Critical Day – Bull/Bear Tipping Point

Investor’s first read – Daily edge before the open
DJIA: 18,034
S&P 500:2,125
Nasdaq Comp.:5,173
Russell 2000: 1,211
Thursday, September 15, 2016 9:09 a.m.
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.
While the DJIA and S&P 500 failed to hold their rally gains yesterday, they did hold up above support generally at DJIA 18,000 and S&P 500: 2,120. The Nasdaq Comp. bottomed out three days ago at 5,100 and has been more upbeat.
Next Wednesday’s FOMC meeting is now expected to be a non-event, not even a press conference.
If there is a swing factor here, it is the election, not just the presidency but all the other races. It is now a dead heat, and that should spell uncertainty and real concern for anyone capable of thinking outside the Fed box.
While they are thinking outside the Fed box, they may want to think about Q3 earnings, which stand to mark the sixth straight down quarter.
The Street seams to be able to ignore that string of losses, looking instead to 2017 when S&P 500 earnings are expected to a post double digit rebound with hope that the energy sector will help rather than hurt S&P earnings, bringing its price earnings ratio down closer to the norm (14.2 x).
If suddenly the Street sees 2017 earnings falling short of a double digit jump, its algos may all simultaneously say ‘sell.”
This is the kind of thing the Street used to ponder.
The market can absorb two rally failures, but not a third. The bulls must override selling here or yield to an ugly crunch today and tomorrow, as the market averages crash through this four-day support and trigger increased, possibly panicky selling.
SUPPORT “today”: DJIA:17,896; S&P 500:2,111; Nasdaq Comp.:5,131
RESISTANCE “today”:DJIA:18,111;S&P 500:2,135; Nasdaq Comp:5,197
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:
* (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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