Entering Critical Weeks

Investor’s first read – Daily edge before the open
S&P 500:2,047
Nasdaq Comp.:4,850
Russell 2000: 1,097
Monday: April 11, 2016 8:53 a.m.
April 17 meeting in Doha will confirm a production freeze. The Saudis insist Iran agree, but Kuwait says that isn’t necessary. Adding to the jump in oil prices is an unexpected drop in U.S. crude inventories.
While oil still has clout, Q1 earnings will take center stage in coming weeks. The reports are not expected to be bedtime reading, but there is always a chance they won’t be as bad as expected in which the market will go up sharply.
Q1 earnings have begun to flow and are projected to be down, as are Q2 earnings. It doesn’t get more fundamental than earnings, yet other issues have dominated the attention of the Street so far this year.
April could be the “decider” on whether 2016 is a bear market year, or just a volatile one with big swings up and down as we near the November election.
FactSet Research’s April 1 forecast revised Q1 earnings down to minus 8.5% (-3.7% ex energy) from a plus 0.8% projected in December. Of 121 company’s Q1 guidance, 94 have issued lower estimates. Currently, estimates for 2016 as a whole vary by source, but the trend appears to be downward revision.
Well, here we go – another quarterly earnings report. Not much has been said about this one, which is expected to be a downer by 3.7% (ex oil). Expect the Street to punish any company that surprises on the downside, or just doesn’t “beat” by enough on the upside.
An ugly Q1 may already be priced into a market. If earnings surprise on the upside, look for a strong rally.
The Street has hung its hat on Q3 and Q4 earnings which have until now been expected to rebound nicely. If the projections and corporate guidance are revised down, the market will take a big hit from these lofty levels.
The Fed can only prop the market up for so long. If the economy and earnings don’t firm up soon, the market is going south.
Therein lies a risk that has been overlooked. The Fed has artificially propped up the market, hoping to be bailed out by global recovery.
While I am hoping for the same, hope doesn’t cut it in this business where score is kept every day. The Fed has created a phony market keyed on one thing – ultra low interest rates – little else.
It is that kind of delusion by the Street that led to the August 2015 and January 2016 freefalls. The next one could be worse heading into a highly divisive election.
Unlike orderly corrections that rid the market of jittery sellers and establish a comfort level, freefalls give investors little chance to lighten up before a portfolio is savaged.
While the market bounced back from the August 2105 and January 2016 crunch, it may not be so quick to rebound the next time down. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
SUPPORT “today”: DJIA:17,436 ; S&P 500:2,029; Nasdaq Comp.:4,811.
RESISTANCE “today”: DJIA:17,661; S&P 500:2,058; Nasdaq Comp.:4,875.
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 March 31, 2016, a reasonable risk is 17,664 a more extreme risk is 16,560. Near-term upside potential is 18,102
(I will repeat this regularly to keep readers aware of the potential for an April correction)
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.
This supports my December forecast of an ugly January, a rough year as a whole, but with several buying opportunities.

The hedge funds are shorting oil for the first time in two months, according to Bloomberg.com. Seems there is doubt the price freeze agreed to by Saudi Arabia, Russia, Venezuela and Qatar is in ineffective if Iran does not go along. A meeting held in Doha, Qatar on April 17 will shed more light on the future of a global surplus.
The stock market has been getting its marching orders from both the direction of the price of oil and the U.S. dollar.

 STATUS OF MARKET: Neutral – but vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 25% – 45%. Consider 75% now
 KEY FACTORS: Outlook for Q1, and 2016 earnings questionable.
Note: Source of weekly economic calendar and good recap of indicators: 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.

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.