Important Test for Bulls

Investor’s first read Daily edge before the open

DJIA:  16,643
S&P 500:  1,988
Nasdaq  Comp. 4,828
Russell 2000:   1,162

Monday:  Aug. 31, 2015   9:07 a.m.

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CONCLUSION: 

      A “flash crash” last Monday, Aug. 24 jolted the Street at the open with a  plunge in the DJIA of more than 1,000 points.

      How much of that crunch was computer driven and how much was a warning of  an even greater decline to come will play out in coming weeks.

      While the snapback from my “Trader’s Buy” before the open Monday has been impressive, it will be tested.  

      If buyers are quick to jump on lower prices, after 10:00 a.m., look for a sharp rally and a positive close for the day. Persistent selling takes the market below today’s support.

      SUPPORT today:  DJIA: 16,473; S&P 500:1,968 ; Nasdaq Comp.:4,780.

      RESISTANCE today if we get a rebound from early selling is: DJIA: 16,767; S&P 500: 2,002; Nasdaq Comp.: 4,864.

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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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” (0.1498588) 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  August 28,  a reasonable risk is 16,468; a more extreme risk is 16,208. Near-term upside potential is 16,996.
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ECONOMIC INDICATORS – Key reports this week>

     Based on global uncertainty, it is unlikely the Fed will bump interest rates at its FOMC meeting Sept. 16. Even so, the Street will monitor  the economy in the interim.

     Monday: Chicago PMI, Dallas Mfg Ix.; Tuesday: PMI Mfg.,ISM Mfg., Construction Spend., Wednesday: ADP Employment, Productivity/Costs, Factory Orders; Thursday: Int’l Trade, Jobless Claims, PMI Services; Friday: Employment Situation.

     The latter is the biggie. It is one of the reports the Fed keys on.

NOTE: To track these, go to www. mam.econoday.com
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NEWS ENVIRONMENT    

        The following news has been  a contributor to recent market weakness, though most of these issues have been with us for weeks/months. 

-a flawed trading system allowed another flash crash with the DJIA dropping more than 1,000 points at the open Aug. 24. July business investment is picking up.

-Chinese stock markets worst drop since 2007,  currently rebounding

-European stocks on verge of bear market (Germany’s DAX off 20%)

-U.S. stocks recovering from ugly crunch

-Commodities at 16-year low, but oil stabilizing.

-currency meltdown

-No one has a clue when the Fed will bump interest rates, including the Fed. The latest comment was by N.Y. Fed’s Dudley who said an increase in Sept. is “Less compelling”.

-Brent oil and WTI oil rebounding from lows

      NOTE: Some of the Street’s pundits are arguing that this market behavior is unreasonable since the U.S. economy is doing well, if not great. Bear in mind, the stock market has historically been an early warning signal for the beginning of a recession, leading by as little as two months and as much as  13 months.

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  • STATUS OF MARKET: Bullish but in a correction  into the fall.
  • OPPORTUNITY: Volatility has set in, market has rebounded from August’s “flash crash”  and is approaching an area of resistance.
  • RISK: Above average with news sensitive market.
  • CASH RESERVE: 25%
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; technical underpinnings weakening
  • CONCLUSION:  Having broken major support levels, the market is probing for a level that discounts uncertainties and negatives.
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SUMMARY 

     The biggest factor here is the U.S. economy.  Will it rebound from its reported Q1 slump, which most likely  was distorted by weather, oil prices, the impact of a strong US dollar, even seasonality ?   An updated Q2 GDP reported came in at plus-3.7% (ann. rate) up from 2.3% initially reported.   Recession does not look like a real risk, so much as a “pause” in the economy.     

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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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