Pattern Improved – Uncertainty Lingers

Investor’s first read – Daily edge before the open
S&P 500: 2,171
Nasdaq Comp.:5,318
Russell 2000: 1,255
Thursday, September 29, 2016 8:28 a.m.
-The uncertainty created by a dead heat in the race for the presidency.
-Q3 earnings reports in October, which are expected to mark the sixth straight quarterly decline for the S&P 500.
-a downward revision of 2017’s S&P 500 earnings, currently expected to increase 13.1%. 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 to the overall earnings for the 500, generating a 13.1% gain in 2017. We’ll see.
-if the Street suddenly realizes Fed doesn’t have an exit strategy, never did.
-a recession in Europe. Numbers starting to stink. Markit flash Eurozone PMI at 20-mo. Low Sept; Germany PMI service sector slowest 16 mo..
Reportedly, three-quarters of UK CEOs surveyed by KPMG are considering relocating HQs due to Brexit. The British pound has been getting pounded.
The Fed will be out in force this week. No fewer than ten Fed officials will speak at different times from different parts of the world.
Neel Kashkari and Robert Kaplan spoke yesterday. Wednesday brought Kashkari again, James Bullard, Charles Evans, Loretta Mester, Esther George; Today: Patrick Harker (5:00 a.m.), Dennis Lockhart (8:50 a.m.), Jerome Powell (10:00 a.m.), Janet Yellen (5:10 p.m.).
I am unsure what the full court press is all about, except it is a big week for reports on the economy, and of course, the aftermath of the debate. They may be laying the groundwork for a November rate increase.
Over the last ten days, the market has traced out a very bullish pattern with a double bottom for the DJIA and S&P 500, and a continuing uptrend for the Nasdaq Comp..
The market plunged ahead of the debates as uncertainty mounted. Until Tuesday, the risk of another leg down was real. But the post-debate rally turned a negative picture positive. As long as DJIA 18,050 and 2,160 on the S&P 500 aren’t broken the pattern is positive with the potential for more upside.
Is the uncertainty about the outcome of the November election lifting ?
Is the Street more comfortable with Clinton than an unknown like Trump ?
If it is, don’t get too sanguine, the perceived outcome of this election will change direction several times before November 6.
Whether we are now comfortably bouncing around in a safe range-bound trading pattern, or poised for a breakout up or down, is still a jump ball. (see What could hurt the market – above).
Expect a soft open. Watch for buyers. If they jump in quickly, the bears are on the ropes.

SUPPORT “today”: DJIA:18,249;S&P 500:2,161; Nasdaq Comp.:5,301
RESISTANCE “today”: DJIA:18,427; S&P 500:2,183; NASDAQ COMP.:5,336
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 September 16, 2016, a reasonable risk is 18,011 a more extreme risk is 17,908 Near-term upside potential is 18,435.
(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 13.4%. It has been there for months in spite of deteriorating earnings this year. Any downward revision could impact the market significantly.
Note: Source of weekly economic calendar and good recap of indicators:
* (Excellent pre-market read)
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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.