One-Day Reversal – But Short-Lived

Investor’s first readDaily edge before the open

DJIA:  17,245
S&P 500: 2,023
Nasdaq  Comp:4,927
Russell 2000: 1,146

Monday:  Nov. 16, 2015   9:03 a.m.

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     Last week’s sharp plunge in the market raises odds that one or more Fed officials will attempt to stabilize it this week.  Three of the five Fed officials scheduled to speak this week are known to favor an increase in rates: William Dudley (Wednesday 7:30 a.m.), Dennis Lockhart (Thursday 12:30 p.m.) and James Bullard (Friday (9:00 a.m.).

     Any softening in their position could be taken as bullish, tempering the current perception that a rate in the federal funds will be announced December 16.

     Over the last eight days, the market has given back all of the surge that followed an October 14th Wall Street Journal article implying a rate increase won’t occur until sometime in 2016.

     For years, the  Street has been overly obsessed with a decision by the Fed to raise interest rates after it initiated its zero-based interest rate policy in 2008 to head off a global meltdown in all financial markets.

     That was fine except the Fed had no exit strategy leading to a market that is solely focused on the Fed, little else.

     This is potentially very dangerous, since the Street is paying little attention to other yardstick for valuing the Market.

      What are stocks worth if the only consideration is the timing of a Fed decision on a tiny increase in its benchmark rate ?

      This has become a phony market

      There is the risk here of a sudden 15% – 25% plunge if the Streets’ computers panic.

       I have never been a doomster, but have experienced every bear market since 1962. I know what can happen if leverage combines with confusion.

      The October surge ran into resistance in early November – that was expected. The fall off over the last eight days of this magnitude is abnormal.

      A host of economic indicators are scheduled this week (see mam.econoday.com), but comments by the Fed officials will be key.

TODAY:

      Bulls should find lower prices here attractive, but they will have to do some heavy buying to stop this slide in prices. We have seen plunges like this many times before only to see a reversal to the upside just when  it looked like a huge sell off was imminent.

      There is a good enough chance that won’t happen this time.

     

      

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SUPPORT “today”: DJIA:17,066; S&P 500:2,003; Nasdaq Comp.:4,865

RESISTANCE “today”: DJIA:17,362; S&P 500:2,033;Nasdaq Comp.:4,961

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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  November 13, 2015,  a reasonable risk is 17,117 a more extreme risk is 16,856. Near-term upside potential is 17,630
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  • STATUS OF MARKET: Bullish but “at risk” of  a correction, especially Fed-based
  • OPPORTUNITY: RISK: Risk increases with higher market, but light on the Street is GREEN in spite of negatives.
  • CASH RESERVE: 25% – 45% depends on tolerance for risk.
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
  • CONCLUSION: Suddenly, odds of a December bump up in interest rates has increased dramatically. Over the years, the market has sold off when it appeared that an increase was imminent.  It did not do so after the announcement Friday, but did on Monday as the Street began projecting the timing of subsequent rate increases in 2016 – 2017.
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Note: Source of economic data

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

*Stock Trader’s Almanac

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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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