High Risk Whipsaw

Investor’s first read – Daily edge before the open
DJIA:16,449
S&P 500: 1,939
Nasdaq Comp: 4,620
Russell 2000: 1,032
Tuesday: February 2, 2016 9:06 a.m.
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Friday’s breakout will be greeted by some selling at the open Monday but the market was able to close unchanged for the day.
That may not be the case today, as the market will open sharply on the downside..
This is the volatility characteristic of a saw-toothed market action that often follows a sharp plunge. The area between this level and the January 20 lows (DJIA 15,500 and S&P 500: 1,840) will be hotly contested in coming weeks until it breaks out up or down.
As noted yesterday, 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).
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.
How much the results out of Iowa last night are contributing to the weakness at the open is debatable. Part of this year’s weakness in the market is political. The rhetoric breeds uncertainty, and that alone will keep serious buyers on the sidelines, even prompt others to sell.
January met my expectations, and I see the rest of the year as rough, but with several juicy trading opportunities.
Patience ! Buying these kind of markets because you are afraid you will miss a move is asking for trouble.
There is an even chance this year will be a bear market year with the market dropping as much as 33%. It all depends on the news that hits the market along the way. Unexpected adversity or just disappointments would do it.
This is definitely a green stick fracture, but it wouldn’t take much more to reach a full break.
The best case scenario would be a sideways trading range, only slightly down as the market attempts to adjust to an aging bull market, new negatives and uncertainties. A stretch.
While institutions stepped in Friday in a big way, they were not aggressive buyers Monday, even at sharply discounted prices. If they are bullish, they should be all over this market.
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SUPPORT “today”: DJIA:16,266; S&P 500:1,921; Nasdaq Comp.:4,569
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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% 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, 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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