Bulls Need a Follow Through

Investor’s first read Daily edge before the open

DJIA:  16,472
S&P 500: 1,951
Nasdaq  Comp.: 4,707
Russell 2000: 1,222

Monday:  Oct. 5, 2015   9:15 a.m.

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     Global stock markets continue to welcome bad news as “good,” with surges here and abroad. 

      Friday’s 8:30 jobs report fell far short of expectations converting  what was going to be a strong open into a sharp sell off before the open. 

      But buyers jumped on the weak open when it dawned on them that a softening economy  pretty much pushes a Fed increase in interest rates into 2016.

      The conclusion by the Street  that, “Bad news is bullish – good news bearish” has been the Street’s drumbeat for years.  It will change abruptly some day when “bad” is truly bad, that regardless of what the Fed does, the economy and stocks are headed south, non-stop.

       Like it or not, this is the game we must play. My point here is, just be open to the fact this illogical thinking will change some day when buying bad news marks a market top.   

TODAY: 

       Extreme volatility has characterized trading off and on for years.    What is needed by the bulls is a follow through, more than a one or two day move, but a trend upward, with buyers on dips.

       If the bulls are going to get this, now is the time for it. A breakdown below DJIA 16,016 (S&P 500: 1,908) would set the stage for a major drop in prices.       

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RESISTANCE today:  DJIA: 16,617; S&P 500:1,968; Nasdaq Comp.:4,751.

SUPPORT today:  DJIA: 16,326; S&P 500: 1,936; Nasdaq Comp.: 4,661

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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.     >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>    

WHAT THE FED SHOULDS DO:

       No fewer than six (6) Federal Reserve heavies speak starting at 8:30 and ending at 1:00p.m..  WOW !  Six in one day, – That, and Hurricane Joaquin all for one weekend !

        What the Fed should do is what all of us investors, analysts, etc who have been in this for a while have learned to do  and that is to come out and admit they erred by inaction in the past and now with  implying a rate increase was likely by year-end. “We were wrong” –  Say it !  The numbers don’t justify it now.  Then  add, “When the numbers and international risks justify it we will raise rates, not before.”

      The Street is as much to blame as the Fed. It’s all about the Fed – Will it ? Won’t it ?  The Street  should get back to basics – the bigger picture – earnings one year out, not this asinine quarter-to quarter stuff; the big economic picture here and abroad, U.S. Governance, Corporate responsibility.

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  October, 2 2015,  a reasonable risk is 16,260 a more extreme risk is 16,155. Near-term upside potential is 17,164.  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 “at risk” of  a bear market.
  • OPPORTUNITY: Volatility has set in, market has rebounded from August’s “flash crash”  but will likely drop to a lower level.
  • 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.

*Stock Trader’s Almanac ( New edition should be out)

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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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