Fed Change of Heart Possible ?

Investor’s first read – Daily edge before the open
S&P 500: 1,945
Nasdaq Comp.:4,570.:
Russell 2000: 1,021
Tuesday: February 23, 2016 9:12 a.m.
The DJIA and S&P 500 are up 7.5% in less than two weeks. That’s a big move based mostly on a Saudi Arabia’s initiative to freeze, not cut, production of oil. A cut will require other OPEC and non-OPEC nations to agree and that may take two to three months.
With inflation edging up and U.S. employment numbers looking upbeat, the Fed may begin to hint of another rate increase in March, kind of a warning shot just in case economic conditions justify it.
So quickly moods can change from an urge to sell out as the market was plummeting in January, to an urge to go all-in now that oil prices are surging and stock prices, as well.
That’s the human nature part of this business, but that’s why the danger of buying and selling at the wrong time comes into play.
This is a high risk market, one where the Street got snookered in January, and one which the Street would love to get a second chance to lighten up if prices rise much further.
This news-sensitive market deserves respect, because it can turn on a dime, not just due to a setback in the oil picture, but as a result of a comment by the Fed, about a downward revision in 2016 earnings, economic/fiscal problems abroad.
Today we may get clarification on a schedule for oil production cuts, when Saudi’s Oil Minister, Ali al-Naimi, addresses the HIS CERAWEEK conference in Houston.
SUPPORT “today”: DJIA:16,548; S&P 500:1,936; Nasdaq Comp.:4,545 .
RESISTANCE “today”: DJIA: 16,713; S&P:1,955 ; Nasdaq Comp.:4,596
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 22, 2016, a reasonable risk is 16,243 a more extreme risk is 16,007. Near-term upside potential is 16,720
 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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