No Room For a Rally Failure

Investor’s first read Daily edge before the open

DJIA:  16,001
S&P 500: 1,881
Nasdaq  Comp.4,543
Russell 2000:  1,092

Tuesday:  Sept. 29,  2015   9:13 a.m.

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The two most anticipated economic reports this week  will be the ADP Employment report at 8:15 a.m. Wednesday and the Employment Situation report 8:30 a.m. Friday, since they will have a bearing on a Fed decision to raise interest rates. 

      Yesterday’s crunch wiped out any chance that the 17-day consolidation phase following the Aug. 24 flash crash could serve as a base for a rebound.

       The small company Russell 2000 actually plunged below the Aug. low, which the DJIA, S&P 500 and Nasdaq Comp. have yet to do.

       Bearish sentiment  is intensifying with so many global hotspots, none the least of which is plunging commodity prices.    That suggests an “extreme” that has to change, ergo a  reversal in oil prices, ideally  after one big “flush.”

TODAY:

      A lot of damage to stocks has already been done.  FactSet.com  notes that 21.6% of the S&P 500 are already down 20% (a bear market benchmark) and 9 out of 10 S&P 500 sectors are down for the year.

      Unfortunately, Q3 earnings will start to hit the Street next month along with adjustments in future estimates/guidance. I can’t see how they will make good reading.

       The S&P 500 must drop to 1707 (-11.6%) from current levels to comprise a bear market by “technical’ standards (-20%).  A 10% drop from here in the DJIA to 14,688 would take the average down 20% from its bull market high.

        With all the negativity, the bear case is a good one. Falling stock prices have passed the “Ouch” point, but not the “I can’t stand it anymore” (capitulation) point, which would take another harrowing plunge in prices.

         The market will open trading on the upside  today with an outside chance of reaching   DJIA: 16,494 ;  S&P 500: 1,952; Nasdaq Comp.:4,738.  A rally failure today would be very bearish.

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NOTE:  There is no FOMC meeting scheduled for November, and no press conference scheduled for October. If a press conference is suddenly scheduled for October, it will be a tip off to an announcement of a rate increase, likewise  for a meeting/press conference is scheduled for November.

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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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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  September 28, 2015,  a reasonable risk is 15,586 a more extreme risk is 15,079. Near-term upside potential is 16,575.  Note: A drop below DJIA 15,713  would be very bearish.
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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. 

-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

      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 “at risk” of  a bear market.
  • OPPORTUNITY: Volatility has set in, market has rebounded from August’s “flash crash”  but will likely drop to a lower level.
  • 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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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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