Q3 Earnings Slump Already Discounted ?

Investor’s first readDaily edge before the open

DJIA:  17,050
S&P 500: 2,013
Nasdaq  Comp.4,810:
Russell 2000: 1,163

Friday:  Oct. 9, 2015   8:48 a.m.

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TODAY:

      What a difference a week makes. Suddenly the “bunker” mentality with the Street cowering in face of pundit screams of “CRASH” has transformed into an “Uh oh, the train may be leaving the station without me.”

      Buying because you are afraid you will miss a move is a major contributor to poorly timed investments. Don’t chase a stock that has jumped sharply. Pick your spots carefully.

      The S&P 500 is down 5.8% from its Q3 high, which should discount most of the expected disappointment in Q3 earnings reported in coming weeks.
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SUPPORT today:  DJIA: 16,997; S&P 500:2,007; Nasdaq Comp.:4,795

RESISTANCE today: DJIA: 17,187 ; S&P 500:2,029;  Nasdaq Comp.:4,851

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SOME THOUGHTS !

      The Street is telling us that the only consideration with merit is what the Fed does on interest rates and when it does it.

      What is happening in the Mid-East, Asian and European economies, our economy here, and to Q3/Q4 earnings is irrelevant.

       While that may confound a rational human being’s logic, it’s all about what has been crammed into the Street’s computer algorithms.

        I have been in this long enough to question ironclad formulas. The best computer is the human brain and this business has too many variables for a computer to adjust to, or a computer programmer to anticipate.

        For some time now, I have believed the first bump up in rates by the Fed would be followed by a sharp plunge in prices, which would quickly be followed by a relief rally when  it becomes obvious the increase in rates was in response to a pick up in the economy, as well as the realization that a tiny bump in rates won’t cut that recovery short.

       I am not sure the computers will see it that way. If they blindly see “no action” by the Fed as bullish, they may see “action” as bearish regardless of other factors.

      All this forces investors and pros to play the Street’s game.

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NOTE:  There is no FOMC meeting scheduled for November, and no press conference scheduled for October. If a press conference is suddenly scheduled for October, it will be a tip off to an announcement of a rate increase, likewise  for a meeting/press conference is scheduled for November.     >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>    

WHAT THE FEDS SHOULD DO:

      What the Fed should do is what all of us investors, analysts, etc who have been in this for a while have learned to do  and that is to come out and admit they erred by inaction in the past and now with  implying a rate increase was likely by year-end. “We were wrong” –  Say it !  The numbers don’t justify it now.  Then  add, “When the numbers and international risks justify it we will raise rates, not before.”

      The Street is as much to blame as the Fed. It’s all about the Fed – Will it ? Won’t it ?  The Street  should get back to basics – the bigger picture – earnings one year out, not this asinine quarter-to quarter stuff; the big economic picture here and abroad, U.S. Governance, Corporate responsibility.

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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  October 2, 2015,  a reasonable risk is 16,260 a more extreme risk is 16,155. Near-term upside potential is 17,164. 
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  • STATUS OF MARKET: Bullish but “at risk” of  a bear market.
  • OPPORTUNITY: Volatility has set in, market has rebounded from August’s “flash crash”  but will likely drop to a lower level.
  • RISK: Above average with news sensitive market.
  • CASH RESERVE: 25%
  • KEY FACTORS:  Fed decision on rates; strength of economic rebound; Outlook for Q3/Q4 earnings; technical underpinnings weakening
  • CONCLUSION:  Encouraged by the prospect the Fed won’t raise interest rates this year due to softness in the economy, the stock market has rebounded from a support level established after the August 24 “flash crash.

Note: Source of economic data

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

*Stock Trader’s Almanac ( New edition should be out – get it !)

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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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