Investors Starting to Panic

Investor’s first read – Daily edge before the open
S&P 500: 1,895
Nasdaq Comp.:4,435
Russell 2000: 995
Wednesday: February 17, 2016 9:07 a.m.
Try to put yourself in the position of a money manager with a pile of cash to invest. The market is down a hefty 9% in six weeks. The 2009 – 2015 bull surge has given back 16% of its gain.
The economy has some weak spots, but not signaling recession. European markets and the price of oil are stable for now. The Mid-East is what it has been for years, the Fed is ready to pass on another interest rate increase if the economy weakens further.
Why not go all-in ?
Yes, why not ?
Apparently the Street is as wary as I. If the light was bright green, the managers of money would be stampeding to pick up quality stocks that are selling at a big discount.
Granted the shock and awe of January’s plunge has rattled a lot of cages. Without a huge spark to ignite enough of a surge to chew through overhead supply that a sharp plunge creates, the bulls are going to have a tough time moving the chains.
Failure here means another leg down, soon
There is a chance the market can break out above the Feb. highs (DJIA: 16,510; S&P 500:1,947; Nasdaq Comp.: 4,636).
At that point, the bulls would be tempted to go all-in, thinking there will be no bear market, that the ugly correction is history.
If the bulls can run the table, their prayers are answered.
If not, and the break out would be a fake out, and they will get crushed by the bear market that follows.
Now is the time to be aware this can happen, that a breakout at that level could be a fake out, and going all-in would be risky. Objectivity, at that point, when a lot of others are jumping on board, will be difficult.
The market will open up sharply this morning, as investors scramble to pick up stocks before they run too far (!!!).
RESISTANCE “today”: DJIA:16,371; S&P 500:1,917 ; Nasdaq Comp.:4,487
Unless triggered by some horrific event, a bear market isn’t obvious at first. It begins with slippage as if it is just another correction in an up trending bull market. But rallies fail to attract enough buyers to reach new highs. Some begin to sell, others remain on the sidelines. Interest fades and bids weaken in face of one disappointment after another – new negatives surface – stocks start to slide – the Street’s optimism wanes, then sours. Fear mounts, then accelerates, as investors start to raise cash. No longer is it heresy to mention the word “bear.” Doomsters re-surface with talk of DOW 6,000. Fear turns to panic. No one, not anyone, wants to buy a stock. Selling intensifies. “If only I sold at a higher level,” investors lament, “I could be buying here.” The selling drives prices lower until one day when no matter how much selling there is, the market doesn’t go lower (capitulation).
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 12, 2016, a reasonable risk is 15,854 a more extreme risk is 15,738. Near-term upside potential is 16,388. The abrupt change here is due to last week’s sharp rebound.
 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
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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