Quick Technical “Shake” Possible

Investor’s first readDaily edge before the open

DJIA: 18,285
S&P 500: 2,1255
Nasdaq  Comp. 5,057
Russell 2000:1,257

Thursday, May 21, 2015   8:52 a.m.

SUMMARY:

     The minutes from the FOMC meeting announced at 2 p.m. yesterday did nothing to impact stock prices.  Yes, the press will report a new 52-week high in the S&P 500, but only by a smidge and the index closed lower.

     Perhaps the Street is waiting for today’s economic data, primarily the Leading Indicators at 10 p.m. for direction.

     Two weeks ago, I  headlined  that the month of May will be a crossroads where the market will move decidedly up or down, breaking out of the  three month trading range, roughly (DJIA 17,600 – 18,200; S&P 500: 2,040 – 2,120; Nasdaq Comp.: 4,850 – 5,100). Bulls have a slight edge.

TODAY:

     Mixed at the open. With no rush to buy, the market needs to slip down to a level that whets appetites. That statement  becomes wrong with an upside  crossing of DJIA: 18,352 (S&P 500: 2,135.

    Otherwise look for support starting at DJIA: 18,167; S&P 500: 2,112; Nasdaq Comp: 5,038.

     There is increasing speculation that a recession is looming.  Traditionally, the market turns down several months ahead of the beginning of a recession (likewise for a bull market bottom), so the bears may need to put the horse ahead of the cart before any victory laps.

     Housing Starts for April were announced yesterday– up 20.2%, permits up 10.1%, double projections.  Starts beat projections, as well.

Fed Chief Janet Yellen speaks at 1:00 Friday.

      Consider two things:

  1. New highs would get headlines in the press and  attract emotional buying.
  2. Expect institutions to do some selling resulting in the possibility of a  rally failure to follow the new highs. Currently, the DJIA is up 5.3% and S&P and Nasdaq Comp. up 2.4% in 7 days.
  3. If the selling is massive, expect a major correction, i.e. the BIG money has been waiting to pull the plug and new highs is their chance to do it at the best price.
  4. If  massive selling  does not show up, a rally failure and sharp technical correction will be reversed in a day or two and a full scale breakout develop.

ALERTALERTALERT

     The six months period between Nov. 1 and May 1 has historically been the best six months for the stock market.* The six months between May 1 and Nov. 1 has underperformed. Consistent as this seasonal pattern has been, it must be noted that opportunities to trade against these trends have occurred often.  Analysts and the press will make a lot of noise about this phenom in coming months –  be careful.
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My Technical Analysis of the 30 DJIA Companies:  

On occasion, I technically analyze each of the 30 DJIA stocks  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” (0.1498588) to get the DJIA for those levels.
     As of  May 14, a reasonable risk is 18,760. The upside potential is19,225 up from 18,334. That would be welcome.

    Based on what we have seen in Q1 earnings, the current economic reports and timing of a Fed increase in interest rates, that’s hard to believe  – BUT the potential is there now. It needs a spark.

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KEY EXTERNAL FACTORS: 

-Stock market bubble – China
-Q1 earnings for some companies will suffer from U.S. dollar’s strength and plunge in oil prices.
-Market still keyed on the Fed and it’s first bump up in interest rates, which with a slight softening in recent economic reports looks like it may happen later rather than sooner.
Concern that the U.S. economy is beginning to slump. This week is mixed.

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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