Rallies Risky ! Don’t Chase

Investor’s first readDaily edge before the open

DJIA: 16,990
S&P 500: 2,035
Nasdaq  Comp.4,877
Russell 2000: 1,172

Friday:  Aug. 21, 2015   9:09 a.m.

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CONCLUSION: 

       No one has a clue when the Fed will bump interest rates, including the Fed, which is beginning to create a serious credibility problem. For months, years, all the Street needed as a prompt to buy was for indications that the Fed was not ready to raise interest rates.

       Not so this time around.  The minutes for the July FOMC meeting released Wednesday assured the Street  a rate increase was not imminent.

       The response was different this time –  selling.

       What a silly drumbeat to march to every month. Really, the Street has cheered soft economic data all this time since it has meant a delay in a rate increase.

        Other factors took a back seat to Fed “watch.”

        Suddenly, the Street must focus more on  the U.S. economy and a host of global issues.

        Then too, there is the “technical” factor – the fact the market averages have broken down from a 7-month trading range and are now probing for a level that discounts new negatives and uncertainties.      

       TODAY: I continue to believe this decline will find its bottom in September/October, but am prepared to change that  to August if prices totally collapse this month. The DJIA and S&P 500 have broken down from wide, wide trading ranges in effect for 6 months. 

        The extent of this plunge depends on what new negatives hit the market as it is trying to turn back up.

         Expect a lower open followed by an attempt to rebound from DJIA 6,943; S&P 500: 2,029; Nasdaq Comp.: 4,863.  That rebound should run into resistance  at 17,067; S&P 500: 2,047; 4,903.

         Traders will have to be nimble today to clip a profit. Selected oil stocks should offer a trading opportunity, though short-lived. 

         A lot of stocks have been crushed in recent weeks, and partial positions warranted.

         There are sellers waiting for a rebound, so a sustained move up at this time is pre-mature.

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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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  • STATUS OF MARKET: Bullish but vulnerable to a continued correction/consolidation into the fall
  • OPPORTUNITY: Volatility has set in, market reversed Tuesday after quick plunge and will be rebounding into resistance (again).
  • 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:  Having broken major support levels, the market is probing for a level that discounts uncertainties and negatives.
  •  

SUMMARY 

     The biggest factor here is the U.S. economy.  Will it rebound from its reported Q1 slump, which most likely  was distorted by weather, oil prices, the impact of a strong US dollar, even seasonality ?     Recession does not look like a real risk, so much as a “pause” in the economy.     

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My TECHNICAL ANALYSIS  of the 30 DJIA Companies:  (As of 8/19).

 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” (0.1498588) 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  August 19,  a reasonable risk is 16,709; a more extreme risk is 16,160. Near-term upside potential is 16983.

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KEY EXTERNAL FACTORS: 

-Devaluation of the Chinese yuan

-U.S. economy – rebound Q3 and Q4 ?

-Fed increase in interest rates

-Potential armed conflict korea

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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