It’s Still October

Investor’s first read – Daily edge before the open
S&P 500: 2,126
Nasdaq Comp.5,190:
Russell 2000:1,187
Monday, October 31, 2016 9:07 a.m.
The following are VALID CONCERNS that have impacted the stock market in the past. They have had limited impact in recent years, since the Street’s computers are mostly focused on Fed policy. At some point “other factors” will have a greater impact, so don’t disregard them. This will probably occur after a Fed bump in interest rates in December.
-The uncertainty of who will be elected president has pretty much vanished, and the Street’s concern may now turn to whether the Republicans will lose control of the Senate or even the U.S. House. That was not considered possible six weeks ago.
-NEW ! Factset has revised Q3 earnings reports to plus 1.6% from a negative 2%. If this holds, it ends the streak of negative quarterly earnings at 5.
-a downward revision of 2017’s S&P 500 earnings, currently expected by Factset to increase 12.8%. Oil industry earnings have been crushed over the last two years, punishing the S&P 500 earnings as a group. But, based on $55 WTI oil price projections, the oil industry stands to give back what it took away from the overall earnings for the 500. We’ll see.
– Reportedly, three-quarters of UK CEOs surveyed by KPMG are considering relocating HQs due to Brexit. After a four day rout, the British pound rebounded after PM Theresa May agreed to give Parliament a vote on her Brexit plan.
-October madness ! It defies quantification or reason, but it happens !
Just look at new uncertainty for the election with the FBI announcing it has new “staff” emails to study, though there is no way of knowing how relevant they are to candidate Clinton.
S&P 500 earnings for Q3 are now expected to increase 1.6%, not decline 2%. This shortfall has been expected, and shouldn’t have much impact. The U.S. dollar has been firming since May, which stands to hurt multinational earnings. While the Street has ignored earnings and their overvaluation by the benchmark S&P 500 for years, opting for full focus on the Fed’s policy on interest rates, that can change if the prospect for a sharp earnings rebound in 2017 vanishes.
.There is a historically high level of cash on the sidelines. A Bloomberg Markets survey indicates fund manager cash reserves are 5.8% well above 4.5% the level that is considered “extreme.”
Boding well for Friday’s GDP report is a sharp narrowing of the nation’s trade gap with jumps in exports in capital, consumer goods, and industrial supplies.
The PMI Services October flash report shows a sharp increase, the strongest this year. New orders are at an 11-month high, inflationary prices picking up.
September new home sales rose 3.1 percent, though August and July were revised downward. Sales are up 30 percent year/year. Prices gained 6.7 percent in the month to a median of $313,500. Inventory remains limited, which inhibits sales, but helps prices.
The “Best Six Months for Owning Stocks (November 1 to May 1)* is just around the corner, and time is running out for an ugly “October surprise”.
This will be a BIG week for announcements on the economy and by the Fed, which has its FOMC release at 2:00pm.m Wednesday of the minutes from its September 20 meeting , but no press conference. That suggests no bump in interest rates.
The most important economic news comes first on Wednesday (8:15 a.m.) with the ADP Employment report, then on Friday (8:30 a.m.) with the Employment Situation report. For a schedule of other reports, go to, there are too many to list here.
Yes, it’s still October. Can anything else happen ?
As of this moment, the market isn’t concerned about the Clinton emails. Amazing !
Uncertainty usually jolts the market, or simply puts a lid on prices.
It is generally assumed a Trump victory would adversely impact the market, since little is known what to expect. The market is telling us he is still unlikely to benefit enough from the uncertainty of Friday’s news to win.
Much can happen between now and November 8, and it doesn’t have to be October for that to happen.
I expect the market’s activity today to be contained between my support and resistance levels noted below.
SUPPORT “today: DJIA:17,951:S&P 500:2,115; Nasdaq Comp.5,157
RESISTANCE “today”:DJIA:18,267;S&P 500:2,140; Nasdaq Comp.:5,228
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 October 21, 2016, a reasonable risk is 18,026 a more extreme risk is 17,986 Near-term upside potential is 18,481.
(So far this is not holding up)
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.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q3, and 2016 earnings questionable with strong U.S. dollar. Forecasts for 2017 still for a gain in S&P 500 earnings of 12.9%.
Note: Source of weekly economic calendar and good recap of indicators:
*Stock Trader’s Almanac
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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