Market Seeking Comfort Level

Investor’s first read Daily edge before the open

DJIA: 18,041
S&P 500: 2,104
Nasdaq  Comp.5,062:
Russell 2000: 1,238

Wednesday, May 27, 2015   9:11 a.m.

SUMMARY:

     Two weeks ago, I  headlined  that the month of May will be a crossroads where the market will move decidedly up or down, breaking out of the  three month trading range, roughly (DJIA 17,600 – 18,200; S&P 500: 2,040 – 2,120; Nasdaq
Comp.: 4,850 – 5,100).    

     Yesterday a host of economic reports were released – the results were mixed with no indication of a serious slump in the economy, but no indication we will see a robust rebound soon.

     Reports included: Durable Goods (minus 0.5% Apr.), house prices at 9:00, PMI Services flash at 9:45, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing and State Street Investor Confidence at 10:00, and the Dallas Fed Manufacturing Index at 10:30.  (see: mam.econoday.com for details).

     Yesterday’s break was technical after the market’s failure to follow through last week to new highs.

      We are six months into the year. Anyone expecting a bump up in interest rates in late Q3 may be on target. My guess is Q4.

       SILLY !

       I have been in this for 53 years (writing 47and have never seen the Street act so irrationally. It welcomes bad news because that assures it the Fed won’t raise interest rates a smidge, which is what it will amount to when they do it.

      Does the Street really want “bad” ? Wasn’t 2008-2009 miserable enough ?

       Let’s have both – a strong economy and a bump in interest rates.  If the economy cannot handle a small bump, look for an outright crash across the board, because the Street has been living a lie for 6 years.

      Listen, this is a tough business to be right with assessments and forecasts.

      Why ?

      Because there are always several balls up in the air, any one of which can come down unexpectedly to change the picture.

      But why make  conclusions more difficult to  arrive at with a “bad news is good news” mentality ?

      A bump in interest rates is most devastating when the Fed hikes them to cool off an overheated economy.

      I suspect the market will take a brief but nasty hit when the Fed announces its first hit off its zero-based policy, but I believe that hit may not even last a couple hours before the market will rebound. The rebound will be more dramatic if the market is down significantly before the announcement, i.e. a selling climax.

     The Street feared the Fed’s taper (remember ?), but the market rebounded sharply after a brief hit January 2014.

WHAT’s MY POINT ?

     It’s hard to guess what the Street thinks, because I am not sure its sentiments are in sync enough to sustain a meaningful up move or down move “at this point.”

A cash reserve is smart in time of uncertainty with the market close to all-time highs.

     More upside is possible, but with increasing risk.  Diversity and selectivity is key.

     TODAY:

     Expect the market to probe for a bounce point this week which could come from the DJIA 17,900  (S&P 500: 2088; Nasdaq Comp.: 4,982) area. 

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ALERTALERTALERT

     The six months period between Nov. 1 and May 1 has historically been the best six months for the stock market.* The six months between May 1 and Nov. 1 has underperformed. Consistent as this seasonal pattern has been, it must be noted that opportunities to trade against these trends have occurred often.  Analysts and the press will make a lot of noise about this phenom in coming months –  be careful.
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My Technical Analysis of the 30 DJIA Companies:  

On occasion, I technically analyze each of the 30 DJIA stocks  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.
     As of  May 22, a reasonable risk is 18,120; a more extreme risk is 17,990 The upside potential is has dropped with the market’s inability to follow through last week and is now 18,511. Yesterday’s drop reduces this number to “unlikely.”

   

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KEY EXTERNAL FACTORS: 

-Stock market bubble – China
-Q1 earnings for some companies will suffer from U.S. dollar’s strength and plunge in oil prices.
-Market still keyed on the Fed and it’s first bump up in interest rates, which with a slight softening in recent economic reports looks like it may happen later rather than sooner.
Concern that the U.S. economy is beginning to slump. This week is mixed.

Note: Source of economic data

For a weekly economic calendar and good recap of  indicators, go to mam.econoday.com.

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*Stock Trader’s Almanac

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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