Extreme Volatility – High Risk

Investor’s first read – Daily edge before the open
DJIA:16,466
S&P 500: 1,940
Nasdaq Comp:4,613
Russell 2000: 1,035
Monday: February 1, 2016 9:03 a.m.
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Friday’s post was, “Upside Breakout Possible – Careful !”
We got the breakout, it was a dandy. Visa (V), United Health (UNH), Home Depot (HD) John/John (JNJ), Microsoft (MSFT) and Procter & Gamble (PG) surged with the DJIA Racking up a gain of 396 points.
The surge was triggered by Surprise Q4 earnings and projections, frenzied short covering, and a weak Q4 GDP report, which the Street cheered because it suggests the Fed may not be raising interest rates again any time soon.
We got the ugly January I projected in December, and I hold to the “rough year” for equities scenario, as well. I also hold to my belief the year will provide several great buying opportunities, some short-lived, but attractive for traders, and at some point for long-term investors.
With the S&P 500 down 13% in 14 days, January 20 was one buying opportunity, but I think an even better one will be on the next leg down to test the Jan. 20 lows.
Friday’s breakout will be greeted by some selling at the open today. That’s normal. The area between this level and the January lows (DJIA 15,500 and S&P 500: 1,840) will be hotly contested with volatile swings up and down.
The bulls are helped by institutions that must put money to work, and thanks to January’s rout, are looking at some very attractive price concessions.
The bears reason that while the market averages are currently down 9%, bear markets can run between 20% and 55% (2007-2009). ay do the same to my next resistance level is DJIA 16,537 (S&P 500: 1,944; Nasdaq Comp.: 4,682).
January’s crunch was a warning shot. While presidential election years tend to be good ones for the market, they aren’t in the 8th year of a two-term presidency.
Friday’s surge blew through my first resistance level and may do the same to my secondary resistance levels of DJIA 16,537; S&P:500: 1,944; Nasdaq Comp.: 4,682, but not by much before another bout of volatility, as bulls and bears trade punches.
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SUPPORT “today”: DJIA: 16307; S&P 500:1,923 ; Nasdaq Comp.:4,567
RESISTANCE ‘today”: DJIA: 16,576; S&P 500:1,951 ; Nasdaq Comp.:4,643
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EARNINGS
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.
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OIL :
On Jan. 7, I listed “panic prices of selected oil stocks,” seeking to pinpoint the level where these stocks would bottom out.
Four of the six oil stocks/ETFs plunged below these prices briefly, then rebounded.
I warned that, “If production cuts are mentioned, the bottom ‘is in.’ ”
No one officially said production cuts would be agreed to, but it was implied, ergo the oil stocks bottomed out on Jan. 20. Buyers below those panic prices should lock in a quick gain. We may be ready to test the lows.
As of Jan. 29:
Panic prices selected oil stocks and results:
ETF (OIH) projected bottom: 21 – low was 20.46 – up 18.6%;
ETF (XOP) projected bottom: 24 – low was 22.06 – up 5.3%; 24;
ETF (VDE) projected bottom: 69 – low was 68.63 – up 16.5%;
ETF (XLE) projected bottom 50 – low was 49.93 – up 7.2%.
Exxon Mobile (XOM) Chevron (CVX) did not drop to projected bottom.
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MY TECHNICAL ANALYSIS of the 30 DJIA Companies:
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 January 29, 2016, a reasonable risk is 16,261 a more extreme risk is 16,010. Near-term upside potential is 16,772
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 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% after big rally.
 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, 2016 earnings
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
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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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