Early January Action – KEY !

Investor’s first read – Daily edge before the open
DJIA: 17,603
S&P 500: 2,063
Nasdaq Comp:5,065
Russell 2000: 1,149
Thursday: Dec. 31, 2015 9:04 a.m.
I am expecting 2016 to be a rough year for stocks with some wide swings in the market averages – a field day for market timers. The market was “range bound” in 2015 with numerous swings up and down, but aside from the August plunge and September/October rebound, the swings were tight and hard to exploit.
The market’s trend in January has an excellent track record for signaling the “general tone” of the market for the year. It’s called the January Barometer (JB) developed by Yale Hirsch (Stock Trader’s Almanac) in 1972. Essentially, the trend of the S&P 500 in January is followed by a like change for the year, though a lot of contrary things can happen between January 31 and December 31.
The logic behind the JB is that institutions tend to tip their hand as soon as the new year kicks off, buying if strongly bullish, selling if bearish.
This will be the BIG test for the JB, since a lot of balls are up in the air going into the year, any one of which can come down and do damage.
I am not sure what the Street is thinking, if anything conclusive. Throughout the year they were indecisive, mostly in lock step with the Fed’s indecisiveness on interest rates.
It is a relief that the Fed has acted, With that uncertainty out of the way, we will now see what the Street really thinks.
BEAR MARKET ?: So far, just one or two nasty corrections. It all depends on new negatives hitting the market when it is down and ready for a rebound.
Note: 2016 IS THE YEAR FOR BUYING OILS. A selling climax, a one-day affair with a big plunge and a close on the upside is the ideal scenario. Big money may not wait for that. The Saudi’s are playing a dangerous game. Too many big hitters getting hurt. Pressure from within out the outside will force them to trigger a price rebound, just like they triggered a plunge.
Yesterday’s sell off was triggered by another plunge in the price of oil, which is down again today. The market is still plodding through the year end muddle of institutional portfolio adjustments (showcasing winners – dumping losers).
Early trading in January will help clear the picture a lot.
The Bulls couldn’t prevail yesterday – not good. Oil stocks are getting pounded in pre-market trading which doesn’t help. Bulls must do better than this, perhaps a rebound this afternoon.
SUPPORT “today”: DJIA:17,521; S&P 500:2,055; Nasdaq Comp:5,043.
RESISTANCE “today”: DJIA:17,666; S&P 500:2,068 ; Nasdaq Comp.:5,086.
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.
OIL (Not yet)
I am not an expert on oil or commodities, not even close, but basic industries in a free fall will eventually become attractive either by way of a change (or perception thereof) in the fundamentals or extreme undervaluation as a result of emotional /panic selling.
The severe plunge in Brent and West Texas Intermediate crude oil prices over the last 18 months has crushed oil stocks and the stocks of related industries.
The potential exists for a selling climax in these stocks as negative press and industry forecasts gain momentum forcing investors to simply dump these stock, funds and ETFs indiscriminately, hammering prices down to a point they attract enough bargain hunters to stabilize prices.
There can be false rallies along the way, sucking traders in prematurely, creating losses within hours, days. These are usually triggered by rumors or commentary by industry sources, mainly OPEC..
Timing buys can be treacherous even for the pros.
Whether oil stocks will get hit this hard depends on whether institutions with a long-term horizon believe they are a bargain and step in.
There is an opportunity shaping up for those who can afford the risk.
Pre-presidential election years have a record of being the best of the four-year election cycle with presidential election years running a close second. But the eighth year of a two-term presidency is the exception with the S&P 500 losing an average of 10.9% going back to 1901.*
This supports my expectation of a correction in January setting the precedent of a volatile year for stocks in 2016.
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 December 29, 2015, a reasonable risk is 117,209 a more extreme risk is 16,920. Near-term upside potential is 18,056.
 STATUS OF MARKET: Bullish but “at risk” of a major correction in January.
 OPPORTUNITY: RISK: Risk increases with higher market, but light on the Street is GREEN in spite of negatives. January plunge possible.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: Concern for the number and extent of additional bumps in interest rates by the Fed; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Fed bump in interest rates now official. While Fed has assured the Street additional bumps will be modest, doubts by some will have an impact.
Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
*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

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