Catalyst for a Market Move Looming

Investor’s first read – Daily edge before the open
S&P 500: 1,932
Nasdaq Comp. : 4,557
Russell 2000: 1,033
Tuesday: March 1, 2016 9:06 a.m.
I’ve seen drunken drivers drive a straighter line than the S&P 500.
Nevertheless, yesterday’s decline will be reversed at the open today.
It looks like buyers want to get aggressive, but are afraid to pull the trigger. Forays into the market lack follow through and they back off, allowing the market to fall back. Really, this is all about balance and imbalance for whatever reason, including economics, the Fed, earnings, global events, politics.
The Jan./Feb. rebound this year will serve as a solid base for a recovery, or simply be a way station en route to another leg down and a bear market.
Earnings expectations stand to be a big factor in which way the market goes. Earnings are expected to grow again in Q3 and Q4. Any downward revision to that expectation would hammer stocks. But it works both ways. Any upside revisions to 2016 earnings would drive stocks up sharply. The Street should be getting a handle on Q 3 and Q4 this month.
On March 15 we should know if the Fed is going to bump rates for the second time in three months. With global markets stabilizing and some economic indicators suggesting the same, the Fed may bump rates.
That in itself is enough to jolt the market, but the angst about how many more are out there this year could be enough to tank the market.
If the market does manage to breakout and push north, it will be tested big time in late April when a consistent seasonal tendency for the market to top out sets in. That’s when vision about the Fed, earnings and the election will be closer to 20-20.
SUPPORT “today”: DJIA:16,426; S&P 500:1,921; Nasdaq Comp. :4,531.
RESISTANCE : “today”: DJIA:16,619; S&P 500:1,949; Nasdaq Comp.:4,597
2016 Mirror Image of Aug./Sept. 2015 ???
Again, I want to note that the pattern of trading over the last two months is a near mirror image of the rebound last October from the big sell off in August.
The August 2015 crunch, 11.4% in five days, was one of those “flash crash” phenoms that occurs when the highly leveraged, quant-driven trading mechanisms gets disjointed.
January’s 12.9% crunch took 14 days and was driven by concern about a host of things – plunging oil prices, earnings, the Fed, economy, Europe, and the election.
A double bottom marked the Aug./Sept. 2015 bottom with a solid rebound to previous highs. The Jan./Feb. bottom has yet to sustain a breakout from its base.

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.
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 26, 2016, a reasonable risk is 16,484 a more extreme risk is 16,258. Near-term upside potential is 16,840
 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.
Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to
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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