Bulls Trying To Break Through Resistance

Investor’s first read – Daily edge before the open
DJIA:16,416
S&P 500: 1,915
Nasdaq Comp.:4,509
Russell 2000: 1,014
Friday: February 5, 2016 9:05 a.m.
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The Bulls stepped up to the plate once again when the market opened lower and closed things out with a modest gain.
Positive but not game changing. We are still locked in a whipsaw, up one day down the next.
This is a consolidation pattern that can be resolved either way.
The broad-based S&P 500 is down 10% from its May 2015 high. That’s a ho-hum compared with the carnage a bear can mete out in all its fury.
This is definitely a green stick fracture, and it wouldn’t take much more for it to reach a full break.
January met my expectations, and I still see the rest of the year as rough, but with several juicy trading opportunities.
TODAY
I am prepared for the possibility of an upside breakout of this sideways, whipsaw trading pattern in coming weeks and a run at DJIA 16,789 (S&P 500: 1,957) before the beginning of a second leg down in April when Q1 earnings and guidance are released for the second half of 2016 when earnings are expected to jump.
That’s a bit far out there, but the possibility should be part of one’s thinking, since a breakout would get a lot of press and forecasts on the Street of a renewal of the bull market. This kind of market action blindsided investors in Q1 of 2008. They thought the breakout was a green light to dig their cleats in for a new leg up in the 2002 – 2007 bull market.
There is good support in the DJIA 15,870 area (S&P 500: 1,870). A decisive break below those levels would be very bearish.
There is resistance in the DJIA 16,590 (S&P 500: 1,950) area. A break above those levels would be bullish.
Based on what is “known,” the bulls should be buying aggressively. So far, they haven’t, which begs the question – “Why ?”
The economy added 151,000 jobs in January and the unemployment rate dipped to 4.9%. Bullish ? Bearish ? Depends on who you ask. If it encourages the Fed to bump rates in March, its bearish, somewhat bullish if it doesn’t.
Odds favor spike up, even though pre-market trading in the futures indicate a down open.
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SUPPORT “today”: DJIA:16,337; S&P 500:1,902; Nasdaq Comp.:4,468
RESISTANCE “today”: DJIA:16,551; S&P 500:1,951; Nasdaq Comp.:4,544
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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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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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OIL :
On Jan. 7, I listed “panic prices of selected oil stocks,” seeking to pinpoint the level where these stocks would bottom out.
Four of the six oil stocks/ETFs plunged below these prices briefly, then rebounded.
I warned that, “If production cuts are mentioned, the bottom ‘is in.’ ”
No one officially said production cuts would be agreed to, but it was implied, ergo the oil stocks bottomed out on Jan. 20. Buyers below those panic prices should lock in a quick gain. We may be ready to test the lows.
As of Jan. 29:
Panic prices selected oil stocks and results:
ETF (OIH) projected bottom: 21 – low was 20.46 – up 18.6%;
ETF (XOP) projected bottom: 24 – low was 22.06 – up 5.3%; 24;
ETF (VDE) projected bottom: 69 – low was 68.63 – up 16.5%;
ETF (XLE) projected bottom 50 – low was 49.93 – up 7.2%.
Exxon Mobile (XOM) Chevron (CVX) did not drop to projected bottom.
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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 29, 2016, a reasonable risk is 16,261 a more extreme risk is 16,010. Near-term upside potential is 16,772
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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, 2016 earnings
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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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