Days of Angst – Buying Opportunity ??

Investor’s first read – Daily edge before the open
S&P 500: 2,111
Nasdaq Comp.:
Russell 2000:
Wednesday, November 2, 2016 8:48 a.m.
The six months between November 1 and May 1, tend to outperform the six months between May 1 and November 1, labelled the “Best Six Months” by the Stock Trader’s Almanac which began tracking the pattern in 1986.
I am a big believer in seasonal patterns, I discovered the Stock Trader’s Almanac in 1968 when no one was crunching seasonality. Published by Yale Hirsch (Now by his son Jeffrey), the Almanac broke a lot of ground in pattern recognition.
The new edition is just off the press.
Over the last 50 years, the November 1 to May 1 period has sported 40 gainers vs. 28 for the May to November period.
This does not mean the best six months won’t have corrections and the worst six months rallies. It does suggest that counter moves in each period may offer opportunities to buy or sell going against the grain !
The best months can last longer than six months and vice versa. Bull markets and unexpected crises can alter the pattern.
Bloomberg’s daily newsletter reports that U.S. commercial banks held $754 billion in Treasury and non-mortgage federal agency debt at the end of Q2. Over that past year, more large and mid-size banks have tightened credit to businesses than at any time since 2009, when the nation was crushed by the housing/mortgage debacle.
What does this mean ? Could be banks are nervous about an economy which is a bit long in the tooth at 7 years and 3 months, or maybe they want higher rates.
This will be a BIG week for announcements on the economy and by the Fed, which releases its FOMC minutes from the September meeting at 2:00pm. Wednesday from its September 20 meeting. No press conference is scheduled. That suggests no bump in interest rates.
The most important economic news this week is on the labor front. The ADP Employment report came at 8:15 today with September payrolls growing 147,000 in September, a good number taking the labor market close to full employment. A more important labor market report comes Friday at 8:30 a.m., the Employment Situation report. If good, the Fed will likely bump rates is December. For a schedule of other reports, go to, there are too many to list here.
While the market seemed to ignore Friday’s FBI announcement on Monday, yesterday was a different story as a sharp sell off broke key support levels in all market averages, as buyers backed off sellers began to panic
The Clinton camp wants clarification of content from the FBI. The magnitude of the project of scanning and evaluating tens of thousands of emails makes that unlikely and any announcement even more unlikely.
But the FBI is under pressure to justify its Friday announcement. All it has to indicate is that its action was justified, and the market is headed south.
It is generally assumed a Trump victory would adversely impact the market, since little is known what to expect. Five days left. What would Yogi say ?
Interest rates have been rising (bond prices falling). This could be front running on a possible Fed bump in rates in December. Without a news conference Wednesday coming out of the FOMC meeting this week, it is highly unlikely the Fed would bump them this time around.
Then too, rising rates suggests the economy will heat up in coming months after the ugliness of campaigning eases. Clearly, it has adversely impacted consumer sentiments and sales.
Long-term bonds have gotten hammered in the last three months. The iShares 20-yr U.S. treasury bond ETF has lost 8.6% since July. That’s four times the yield an investor expected over 12 months. Bonds can be risky. Let’s not forget the name of the game is to buy low and sell high. At some point, the same thing will happen to the stock market.
There is a historically high level of cash on the sidelines. A Bloomberg Markets survey indicates fund manager cash reserves are 5.8%, well above 4.5%, the level that is considered “extreme.”
That combined with the seasonally strong November-to-May six months suggests opportunity. If the market continues to plunge, nimble traders could get a buying opportunity Monday. Their risk would be if Trump wins, which would be followed by a huge gap down Wednesday – Friday, since a Trump presidency is largely an unknown.
The Street will be watching the Fed at 2:00 p.m. Wednesday for clues about its plans for interest rates going forward and studying the jobs report 8:30 a.m. Friday, then it’s the election returns Tuesday night.
While the market seemed to ignore Friday’s FBI announcement on Monday, yesterday was a different story as a sharp sell off broke key support levels in all market averages, as buyers backed off sellers began to panic.
Buying opportunity looming if market gets smashed Monday ?
SUPPORT “today: DJIA:17,866:S&P 500:2,093; Nasdaq Comp.:4,807
RESISTANCE “today”:DJIA:18,106;S&P 500:2,117; Nasdaq Comp.:5,171
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 October 21, 2016, a reasonable risk is 18,026 a more extreme risk is 17,986 Near-term upside potential is 18,481.

 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. Forecasts for 2017 still for a gain in S&P 500 earnings of 12.9%.
Note: Source of weekly economic calendar and good recap of indicators:
*Stock Trader’s Almanac
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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.