reports are three weeks old, so how helpful is that ?
These “single-focus” markets ( Fed dependency) are tricky, and dangerous. Everything depends on what the Fed does, nothing else matters – until it does !
The market plunged Friday when it began to look like the Fed would bump rates next week and foreign central banks were reluctant to ease further.
It rebounded yesterday in hopes that the Fed would NOT bump rates, helped along the ay by dovish statements by Fed’s Kaskari’s and Brainard’s dovish statements.
Today the market will slip at the open, a normal technical reaction after a sharp bounce, and we should then get a look at who swings the big bat – bulls ? or bears ?
The uncertainty about the November election is beginning to escalate and could override FedSpeak.
Yesterday, I headlined, “Rally Attempt “MUST” Hold, or…..”.
Whole it did not give back much of its gain, today’s weakness is disturbing.
As I have warned repeatedly, declines in this Fed-focused market can be abrupt and steep (August 2015, January 2016).
The bulls need to bring it today, or we will get one of those corrections. Near-term downside risk here is DJIA: 17,705, S&P 500: 2,068, Nasdaq Comp.: 4,907. Today’s tone will tell a lot. Another sharp one-day reversal like yesterday’s would help the bull case.
SUPPORT “today”: DJIA:18,174; S&P 500:2,139; Nasdaq Comp.:5,161
RESISTANCE “today”: DJIA:18,296; S&P 500:2,157; Nasdaq Comp:5,193
Note: These are levels that supply resistance if the market rebounds from its early sell off.
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 September 2, 2016, a reasonable risk is 17,582 a more extreme risk is 17,353 Near-term upside potential is 18,753.
(So far this is not holding up)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q3, and 2016 earnings questionable with strong U.S. dollar.
Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Bloomberg.com (Excellent pre-market read)
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.

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