Important Day for the Bulls

Investor’s first read – Daily edge before the open
DJIA: 17,720
S&P 500: 2,078
Nasdaq Comp:5,107
Russell 2000: 1,160
Wednesday: Dec. 30, 2015 9:04 a.m.
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Yes, the year end rally lives, and the market did post big numbers yesterday.
I expected that based on the one-day reversal Monday and strong pre-market buying Tuesday, one of the more readable combinations.
For weeks, I have expected a year end rally to carry into January when the market would get hit by sellers, during the first week of trading.
This buying is part of year end portfolio adjustments, which usually yields to the buyers as Dec. 31 nears.
The bigger question will be, what will the BIG money do in 2016 ?
I think it will be a rough year. I have expected the selling to start early in the month, which is when it should start if the year is a downer.
But, before pulling the trigger, I will wait for the early returns in January when institutions tip their hand on how they see the year as a whole. This phenom is referred to as the January Barometer. I don’t like clichés, but generally speaking, as January goes so goes the year. Statistically, the January to December 31, track record is very good for good and bad years following a January signal. Just be aware that a lot can happen (and does) during the year.
A new year is a new ball game for the institutions. New monies flow in and they have buy lists earmarked for the new year, positions they did not want to broadcast in year end reports.
The first week in January gives an early warning for the month’s trend.
Corporate earnings are projected to increase 6% -8% in 2016, which gives the bulls something to be optimistic about in a year fraught with uncertainty politically and economically. But the Street expected the same increase for earnings in 2015.
If earnings track upward in Q1, it will definitely help the bullish case. If they fall short, look out.
This will be the BIG test for the JB, since a lot of balls are up in the air going into the year, any one of which can come down and do damage.
TODAY:
My technical analysis of each of the 30 Dow stocks indicates a near-term potential for this rally to top 18,000 (see below). That includes several days into January.
This is still year end portfolio adjustment muddle, but a rally from a down open would indicate the year end rally has further to go, that the institutional buying is the dominant factor for now.
NOTE: This is the year for a turn around in oil stocks (see below). Too many big names getting hurt. Pressure to mount on Saudi Arabia, even hostility within and without.
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SUPPORT “today”: DJIA: 17,656: S&P 500:2,068 ; Nasdaq Comp:5,087 .
RESISTANCE “today”: DJIA:17,807; S&P 500: 2,088; Nasdaq Comp.:5,131.
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NOTE: Support and resistance levels are where I expect the intraday prices of the DJIA, S&P 500 and Nasdaq Comp. to reverse or close. Buyers should be cautious when a resistance level is reached but consider buying when support levels are reached. Sellers should consider taking action when resistance levels are reached and defer selling when support levels are reached. These levels are picked daily and based on my application of technical analysis.
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OIL (Not yet)
I am not an expert on oil or commodities, not even close, but basic industries in a free fall will eventually become attractive either by way of a change (or perception thereof) in the fundamentals or extreme undervaluation as a result of emotional /panic selling.
The severe plunge in Brent and West Texas Intermediate crude oil prices over the last 18 months has crushed oil stocks and the stocks of related industries.
The potential exists for a selling climax in these stocks as negative press and industry forecasts gain momentum forcing investors to simply dump these stock, funds and ETFs indiscriminately, hammering prices down to a point they attract enough bargain hunters to stabilize prices.
There can be false rallies along the way, sucking traders in prematurely, creating losses within hours, days. These are usually triggered by rumors or commentary by industry sources, mainly OPEC..
Timing buys can be treacherous even for the pros.
Whether oil stocks will get hit this hard depends on whether institutions with a long-term horizon believe they are a bargain and step in.
There is an opportunity shaping up for those who can afford the risk.
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ELECTION YEAR MARKETS
Pre-presidential election years have a record of being the best of the four-year election cycle with presidential election years running a close second. But the eighth year of a two-term presidency is the exception with the S&P 500 losing an average of 10.9% going back to 1901.*
This supports my expectation of a correction in January setting the precedent of a volatile year for stocks in 2016.
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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 DJIA “divisor” (0.149677) 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 December 29, 2015, a reasonable risk is 117,209 a more extreme risk is 16,920. Near-term upside potential is 18,056.
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 STATUS OF MARKET: Bullish but “at risk” of a major correction in January.
 OPPORTUNITY: RISK: Risk increases with higher market, but light on the Street is GREEN in spite of negatives. January plunge possible.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: Concern for the number and extent of additional bumps in interest rates by the Fed; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Fed bump in interest rates now official. While Fed has assured the Street additional bumps will be modest, doubts by some will have an impact.
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Note: Source of economic data
For a weekly economic calendar and good recap of indicators, go to mam.econoday.com.
*Stock Trader’s Almanac
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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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