Probing High Resistance Zone

Investor’s first readDaily edge before the open

DJIA:  17,663
S&P 500: 2,079
Nasdaq  Comp:5,053
Russell 2000: 1,161

Monday:  Nov. 2, 2015   8:49 a.m.

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 FOMC (Fed Open Market Committee)  voted 9 – 1 last month to stand pat on current policy.

      Economic indicators which would justify a rate increase at its December 16 meeting are mixed.  While Q3 GDP came in at an annualized rate gain of 1.5 pct., it would have been higher if inventory build hadn’t eased in face of uncertainties.

      Firming in the quarter-to-quarter Employment Cost Index (ECI) suggests some wage pressure.

      Household spending remains firm on a quarterly basis. Durables, especially vehicles, and “service” spending, has been good.

      Unfortunately, one of the economy’s strongest sectors, housing, has turned down. Pending Home Sales  dropped due to a lack of low-priced houses for sale discouraging first-time buyers, even with rents soaring. New Home Sales  are soft, as well.

      The consumer sentiment index and Bloomberg consumer comfort index are easing.

      The Chicago PMI (purchasing manufacturers index) jumped in October, the best reading since January.

      The Fed’s pet indicator, the Personal Consumption Price Index (PCE), rose 0.2 percent, smallest since April. The core index remains flat  and below the Fed’s 2 pct. trigger.

Q3 earnings are only a tiny bit better than expected, with guidance going forward tracking lower.

      This week will yield a host of important economic reports with PMI Mfg. coming at 9:45 today, ISM Mfg. and Construction Spending at 10 a.m.. Of major importance will be the ADP Employment report at 8:15 a.m. Wednesday  and the Employment Situation report at 8:30 Friday.

      It’s much too early to speculate of what the Fed will do in December, though the Street and pundits will.

BOTTOM LINE:

      Mixed !  Could go either way.  Monthly data gives a different picture than quarter-to-quarter data.  If the Fed doesn’t bump interest rates with an unpredictable reaction in the securities markets and economy, they have to do it in an presidential election year.

      So far, the Street is getting its marching orders from the Fed, with little impact from corporate earnings and risks of an economic downturn after six years of expansion, however modest.

      The markets ability to bounce back after a sell off suggests there is no risk in owning stocks.  This will lead investors (pros included) to some major losses when the market tops out. Investors will see the initial decline as an opportunity to buy more. That will be followed by another leg down, and so on.  Support levels where the market is expected to turn back up give way. By the time investors realize it’s a bear market, they are down 20% – 30% or more.

      That will happen, the only defense is to have a cash reserve in line with your tolerance for risk and be aware of the risk, no matter how exciting and invulnerable the market acts.

      We do not yet see over-the-top speculation, where easy money is made in undeserving stocks, and investors who have no reason to be making easy money are raking it in (and talking about it).

      The biggest hurdle will be how the market digests a Fed rate hike. We may see a brief, but sharp, sell off, followed by a surge in prices.

       Then too, the Street may see the hike, however small, to be just one of a series of hikes, and stampede for the exits.

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SUPPORT “today”: DJIA:17,595; S&P 500:2,071; Nasdaq Comp.:5,033

RESISTANCE “today”: DJIA:17,727; S&P 500:2,086; Nasdaq Comp.:5,071

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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 2, 2015,  a reasonable risk is 17,450 a more extreme risk is 17,364. Near-term upside potential is 17,878.
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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:  Encouraged by the prospect the Fed won’t raise interest rates this year due to softness in the economy, the stock market has exploded from a consolidation area established after the August 24 “flash crash” and has penetrated deep into a resistance area developed when the market broke down  in August.

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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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