Payroll Numbers Rebound

Investor’s first read – Daily edge before the open
DJIA: 17,895
S&P 500: 2,097
Nasdaq Comp.:4,876
Russell 2000: 1,149
Friday, July 8, 2016 9:02 a.m.
Earnings will be released in coming weeks. Along with that, the Street will have to deal with revisions of future earnings and corporate guidance. Expect those to be lower than projected.
A stronger U.S. dollar stands to adversely impact Q3 and Q4, S&P 500 earnings, which the Street was counting on to justify these prices.
Earnings projections for Q2 call for a drop of 5.3% vs. an estimate of a drop of 2.8% three months ago. While oil and related industries account for much of this decline, nine sectors have lower growth rates now than at Mar.31. This would bring the P/E for the S&P 500 to 16.4 compared to a 5-year average on 14.6 (data A Q2 decline would be the first time Y/Y earnings have declined five consecutive quarters since Q3 2008 – Q3 2009, the Great Recession.
This market has good reason to go down. For one, the broad-based S&P 500 is overpriced heading into a Q2 earnings that are projected to be even worse than expected three months ago.
The uncertainties of the presidential election have been ignored, as well as the possibility that the EU will dissolve.
But markets that are ready to go down, waste no time doing just that.
So far this market is hanging tough, obviously transfixed by a Fed policy that has done little to generate business activity since the 2008-2009 meltdown days.
The hint that interest rates will remain low for a year or longer has forced investors to buy yield stocks, even at lofty levels.
When a correction does come, it will be one like August 2015 or January 2016.
The Employment Situation report was a big surprise today with 287,000 jobs added in June. Also surprising was the downward revision of May’s jobs to 11,000 jobs added from 38,000, all of which suggests May should be higher and June lower. The Street liked the numbers. Stock-index futures jumped on the news.
This should be a good day.
SUPPORT “today”: DJIA:17,821, S&P 500:2091; Nasdaq Comp.:4,857
RESISTANCE “today” DJIA:18,087; S&P 500:2,113; Nasdaq Comp.:4,918
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 July 1, 2016, a reasonable risk is 17,798 a more extreme risk is 16,833. Near-term upside potential is 18,120.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
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 Q2, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators:
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.

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