Fed Chief Yellen Speaks Today (11:30)

Investor’s first read – Daily edge before the open
DJIA:17,535
S&P 500:2,037
Nasdaq Comp.:4,766
Russell 2000: 1,080
Tuesday: March 29, 2016 8:54 a.m.
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I AM ALWAYS UNEASY WHEN THE FED IS OUT ON THE CIRCUIT SPEAKING ABOUT POLICY. IN MY OPINION, IT IS CONSTANTLY TRYING TO MANAGE THE DIRECTION OF STOCK PRICES, SOMETHING I DON’T BELIEVE IT SHOULD DO.
WHAT’S MORE, IT HAS DEMONSTRATED IT HAS NO COHERENT OR CONSISTENT POLICY AND THAT’S DANGEROUS.
If their micromanaging of the stock market is wrong, an adjustment to reality can be sudden and destructive to stock values. It’s best to let the normal flow of sentiments based on fundamental, economic and technical factors determine stock prices, not inconsistent policy statements by the Fed.
Fed Chief Janet Yellen speaks at 11:30 this morning, following a speech by John Williams (5:15 a.m.) and ahead of a speech by Rob Kaplan (1:00 p.m.. Tomorrow Charles Evans speaks at 1:00 p.m. and again at 9:30 Thursday. Friday Loretta Mester speaks (1:00 p.m.).
ECONOMY
The most important economic reports will be the ADP Employment report Wednesday 8:15 and Employment Situation report Friday 8:30 a.m..
U.S. Manufacturing has been the real laggard in this expansion, so the Street will be watching the Dallas Fed Manufacturing report Monday 10:30; the Chicago PMI Thursday 9:45; and PMI and ISM Manufacturing reports at 9:45 and 10:00 respectively Friday.
EARNINGS (Nothing new – re-read anyhow – important)
In two weeks Q1 earnings will begin 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.
S&P Capital IQ is projecting S&P 500’s earnings in Q1 to drop 7.0% and Q2 to drop 2.1%.* Earnings are projected to rise only 1.5%, down from a projection of plus 7.4% as recently as January.
Hopefully, a weak dollar will enable companies to post better numbers than currently projected, but that will take time. They will have to in order to justify the current level of stocks.
ELECTION YEAR PATTERN BEARISH AFTER MARCH
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.
TODAY
As noted above, this is a big week for reports on the economy and there will be speeches by five Fed officials.
A sudden pick up in manufacturing and housing can buoy spirits and the prospect for better earnings that projected. Then too, investor sentiments may have become a little too negative as evidenced by reports that investors have been dumping mutual funds and ETFs at a rapid clip over the past year to the tune of a net $135 billion.
Excess sentiment in one direction can set the stage for a reversal, enough so to generate a sizable move in the opposite direction.
We should see an increase in volatility with a choppy market over the next three to four weeks. Historically, the market has spiked up in early April before correcting.
Some of April’s buying has been institutions that want to show a smaller cash position than earlier in the year now that the stock market has rebounded from the worst January on record.
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The following levels depend mostly on what Yellen says (or doesn’t say) today.
SUPPORT ‘today”: DJIA:17,465; S&P 500:2,029; Nasdaq Comp.:4,749.
RESISTANCE “today”: DJIA:17,637; S&P 500:2,048; Nasdaq Comp.:4,791.
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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 March 11, 2016, a reasonable risk is 17,073 a more extreme risk is 16,970. Near-term upside potential is 17,586
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 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.
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Note: Source of economic data
*Briefing.com
**Stock Trader’s Almanac
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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