Only BIG Money Can Prevent Test Aug. Lows

Investor’s first read – Daily edge before the open
DJIA: 17,158
S&P 500: 2,016
Nasdaq Comp:4,891
Russell 2000: 1,110
Wednesday: Jan. 6, 2016 9:06 a.m.
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News of a 7% plunge in China’s stock market overnight Sunday triggered an ugly plunge in U.S. stocks Monday. A late day rally Monday spilled over into early trading Tuesday but failed to hold – a very bad sign.
Institutions tend to tip their hand in January buying if bullish, selling if bearish.
They had an opportunity to buy at a discount Tuesday after Monday’s rout, BUT DIDN’T !
The market must now find a level that attracts enough buyers to counter increased selling that will be triggered by this scary start to 2016.
TODAY:
Once again, selling in the stock-index futures before the market opens indicate a severe drop in the market when trading begins at 9:30 testing Monday’s lows of DJIA 16,957; 1,989; 4,846.
A test of the August/September lows (DJIA 15,370; S&P 500: 1,870; Nasdaq Comp.:4,292) is now possible.
This plunge gives institutions one last chance to buy aggressively. Failure strongly increases the likelihood of a two-leg decline, the first leg rebounding a bit above the August lows and the second leg down breaking below DJIA 15,000 (S&P 500: 1,750).
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SUPPORT “today”: DJIA:16,801; S&P 500:1,976; Nasdaq Comp:4,816.
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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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ECONOMY:
This will be a big week for economic reports, but how much the Street cares now that the Fed has made its decision on interest rates is in doubt. Today, it’s the PMI Manufacturing report (9:45 a.m.); ISM manufacturing report and Construction Spend (10:00). Wednesday we get the ADP Employment report, PMI Services, Factory Orders and the ISM Non-Manufacturing report, Jobless Claims Thursday and the Employment Situation report Friday at 8:30. (SEE: mam.econoday.com for details).
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OIL : Watch for huge Selling Climax (SOON !)
I have been writing that 2016 is the year to buy oils. Developments in the Mid-East like the rift between Saudi Arabia, Bahrain, Sudan and the UAE and Iran may stabilize oil prices heading off a climactic washout of oil company stock prices.
The Saudi’s are playing a dangerous game. Too many big hitters getting hurt. Pressure from within out the outside will force them to trigger a price rebound, just like they triggered a plunge.
Whether oil stocks will get hit further depends on Mid-East conflict and whether institutions with a long-term horizon believe they are a bargain and step in.
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ELECTION YEAR MARKETS
Pre-presidential election years have a record of being the best of the four-year election cycle with presidential election years running a close second. But the eighth year of a two-term presidency is the exception with the S&P 500 losing an average of 10.9% going back to 1901.*
This supports my expectation of a correction in January setting the precedent of a volatile year for stocks in 2016.
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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 January 4, 2016, a reasonable risk is 17,000 a more extreme risk is 16,776. Near-term upside potential is 17,346.
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 STATUS OF MARKET: Bullish but “at risk” of a major correction in January.
 OPPORTUNITY: RISK: January plunge possible.
 CASH RESERVE: 25% – 45% depends on tolerance for risk.
 KEY FACTORS: Concern for the number and extent of additional bumps in interest rates by the Fed; strength of economic rebound; Outlook for Q3/Q4 earnings; Stimulus Europe/China a catalyst !!
 CONCLUSION: Fed bump in interest rates now official. While Fed has assured the Street additional bumps will be modest, doubts by some will have an impact.
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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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