Easy Does It ! Market Up 7% in Seven Days

Investor’s first read – Daily edge before the open
S&P 500: 1,917
Nasdaq Comp.:4,504
Russell 2000: 1,010
Monday: February 22, 2016 9:02 a.m.
This weekend, I waded through a whole lot of U.S. and global economic, monetary, fundamental, oil, and technical data with no shortage of interpretations and opinions, and can only conclude uncertainty is about the only thing that is punching to new highs.
January’s 9.5% plunge, the worst in 66 years, even worse than 2009, indicates the Street doesn’t have a handle on what will happen this year.
But two rebounds (Jan. 20 and Feb.11) suggest there are buyers “at a price,” responding to the Fed’s hint it won’t be in a hurry to raise rates at its next FOMC meeting March 15-16, as well as to speculation that Saudi Arabia’s Feb. 16 announcement (Doha accord) about a freeze” of oil production at current levels would lead to cuts and a rebound in prices.
This issue may get clarification Tuesday when Saudi’s Oil Minister, Ali al-Naimi, addresses the HIS CERAWEEK conference in Houston.
With the Fed and oil hogging center stage, not too much ink is given to global economics. Rightly so. It too is a mix of positives and negatives. For a broad bush account, see mam.econoday.com.
On Dec. 14 I warned that the market will top out during the first week in January 2016 entering correction of 8% – 14%. Subsequently, I indicated 2016 would be a rough year, but with several buying opportunities.
January is history, and I hold to the expectation of the rough year, but with a few buying opportunities. The latter will require timing and a willingness to buy when the market is down and looking like it is going down further – not easy to do.
This morning, the DJIA is set to break out above the February highs of 16,485, but the S&P 500 Nasdaq Comp. and Russell 2000 have further to go. The DJIA is what the press (not Street) focuses on, so the breakout should attract a lot of attention.
Buying breakouts in an uncertain investment environment like this is risky. The DJIA is already up 6.6% in seven days. Cool it !
RESISTANCE “today”: DJIA:16,591; S&P:1,938 ; Nasdaq Comp.:4,531
To qualify as a BEAR MARKET
The DJIA must drop to 14,680, the S&P 500 to 1,707. The 2007 – 2009 bear was down 57%, 2000 – 2002 down 50%. The average decline of a bear market since 1971 is 31%.
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 17, 2016, a reasonable risk is 15,854 a more extreme risk is 15,738. Near-term upside potential is 16,576 The abrupt change here is due to last week’s sharp rebound.
 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 mam.econoday.com.
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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