Easy Does It – Year End Rally to Hit Resistance

Investor’s first read – Daily edge before the open
S&P 500: 2,038
Nasdaq Comp:5,001
Russell 2000: 1,137
Wednesday: Dec. 23, 2015 9:02 a.m.
The sharp sell off following the Fed announcement of its bump in interest rates it didn’t look like I would get the year-end rally I have been expecting since Dec. 15. This week’s rebound changed that.
My reasoning was that there was a lot of selling and buying that couldn’t be executed until the Fed decision on rates was official. The selling came first, now the buying.
I have been warning of a top in the first week of January followed by a sharp sell off. I still see that, though it may come before January.
I have also alerted readers to the potential for a selling climax in oil stocks, but noted long-term investors may step in to take advantage of depressed prices and begin buying. That may have happened yesterday as the group rebounded. I agree with the long-term attractiveness of this group, but still see the potential for lower prices (See below).
We had a host of reports on the economy yesterday, but mostly ho-hummers.
Existing Home Sales dropped 10.5% in Nov., but that was attributed to the “Know Before You Owe” initiative which lengthened closing times.
Beware – new purchases as the market moves up have above average risk.
Current buying is coming from institutional re-investment of the proceeds of sales, as well as from investment of new monies that come in at year-end.
I do not see this lasting for long.
I don’t like new year forecasts, except to warn of the potential for sharp swings in both directions, starting with a plunge in January. Obviously, the magnitude of the January plunge would be lessened if the market tanks in coming weeks.
SUPPORT “today”: DJIA:17,346; S&P 500:2,029; Nasdaq Comp.:4,984
A break below these levels would be bearish.
RESISTANCE “today”:DJIA:17,546; S&P 500:2,052; Nasdaq Comp.:5.038
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.
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 11, 2015, a reasonable risk is 17,023 a more extreme risk is 16,643. Near-term upside potential is 17,611.
 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: Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Fed bump in interest rates now official.
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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